Economic growth and the productivity that underlies it remain squarely at the centre of the policy debate. From Labour’s mission for the UK to secure the highest sustained growth in the G7 to Sunak’s pledge to get the economy growing, it is an issue of central importance across the mainstream British political spectrum.
The options available to the government – and in fact to individuals and families – between now and 2040 are dependent in no small part on achieving sustained growth.
Right now the situation looks bleak, both in absolute and relative terms. GDP (gross domestic product) per capita is flatlining, and the UK’s performance over time compared with comparator countries is falling.
View chart on Nesta website (chart details UK GDP growth in relation to other countries)
Looking ahead, the demographic trends don’t make for easy reading for economists either. By 2040, the UK’s labour force will be around 44.8 million: 5.6% larger than it is now, according to projections from the ONS. Putting this into sharp relief, though, is the number of people of pension age, which will rise by 30% to 15.5 million.
View chart on Nesta website (chart details people in the UK in 2020 and 2040 (projected) by age)
If the UK is to achieve continued improvement in the standard of living by 2040 – whether that relates to the homes people live in, the hospitals they are treated in when they’re sick or the holidays families can afford to go on – economic growth will be key.
Before the global financial crisis (GFC), the UK was on track for a GDP per capita figure of £50,800 by 2040. But even if we were able to return to 2010-19 growth rates – which is by no means guaranteed – following Covid-19, the average person could now be £8,000 poorer each year than they would otherwise have been.
View chart on Nesta website (chart details GDP per capita)
The government is faced with a complex and highly challenging picture, and there is no shortage of debate about what matters and how to address it. In an attempt to systematically sort the signals from the noise, we’ve done three things: taken a cold, hard look at the most fundamental facts; run an exercise using the Delphi technique, with a range of expert and emerging economists to gauge the range of opinion and see where there is convergence in views (what are the no-brainers?); before gathering an expert workshop of 11 leading thinkers, chaired by Andy Haldane, former Chief Economist at the Bank of England, to chew over the big questions.
What did we learn about growth and the productivity puzzle from taking this approach?
