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Things can only get better for the UK with bolder leadership

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Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development.

Bolder policies are needed to tackle the problems of productivity, investment performance and regional inequalities.

A friend recently forwarded me an email from a client who was bemoaning the state of the UK and questioning whether it still met the standards of a G7 country. In response, I joked that since the population chose to leave the European Union, the country has been in the dismal position his client described, but maybe it cannot get much worse from here. A contrarian might want to buy the pound on the grounds that the mood will improve as things become marginally less disappointing.

In fact, gallows humour aside, it would be a risky bet, because there is ample evidence to suggest that the country will be very challenged unless there are bolder policies. The reasons fall into three broad, interrelated categories, starting with Brexit.

Britain has been paralysed in many ways, both by the decision to leave the EU and by the way it was done. Mainstream politicians and the current government are too scared to admit that Brexit has significantly harmed the economy. Nor will they even discuss the possibility of mimicking membership in the EU’s single market through the alignment of regulatory and trade policies.

As a tactical matter, the current government’s reluctance is vaguely understandable, given current opinion polls and persistent pressure from avid Brexiteers like Nigel Farage. But Labour, too, has remained relatively quiet. Although Labour leader Keir Starmer was one of the most articulate advocates of remaining in the EU, the party seems not to want to relitigate the issue now that it is already ahead in the polls.

Is this wise? All those cutting-edge analysts who presciently warned that disgruntled voters would be pleased if the UK left the EU are now pointing to signs that some of the same voters regret the decision, or at least the way it was carried out. There is certainly little doubt that Brexit has indeed been bad for the economy. Standard economic indicators – real (inflation-adjusted) GDP growth, investment levels, the size of the labour force – all show that the UK has underperformed relative to its peers in recent years.


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Before the 2016 Brexit referendum, I could see why many might have wanted to leave the EU, even if it would almost certainly be an initial negative for the economy. I didn’t believe that the EU was the most important issue facing the country. I was more worried about the UK’s dreadful productivity performance and staggering regional inequalities. Though I favoured Remain, I was at least open to the idea that leaving the EU would provide the political shock necessary to tackle these problems.

But while four subsequent prime ministers have claimed that they would address the country’s investment and productivity challenges, none has done so, either because they didn’t survive in power long enough or because they were never sincerely committed in the first place.

That brings us to the UK’s second big problem: our investment performance remains dreadful relative to most of our peers, and it is hard to see how productivity will improve in the absence of a major change. The Brexit-induced shock to both trade and the labour supply has made the creation of a new investment programme even more urgent.

In 2022, Liz Truss’ short-lived government claimed it would boost productivity through old-fashioned tax cuts, but we know how that turned out. Now, her replacement, Rishi Sunak, has been concentrating on fiscal responsibility while paying little attention to the still-urgent need to boost investment spending. While his government has restored some confidence in financial markets, it has not offered any new hope for the economy. Worse, it could be two years before the next election.

In the UK and across other advanced economies, there is a clear case to be made for much bolder policies to force the private sector to boost investment spending. The case for bolder public investment spending is even stronger. As long as such a programme is well articulated, transparent, and endorsed by non-partisan organisations (such as the UK’s Office for Budget Responsibility and the National Infrastructure Commission), financial markets will respond positively.

The third big problem is regional inequality. Here, there is still hope for building a broad-based consensus around bold solutions. Notwithstanding the ongoing factional political battles, the current government seems to recognise that it must get serious about devolving more economic policymaking authority and stimulating investment in the country’s less prosperous areas. Moreover, though Labour largely ignored the problem of inter-regional inequality for many years (ever since the days when I chaired the Cities Growth Commission in 2013-14), the party has finally woken up.

“Levelling up” the UK’s underperforming regions still holds massive promise. As we showed in the David Cameron government’s Northern Powerhouse plan, the UK is well positioned to capitalise on its excellent universities, alternative energies, and other reliable sources of innovation and growth.

The UK economy desperately needs new, forward-looking leadership. The political party that takes the levelling-up challenge most seriously could enjoy a long stint in office.

Copyright: Project Syndicate, 2022.

www.project-syndicate.org

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  • Cunningham Ngcukana says:

    The UK is not an economy that is in ICU and remains the fifth largest economy of the world. It is facing challenges like any other economy with regard to the impact of the Covid pandemic and other geopolitical risks including the Russian aggression against Ukraine. It is very much part of Europe despite Brexit and participates in many European institution from the OSCE and the newly created European Council. It is one of the leading countries in response to Putin’s war on
    Ukraine both financially and military hardware.
    These economic storms facing the global economy we have no doubt that the UK has both the capacity and the leadership to weather them. Japan that has a public debt more than twice its GDP and had be having a negative growth has been weathering the storm and remains the third largest economy in the world.
    The good thing about the UK political system is that it does not have a Gwede Mantashe threatening MPs in their discharge of their public and constitutional responsibilities. They are able and capable as MPs to hold the leadership to account and to have them removed. They did that and are doing very well indeed. This question is not raised with Biden who is facing a galloping inflation.
    The UK will face the Brexit challenges and will be able to reach agreements on trade with the EU, US and the rest of the Commonwealth. Writing an obituary of a country like the UK is not correct and useful without putting issues into their perspective.

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