A new report from cross-party think tank Demos sets out a plan for economic reform in the UK, in the wake of the recent EU Referendum result and looking ahead to the major, long-term challenges to be faced over coming decades.
Invest, Devolve, Liberate does not address the complex negotiations themselves, but rather identifies opportunities for the UK to improve productivity and the current account, public finances and investment, and rebalance the economy.
The paper argues that 2016 represents a critical turning point in the UK’s economic and political history, on a scale with 1945 and 1979. While business investment and economic growth have demonstrated resilience in the short-term after the Brexit vote, the substantial fall in the currency and rises in gilt yields give an indication of the volatility at play.
Such an insecure environment demands a new economic approach, and the report makes the case for Brexit to serve as an opportunity to address some of the looming structural challenges Britain and many other advanced economies face head-on – including our persistently high budget deficit, weak investment, regional inequality, low productivity and a bloated current account deficit.
All five of these reflect long-running weaknesses in the supply-side of the UK economy, and an under-investment in long-term structural reforms.
Demos’ research was supported by three high-level seminar consultations held in three major UK cities during September and October 2016 under the Chatham House Rule, which brought together leading economists, business figures and sector experts.
The report sets out some of the significant short-term uncertainties the Referendum result is posing for the UK’s business and economic environment, and explains that its long-term consequences remain unclear.
For example, while new freedoms over trade, competition and employment regulations may deliver economic benefits, the report argues it will be essential for the Government to ensure that our existing vulnerabilities are not further entrenched through a loss of business confidence, trade deals that impinge tariff-free trade, or restrictions on skills and labour. Similarly, while the devaluation of the British Sterling offers unexpected price competitiveness, it is also likely to encourage higher inflation, which will reduce consumers’ purchasing power.
Against this uncertain landscape, and with the opportunity to drive significant, lasting reforms, Demos calls on the Government to:
- Abolish current fiscal targets on the deficit and national debt and replace them with a discretionary medium-term target for national debt as a % of GDP, perhaps that overall debt should remain below 100% of GDP over the next 10 years
- Raise public spending on infrastructure towards the OECD target of 3.5% of GDP. This should be devoted to transport, housing, energy, and technological assets such as high-speed broadband, particularly outside the SE of England
- Ensure that new transport infrastructure is not just to speed-up travel between city-regions, but also within them
- Scrap planned cuts to corporation tax and instead cut business rates
- Accelerate the devolution of political powers over housing, transport and skills to city-regions
- Ensure the new Department for Leaving the European Union analyses the likely impact of possible trading arrangements on different sectors and regions of the UK
- Reform competition policy to ensure that benefits of technological innovation spread to the wider industry
- Co-ordinate industrial strategy with skills strategy and significantly increase investment in skills
Demos also recommends that combined authorities:
- Publish a plan that sets out a clear vision for the economic future of all parts and economic sectors of the region; and
- Work to expand and strengthen links between universities and local businesses.
Commenting on the report, Demos’ Chief Executive, Claudia Wood, said:
“The decision the UK has taken to leave the EU is a watershed moment for British economic policy, creating both opportunities and risks for the UK economy in the months and years to come. As we reset our relationship with our European partners, we must also seize this opportunity to fundamentally reset our economic policy, making the long-overdue reforms needed to meet the UK’s long-term economic challenges and bring greater prosperity to more people throughout the country.”
Alex Porter, Demos [email protected]
Ph. 07969 326 069
Notes to Editors
Demos is Britain’s leading cross-party think tank: an independent, educational charity, which produces original and innovative research. Visit: demos.co.uk
This paper was part funded by the Politics and Economics Research Trust (PERT), a charity to advance the education of the public and in particular to promote for the public benefit research into matters of public taxation, public policy, applied economics and political science.