Next UK leader must tackle economic decline, think tank says

By William Schomberg

LONDON (Reuters) - Britain's next prime minister cannot rely on promises of tax cuts to tackle the country's economic underperformance, which has left middle- and low-income households worse off than in similar European countries, a think tank said.

The Resolution Foundation think tank said whoever won the race to lead the ruling Conservative Party should focus more on speeding up growth and reducing inequality.

"We underestimate the scale of our relative decline and are far from serious about the nature of our economy or the scale of change required to make a difference," Torsten Bell, chief executive of the Resolution Foundation, said.

The think tank, which specialises on issues facing low-income households, said the country's next leader had to go far beyond the promises of tax cuts that have dominated the early stages of the campaign.

Britain's shortfall in productivity compared with France and Germany had almost trebled since the global financial crisis began in 2008, costing 3,700 pounds ($4,400) of lost output per person, it said in a report on Wednesday.

As a result, pay had stagnated and 8 million younger workers had never experienced a period of sustained rising real wages.

While Britain's top 10% of households by income were richer than in many other European countries, middle-income households were 9% poorer than in France and the poorest fifth were more than 20% worse off than in France and Germany, it said.

Boris Johnson's successor should develop Britain's services industry, boost investment in skills, fix the differences in productivity between regions and raise taxes on wealth rather than work, the report said.

Separately on Wednesday, one of Britain's main employer groups called on the Conservative Party leadership candidates to come up with ways to boost business investment through tax incentives alongside other corporate tax reforms.

Tony Danker, director-general of the Confederation of British Industry, asked the government not to "get stuck in limbo" as the contest played out between now and early September.

"Business confidence is falling, exacerbated by a sense of drift and the politicisation of economic policy," he said in an open letter to the candidates.

($1 = 0.8408 pounds)

(Writing by William Schomberg; editing by David Milliken)