UK needs 'new economic strategy' to close £8,300 living standards gap with peers

UK economy: Rishi Sunak and Jeremy Hunt
According to a new report by the Resolution Foundation the UK's economic strategy has left it with a £8,300 living standards gap with similar countries including France and Germany. (IAN FORSYTH via Getty Images)

A leading think tank is suggesting that Britain’s combination of low growth and high inequality has left it falling behind its peers in terms of living standards, needing a new economic strategy to drive growth.

According to a new report by the Resolution Foundation the UK has a £8,300 living standards gap with similar countries including France and Germany.

“Brexit, Covid-19 and the cost-of-living crisis have tested an economy already under strain, with slow growth and high inequality stymying improvements to the living standards of low-to-middle income Britain," said Alex Beer, head of portfolio development at the Nuffield Foundation.

Ending Stagnation – the final report of The Economy 2030 Inquiry, a collaboration between the Resolution Foundation and the Centre for Economic Performance at the LSE, funded by the Nuffield Foundation – says the UK has now seen 15 years of relative decline, with productivity growth at half the rate seen across other advanced economies.

Wages have flatlined as a result, costing the average worker £10,700 a year in lost pay growth. Nine million younger workers have never worked in an economy with sustained average wage rises, it adds.

A new economic strategy that builds on Britain’s strengths as a services superpower, prioritises public and private investment, expands its great cities, and ensures good work in every town could help the country catch-up, the report suggests.

“The task facing the UK is to urgently embark on a new path," said Torsten Bell, chief executive of the Resolution Foundation. "A new economic strategy built, not on nostalgia or wishful thinking, but our actual strengths. Along with honesty about the scale of change needed, and the trade-offs involved. It’s time for Britain to start investing in our future, rather than living off our past."

Read more: OECD urges Jeremy Hunt to shake-up pensions triple lock

With stagnation having persisted for so long, the report warns of fatalism about Britain’s economic prospects.

But, were Britain to close the average income and inequality gap to its peers of Australia, Canada, France, Germany and the Netherlands, the typical household would be 25% (£8,300) better off, with income gains of 37 per cent for the poorest households, the report says.

Strategies to achieve that could include revamping the tax system, improving job prospects across the UK and supporting the poorest households on benefits, the report argues.

Watch: Bank of England should have its remit 'pruned' alongside forecasting shake-up