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UK economy could resemble that of Italy by end of 2020s – report

·3-min read

Britain risks mirroring Italy’s economic woes unless it develops a strategy for tackling the five seismic changes that will shape a decisive decade for the country, a report has warned.

A joint project by the Resolution Foundation thinktank and the London School of Economics said the UK was neither used to nor prepared for the challenges posed by the aftermath of Covid-19, Brexit, the net zero transition, automation and a changing population.

Announcing the launch of their Economy 2030 Inquiry, the two organisations said muddling through without a proper plan would be disastrous for the living standards of individuals and the economy as a whole.

The launch report noted that Italy had suffered two decades of flatlining living standards, and in the absence of a comprehensive strategy for economic renewal, there was a risk the UK could face similar relative decline.

Sir Clive Cowdery, the Resolution Foundation’s founder and co-chair of the Economy 2030 inquiry, said: “The UK’s recent record of weak productivity, stagnant living standards and high inequality makes a new economic approach desirable. What makes a new approach essential is the scale of coming change.

“The UK now faces a decisive decade, as the aftermath of Covid-19, Brexit and the net zero transition come together with major shifts in technology and demography. This matters far more than economics. Failing to rise to this challenge risks leaving the nation diminished and divided.”

The report said the 2020s would define the UK for decades to come, with the changes including:

  • Covid-19: More home working as a result of the pandemic will mean more lifestyle choices for professionals, but will force lower earners to find new jobs in new places.

  • Brexit: The UK will be able to utilise new policy freedoms but will also have to cope with higher costs of doing business with the EU, its main trading partner.

  • Net zero: Decarbonisation will provide economic opportunities, but action is urgent. The UK needs to go from installing almost zero heat pumps each year, to installing 3,000 every single day by 2030.

  • Technology: The arrival of new technologies will boost but also disrupt living standards, with the Organisation for Economic Cooperation and Development estimating that one in seven jobs could disappear as a result of automation in the next 15-20 years.

  • Demography: The ratio of people under the age of 20 or over 65 to those aged 20-64 is likely to increase from 72 per 100 to 79 per 100 between 2020 and 2030 – a faster projected change than in any other decade in the first half of the 21st century.

The report said that while the government had committed to “build back better”, “level up” and embrace “global Britain”, neither it, nor any major political party, had an economic plan for achieving those high-level objectives. “Any such strategy was notably absent from last week’s Queen’s speech,” it added.

The UK needed to improve on the record of the 2010s – a decade that saw the weakest job mobility since the 1930s, the poorest productivity record for 120 years and the worst record for inequality of any EU country apart from Bulgaria, the report said. Without improvement, is authors wrote, Britain would have per capita incomes closer to Italy than Germany by the decade’s end.

Minouche Shafik, director of the LSE and co-chair of the inquiry, said: “The decade ahead will be decisive for the UK. New trading relationships, the digital revolution, and net zero will fundamentally change our economy and society. We need to rethink our economic strategy to rise to these challenges and ensure that we create a society in which everyone can thrive.”

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