Economic Policy Reforms 2019

United Kingdom

The GDP per capita gap relative to the upper half of the OECD has been broadly stable. While employment rates have markedly risen since the beginning of the decade, labour productivity growth has halved.

Income inequality, as measured by the Gini coefficient, is above the OECD average. Greenhouse gas emissions per capita have decreased in recent years and remain below the average of OECD countries.

Limited progress has been made on past priorities. A modest amount of new funding is being allocated to support housing, infrastructure and research and development.

Improving adult skills and strengthening work incentives, particularly of low-income workers, would bring large growth dividends in the long term and foster inclusiveness. Exit from the European Union is surrounded by significant uncertainty but may imply a need to reprioritise the main policy recommendations.

Growth performance, inequality and environment indicators: United Kingdom

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

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Policy indicators: United Kingdom

Source: Panel A: OECD, Tax-Benefit Models; Panel B: OECD (2013), OECD Skills Outlook 2013: First Results from the Survey of Adult Skills and OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills, OECD Skills Studies.

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Beyond GDP per capita: United Kingdom

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

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United Kingdom: Going for Growth 2019 priorities

Improve skills. Adults have lower literacy and numeracy skills than the OECD average.

• Actions taken: A new partnership met for the first time in March 2018 with industry and trade unions to deliver a National Retraining Scheme, focusing on lifelong learning and STEM skills. In April 2017, an apprenticeship levy was introduced for firms with a wage bill over GBP 3 million each year.

• Recommendations: Encourage the expansion of high quality post-secondary vocational programmes. Better align programmes and policies to local economic development through further decentralisation of funding for skill programmes and by further involving employers. Support lifelong learning of low-skilled workers to ensure that their productivity can adjust to planned increases in the minimum wage (National Living Wage).

Strengthen work incentives and active labour market policies. The share of all unemployed and not in education, employment nor training (NEET) youth is above the OECD average. High implicit tax also hinders work incentives for second earners.

• Actions taken: No action taken.

• Recommendations: Monitor the effectiveness of the Universal Credit – a unified social benefit – in moving people towards employment. Raise spending on active labour market policies, in particular for 15 to 19 year-olds, and improve their efficiency by fostering competition among contracted providers.

Enhance housing supply. Insufficient housing construction reduces affordability for households and the matching of skills to jobs.

• Actions taken: In the 2017 Autumn Budget, GBP 15.3 billion (0.8% of GDP) of new financial support for housing has been made available over the next five years, primarily to boost the land assembly and housing infrastructure fund, bringing total support to at least GBP 44 billion (2.2% of GDP) over this period. To help first-time buyers, the government will permanently exempt them from stamp duty for the first GBP 300 000 of the property value, subject to a total home value cap of GBP 500 000.

• Recommendations: Further relax regulatory constraints to release more land for housing. Enhance the provision of social housing where private sector activity is insufficient to promote greater equity in housing access.

Improve public infrastructure. Congestion is high in the road transport network and the quality of the infrastructure stock is perceived as poor.

• Actions taken: In the 2017 Autumn Budget, GBP 1.7 billion (0.08% of GDP) have been allocated to a new Transforming Cities Fund to improve connectivity and support jobs across England’s regions.

• Recommendations: Further prioritise public infrastructure investment and continue to increase access to private financing. Move towards user pricing, especially in areas where negative environmental externalities exist, such as road transport.

Promote R&D spending. Both private and public spending on R&D are comparatively low.

• Actions taken: In the 2017 Autumn Budget, support to R&D has been boosted by an additional GBP 2.3 billion (0.12% of GDP) investment in 2021-22 from the National Productivity Investment Fund (NPIF).

• Recommendations: Prioritise spending on direct funding to leverage private sector innovation in emerging sectors and potentially “disruptive” technologies. Boost direct R&D funding and ensure a balanced support between the two sources of funding.