The UK economy requires a series of fundamental structural overhauls – from giving workers more rights, to raising state investment, to empowering regulators to bust monopolies – a landmark commission on the state of the UK economy has concluded.
The Institute for Public Policy Research’s Commission on Economic Justice, which has been analysing every aspects of the UK economy for the past 18 months, also argues in its final report that it is necessary to “hard-wire” justice into our economic system, rather than treating this as “an afterthought”.
“A fairer economy is a stronger economy,” it says.
The Commission’s interim report last year argued that reforms on the scale of the founding of the state in the 1940s by Labour and the wrenching Thatcher reforms of the 1980s were necessary.
The final document fleshes out that manifesto, recommending five major “shifts”:
- Ending the cycle of debt-led consumption growth and raising national saving and investment levels
- A “new industrialisation” policy based on developing industrial clusters around universities
- Breaking the UK’s “low-wage, low productivity equilibrium” by ending excessive flexibility in labour markets and giving workers more influence in companies and a higher minimum wage
- A focus on “managed automation”, promoting technological diffusion but also investing heavily in re-skilling and re-training displaced workers
- Breaking up monopolies and regulating the activities of internet giants and digital platforms much more closely
“In each of these ways, the UK economy needs to be reshaped if we are to achieve prosperity and justice together”, the report argues.
“And change must happen on a sufficient scale to achieve ‘escape velocity’ from the economy we have today to the one we need.”
The Commission met 10 times over the past year and a half.
Its members include Justin Welby, the archbishop of Canterbury, Dominic Barton, the boss of the management consultancy firm McKinsey, Lord Kerslake, the former head of the home civil service, the Brexit-supporting businessman John Mills and the Trade Union Congress general secretary Frances O’Grady.
The Commission was politically independent and takes no view on Brexit. Nor does it seek to attribute political blame for the economic condition of the UK now.
It steers clear of the fraught subject of utility re-nationalisation, part of Labour’s manifesto, although it does, like the opposition, propose a National Investment Bank.
It calls for a “serious debate” about the level of taxes as a share of GDP, without recommending its own target, but it does say income and wealth should be “taxed in the same way”.
The Commission says the Bank of England’s mandate should be expanded from price stability to also include a target for minimising unemployment, underemployment, and also the level of nominal GDP.
It argues the Bank should be given the power to ask the new National Investment Bank to expand lending, to stimulate aggregate demand, when its own interest rates can go no lower.
It calls for public investment to be increased by 0.8 per cent of GDP on top of current plans.
On immigration, it suggests dropping the government’s net annual aggregate target, but replacing it with a series of sectoral targets.
It proposes a “National Economic Council”, headed by the Chancellor and involving devolved UK regional administrations, business leaders and trade unions to create a “co-ordinated 10-year plan for the UK economy”.
The package of measures would certainly constitute a new direction for the UK, taking it closer to a European-style co-ordinated market economy like Germany and away from the current liberal model.
The report takes comfort from the fact that the UK economic model was previously radically shaken up in the 1940s and 1980s.
“It is precisely because we have achieved change of this magnitude before that we believe it is possible to do so again,” it says.
“We can bridge the gap between the country we are and the country we would like to be,” says the IPPR’s director Tom Kibasi.
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