The UK economy is flat-lining. How can we revive it?

Rob Lyons previews Thursday evening’s Economy Forum with Lord Jon Moynihan, author of 'Return to Growth: How to Fix the Economy'.

Last week, BBC News reported on the latest figures for the UK economy. But the headline, ‘UK economy shrank unexpectedly in January’, was met with derision on social media. It’s true that forecasters had expected a very small rise of 0.1% in economic output (GDP), but initial figures showed it was actually down by 0.1%. The difference between the forecasts and reality is margin-of-error stuff. However, given the state of the world economy, rising energy prices and tax changes from last autumn’s budget that come into force in April, you wouldn’t call a downturn ‘unexpected’.

In truth, economic growth has been anaemic for years. As Jon Moynihan, Lord Moynihan of Chelsea, points out in Return to Growth: How to Fix the Economy, Volume One, developed economies have struggled for nearly a quarter of a century:

To take the UK as an example, our economic growth is now close to zero. Had our economy continued to grow over the past twenty-three years as it had in the 1960-2000 period, our real GDP would now be some 29 per cent higher than it is currently, and average annual earnings, currently £34,480 in 2023, would be £52,546 per year, assuming earnings had grown at the same rate over that period.

It's not as if the period 1960-2000 was one of untrammelled growth, with three major downturns along the way. But even that seems ambitious today. Official unemployment remains low by historical standards, with hundreds of thousands of vacancies unfilled. But millions more working-age people are now consigned to sickness and disability benefits, creating an unsustainable welfare bill for the future that has even alarmed Labour and denying businesses the workers they need to expand.

In short, we are considerably poorer than we would have expected to be given the levels of economic growth within living memory. What happened?

We seem to have forgotten that wealth is created by economic activity in the private sector. Yes, there is much that the public sector does (or should do) to support growth, like providing education, infrastructure and keeping the workforce healthy. But it is getting harder and harder to do business in the UK thanks to higher taxes, never-ending regulations and policies like Net Zero that bump up costs. Moreover, the level of government borrowing is such that national debt has been rising constantly this century, bringing the added burden of paying interest.

The Labour government constantly proclaims that its first priority is restoring growth to the economy. Yet the cost of decarbonising the electricity grid, giving workers more rights and increasing employers’ national insurance, among other things, looks like the opposite of a plan for growth.

What is to be done? Across two volumes of Return to Growth, Jon Moynihan calls for a return to free markets, reducing the size of the state and allowing businesses the freedom to take risks and generate wealth. He argues that the social-democratic outlook that has characterised governments, both Labour and Conservative, in recent decades is at odds with what has been successful in the past.

This coming Thursday, 20 March, Jon will introduce his ideas at the Academy of Ideas Economy Forum, followed by the opportunity to ask questions and make your own comments. The discussion is online via Zoom and kicks off at 7pm (UK time). The event is free, but please register via Eventbrite. Please join us!