'Profound policy change' needed to make UK's economy work

Updated: 

The referendum vote for Brexit has exposed "fundamental" problems in the way Britain's economy works which cannot be solved by "tinkering at the edges" of existing policies, according to a new report.

The report by the IPPR thinktank found that the economy was "not working" for most of the population, reflected in a poll suggesting that more than half of Britons (51%) believe the UK economy is unfair for the majority.

The warning came as the IPPR unveiled a new Commission on Economic Justice, featuring prominent figures from business, unions and civil society, to undertake a two-year non-political inquiry to "rewrite the rules for the post-Brexit economy (and) craft a new vision for the UK economy in 2030".

Commissioners include Archbishop of Canterbury Justin Welby, TUC general secretary Frances O'Grady, John Lewis Partnership chairman Sir Charlie Mayfield, and Siemens UK chief executive Juergen Maier, as well as ex-head of the civil service Lord Kerslake, Tyne and Wear community organiser Sara Bryson and entrepreneur Mustafa Suleyman, the co-founder of DeepMind Technologies.

The Archbishop described the Commission as "a unique opportunity to reflect on the vision for our economy for the next 20 years and, in a time of significant change and uncertainty, seek to put our economy on a foundation of values and virtues".

Ms O'Grady said she hoped it would "build a broad consensus (on) a new bargain for workers - fair pay, better jobs and a real say in how companies are run", while Mr Maier said he hoped to find solutions to ensure that business creates "long-term value for the economy and society".

The IPPR report warned that Britain was suffering from:

:: An investment problem, which sees the UK investing substantially less than other developed countries and investment as a proportion of GDP declining;

:: A trade problem, due to the value of imports far outstripping exports;

::  A fiscal problem, caused by Government spending more than it raises in taxes and other revenues - a trend which is due to worsen as the population ages;

:: An income problem, which sees gains from economic growth flowing mostly to a small minority of the very riches, while the incomes of the poor stagnate;

:: A regional problem, resulting from significantly higher incomes and productivity in London and the South East than other parts of the country; and

:: A carbon problem, as the UK fails to reduce greenhouse gas emissions in line with statutory targets.

The economic strength hailed by ministers masks "an economy that is succeeding at the top, but facing deep troubles below the surface", said the report.

It cited Bank of England figures showing that, while GDP is now 7% higher than in 2008, national income per head has scarcely increased at all over the same period.

And it found that the proceeds of growth are anyway not being "fairly shared", with half of all UK households seeing "no meaningful improvement in their incomes for more than a decade" and no region outside London and the South-East seeing GDP per head back at its pre-crisis peak. 

"Addressing these problems will require more profound policy change than has previously been acknowledged," said the report.

"Brexit forces us to face up to the diagnosis. We have an economy that is not delivering what it should for the British people. The paradox of the Brexit vote - a mandate for change that may make change harder to achieve - requires a far-reaching response."

IPPR director Tom Kibasi said: "The Brexit vote, and the election of Donald Trump, shows we must build an economy with economic justice at its heart. The problems we face aren't temporary weaknesses in an otherwise sound model. The foundations of our economy need to be rethought and the rules of the economy need to be rewritten."