Policy Brief: Economic Survey of the United Kingdom, 2007

The United Kingdom’s welcoming approach to globalisation has contributed to a strong growth performance. GDP per capita is now the third highest in the G7, compared with the lowest 10 years earlier. GDP growth has been close to its trend rate of around 2¾ per cent for a number of years, suggesting that the amplitude of the economic cycle is smaller now than in previous decades. This strong performance is not only due to the willingness to embrace the opportunities offered by globalisation, but also to sound institutional arrangements for setting monetary and fiscal policy as well as a period of robust trading partner growth.

Despite offshoring, employment has grown steadily and unemployment is low. But the labour market position of many low-skilled workers needs to be further improved. The participation rate of some groups is low and others suffer from poor incentives to progress in work. To raise the adaptability of the workforce the government has invested in education. It is also spending more on fighting poverty and has been addressing weaknesses in the transport and health systems. The budget deficit remains large, and slower growth in government expenditure will be required over the coming years, as well as more effort to ensure good value for money in public spending. Against this background, further rewards from globalisation can be reaped by addressing the following challenges.

• Improving prospects for the least skilled to benefit from globalisation

• Because the benefits of globalisation are potentially greater with a flexible labour force, primary and secondary schools need to make sure all young people acquire core skills before leaving full-time education.

• More needs to be done to improve education outcomes for young people from low socio-economic backgrounds. A faster transition to a more equitable allocation of school funding would help and more should be done to encourage the best teachers to move to the most disadvantaged schools.

• Incentives to join the workforce and to progress in work should be improved for certain groups such as second-income earners, lone parents, and incapacity beneficiaries. This may require reducing marginal effective tax rates and providing greater access to child-care support. A slower rise in the minimum wage may also improve the employment prospects of the low-skilled.

• Enhancing business conditions for productivity growth and job creation

• Planning regulations need to give more weight to economic considerations to promote firm entry and local plans should ensure that more land is freed up for development.

• Sufficient levels of investment in the transport infrastructure should be ensured, while the potential for more extensive road-pricing to reduce congestion should be explored.

• Tax competitiveness should be improved by continuing to broaden the corporate tax base while cutting the rate. The corporate tax system should be simplified and there may be room to shift taxation to less mobile sources.

OECD: United Kingdom and the OECD http://www.oecd.org/dataoecd/49/34/39384976.pdf

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