November 2010 | Kevin Sneader, Charles Roxburgh, Jonathan Dimson, Grey Baker, Karen Croxson, Tim McEvoy, Robert Stillwell, Fraser Thompson, Max Tse, Joycelyn Williams and James Wise
If the United Kingdom is to move from austerity to prosperity, it must take actions on seven fronts including improving sector productivity, attracting multinational business, investing in infrastructure, and stimulating innovation. That is among the key findings of a report produced by McKinsey’s London office in conjunction with the McKinsey Global Institute.
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The report finds that the UK’s prospects for long-term economic growth would be stronger if it takes bold actions to tackle priorities and remove barriers. The measures outlined in the report could generate an additional 1% of GDP, worth £400 billion by 2030.
Actions to stimulate growth
Tackling the following priorities would put the UK in a good position to achieve sustained growth over the next two decades:
- Focus on raising productivity sector by sector to drive overall growth. The government could lead efforts to improve productivity by working with industry participants and new entrants to remove barriers to growth such as regulatory burdens and land use restrictions. It could also support improvements in managerial quality and employee skills.
- Secure the UK’s position as the preferred location for multinational businesses. Although multinationals account for less than 2 percent of UK businesses, they drive overall economic growth and large-scale innovation. To make the UK the most attractive location in Europe, the government should work with leading multinationals on a ten-year plan that addresses skills, immigration, infrastructure and tax.
- Unlock infrastructure investment. The UK will need to spend more than £350 billion over the next 20 years merely to maintain its existing transport infrastructure. A further investment of £120 billion to £170 billion will be needed to support energy infrastructure. Securing such a level of investment will require greater regulatory certainty and improved economic returns to attract private capital.
- Innovate at scale. Government efforts to stimulate the growth of clusters of innovation have often ended in failure. Successful clusters rely on a range of factors including the concentration of research investments in large, well-connected centres, access to global best practice through the recruitment of top talent and cluster-specific support that builds on existing competitive advantages.
- Unleash the growth potential of education and health. Policy makers should view these sectors as international growth opportunities rather than public-sector cost centres. To attract international students, capacity and capability need to be added in existing and new universities. Additional private capital will be needed to meet the rising demand for health care.
- Pilot devolution to dynamic cities. Cities have been responsible for 78 percent of the UK’s economic growth over the past ten years. To support growth, they need to be given greater roles in coordination and more financial responsibility, including the flexibility to negotiate regional public sector pay.
- Address generational imbalances. Demographic trends pose two challenges: how to maintain growth as the working population declines and how to fund long-term health and social care as costs rise by more than 70 percent in the next 20 years. The UK needs a radical increase in the employment of older workers, as well as measures to unlock £1 trillion of housing wealth through equity release to enable older generations to make a greater financial contribution to the public services they need.