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Seven priorities for the UK economy

The keys to success include better productivity and infrastructure, as well as investment in education and health.

December 2010

The United Kingdom should make itself the European location of choice for multinational corporations, give its cities more power to determine their economic destinies, and unshackle its education and health sectors so they can take advantage of the potential for international growth.

These are among the recommendations of a new report, From austerity to prosperity: Seven priorities for the long term published by McKinsey’s London office and the McKinsey Global Institute (MGI). The report identifies critical areas the United Kingdom must tackle in order to build a stronger economy:

  1. Productivity growth has been encouraging (exhibit), but overall levels are still 17 percent below those of the United States and 10 percent lower than Germany’s. The United Kingdom should promote improved productivity within sectors rather than trying to change the economy’s sector mix. Removing regulatory barriers, lifting land use restrictions, and improving the quality of management and the skills of employees are essential to the effort.

  2. Multinationals may account for less than 2 percent of UK businesses, but they drive overall economic growth. Government should work with leading multinationals on a ten-year plan to develop the skills of the workforce, ensure access to international skills through open immigration, improve the physical and social infrastructure, and create certainty about future taxation and regulation.

  3. Transport and energy infrastructure will require more than £500 billion in investment over the next 20 years. But private investors will participate only if there’s greater regulatory certainty and if returns improve.

  4. The public and private sectors both have a critical role in supporting innovation at scale. Investments in research should be concentrated into large and connected clusters, notably in areas of existing strength, such as high tech and the biosciences.

  5. Education and health care are more than public-sector cost centers. The United Kingdom should add capacity to existing universities and build new ones. Government should allow the National Health Service to restructure and to compete for private patients without restrictions, while rising health care demand requires additional private capital.

  6. Cities have contributed most of the country’s growth over the last decade. They should be allowed to both play a greater role in the coordination of policy and be given increased financial responsibility, including the flexibility to negotiate regional public-sector pay deals and the freedom to strike financial deals with investors.

  7. To address demographic challenges, the United Kingdom should attempt to increase the number of older people in the workforce. In addition, using equity release—also known as reverse mortgages—to unlock the £1 trillion of unmortgaged housing wealth owned by those over the age of 60 would enable them to make a greater contribution toward paying for the public services they need.

Exhibit

Download the full report.

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The material on this page draws on the research and experience of McKinsey consultants and other sources. To learn more about our expertise, please visit the McKinsey Global Institute.