The economy has suffered from a prolonged productivity slowdown and stagnant business dynamism that has cost households the equivalent of £1,400, according to research.
The Resolution Foundation, a think tank, said that in the decade after the financial crisis the private sector had had the worst pace of economic change in nearly a century, contributing to chronically weak productivity.
A key measure of economic dynamism, which looks at how fast parts of the new economy grow while other moribund sectors shrink, has halted, resulting in an economy that is 4 per cent smaller since 2009 than it would have been, the equivalent of £1,400 per household.
Greg Thwaites, research director of the Resolution Foundation, said: “The British economy has spent the past 15 years struggling from one major crisis to another. But while many people assume this severe economic turbulence has led to major economic change, in fact the opposite is true.”
The report called on the government to help accelerate the pace of economic change by reforming taxes such as stamp duty, which can prevent workers and businesses from moving to find work or expand their companies due to the levy on property transactions.
Liberalising planning rules to promote the use of land for business purposes and a reform of corporation tax rules so smaller companies are not deterred from growing above a certain size would also promote dynamism, the report said. Other recommendations included a more generous minimum wage, which would favour companies that are able to pay workers better and force out those who rely on low-wage and low productivity business models.
The report said that weak productivity was the UK’s “foundational economic problem” and measures to promote rapid change within the private sector had long been neglected. Instead, most productivity enhancing measures have focused on boosting investment in all sectors and not on those that are fastest growing.
“If the most productive firms grow, while others shrink, resources are used more efficiently and economy-wide productivity rises,” it said.
