Transforming the economy post-pandemic
This session is part of Buxton Battle of Ideas festival. Find out more here.
The first national lockdown in March 2020 saw the biggest decline in the UK’s economic output in centuries, falling 25 per cent in just a month. While there was some recovery during 2020, the year ended with output still down 9.8 per cent from pre-pandemic levels. Following a further, even longer lockdown in early 2021, the opening up of society has brought a significant rebound, but by summer 2021, output was still around four per cent below the level at the end of 2019.
Nonetheless, given the state of the economy during the first lockdown, the outcome has not been the disaster many feared. In July, the unemployment rate fell to 4.7 per cent, vacancies were at record levels and wage growth seemed to be very strong. In fact, one of the biggest barriers to economic recovery is a shortage of staff in key areas, particularly drivers of heavy goods vehicles, caused by a combination of workers returning to the EU and a paucity of training and testing of new drivers.
But if the worst of Covid is behind us, that still leaves us with many problems to deal with. The UK economy – indeed, economies across the Western world – was in a moribund state prior to the pandemic. The economy took until 2013 to recover from the financial crisis of 2008. An analysis by the Office for National Statistics (ONS) in 2018 showed that while the economy as a whole was 11 per cent larger than before the crisis, the production and manufacturing sectors were still below pre-crisis levels.
One major drag on the economy has been a shortage of workers with the right skills. In many sectors from nursing to IT, employers are struggling to fill vacancies. The Department for Education’s Employer Skills Survey has highlighted that even before the pandemic nearly a quarter of all vacancies were skills shortage vacancies; nearly three fifths of these shortages were reported in middle- and high-skilled roles. There has been considerable controversy over whether employers themselves have been too willing to import trained staff rather than invest in apprenticeships and other forms of training.
The current problems with a lack of HGV drivers, while exacerbated by the pandemic and Brexit, have also revealed how many important jobs have been too poorly paid to attract sufficient homegrown staff, particularly when working conditions are onerous. Has the pandemic revealed just who are the ‘key workers’ and should wages reflect that status?
There are also serious regional variations. A major theme for the current government is ‘levelling up’ between London and the South East and elsewhere in the country, particularly in the former ‘red wall’ constituencies won by the Conservatives in 2019. An analysis by the Institute for Fiscal Studies notes that the UK is one of the most economically unequal developed countries and that there are ‘substantial differences in earnings, wealth, health, educational attainment and social mobility across the country’.
However, it would be simplistic to see this as poor North vs prosperous South. The same IFS report also notes that ‘median living standards, as measured by net income after housing costs, are not so unequally distributed and on this measure London does not perform especially well… inequalities within regions are larger than the inequalities between regions.’ If that is the case, perhaps regional ‘levelling up’ is a misleading approach to policy.
Will the post-pandemic recovery continue? Why has the UK economy experienced such a long period of relative stagnation, with productivity barely growing for years? What, if anything, can be done to change this dynamic? How can living standards be boosted in more deprived areas? The Covid-related economic crisis is itself unlikely to ‘change everything’, but to what extent could it be the catalyst for accelerating economic changes already underway?
