Breaking the Cycle

The UK has a low-growth, low-productivity, low-wage economy – but a high-spend, high-tax, high-borrowing state. Before the 2008 financial crisis, a 21-year-old would have seen the economy double in size by the time they were aged 47 and their living standards rise accordingly. Now they would have to wait until they are at least 64, if not much older.

‘Breaking the Cycle’, a major new report by CPS Research Fellow Dr Gerard Lyons, sets out the full scale of Britain’s economic problems, and offers a comprehensive blueprint for addressing them.

Lyons highlights that GDP per capita growth has stalled, while productivity growth has collapsed to just one-third of pre-2008 rates. Despite spending approaching £1.5 trillion annually, public sector productivity has stagnated. On current trends, public debt will breach 100% of GDP this decade and continue rising. The tax burden is already on track to a hit post-war high of 37.5% of GDP. And the financial markets are already signalling concern, with the UK increasingly dependent on international investors to finance its debt.

Dr Lyons sets out a strategy for bringing growth back to the economy and getting living standards rising again, based on three foundations:

• Fiscal credibility achieved through controlling public spending and reducing the debt-to-GDP ratio  
• A radical supply-side reform agenda focused on the 4 I’s: investment, innovation, infrastructure and incentives
• The need for low inflation, financial stability and a competitive City that serves domestic growth.

Based on these foundations, Lyons outlines five immediate policy priorities that politicians should address: controlling immigration; reducing energy costs; addressing the housing crisis; rejecting harmful wealth taxes and enhancing Britain’s resilience. He highlights the failure of politicians over many years, as well as the errors in the Bank of England’s economic management and the need for an improved fiscal and monetary framework.

Commenting on the report, Shadow Chancellor Rt Hon Sir Mel Stride MP said:

‘This report highlights a simple truth: we are living beyond our means. Urgent action is needed to fix our public finances and restore confidence in the UK economy.

‘For too long now we have lagged behind other countries in terms of growth and productivity. But the current government’s answer to that has been higher spending and higher borrowing. That is unsustainable, crowds out the private sector and pushes up inflation.

‘As the paper argues, what we need is a radical supply side agenda to unleash growth, coupled with responsible fiscal management.’