Government has failed to ‘rebalance’ the British economy, report finds
- University of Sheffield study finds little evidence coalition government delivered on promises to ‘rebalance’ economy – between finance and manufacturing, South and the North, imports and exports and consumption and investment.
- Academics claim while imbalances remain, British economy is on unsustainable path, despite recent recovery.
The coalition government’s efforts to ‘rebalance’ the UK economy were largely unsuccessful, according to a new report by the University of Sheffield.
Economic ‘rebalancing’ had been one of the most important priorities of the Conservative-Liberal Democrat coalition government, with the Tories accusing the Labour government of creating and presiding over a dangerously unbalanced economy which had contributed to the 2008 financial crisis and subsequent recession.
The report by SPERI’s deputy director, Dr Craig Berry, and co-director, Professor Colin Hay, questions whether the coalition government’s economic policy was sufficiently focused on delivering the economic transformation that it had explicitly promised.
The SPERI study found the finance sector is now a smaller component of the UK economy (7.4 per cent of output compared to 9.9 per cent before the financial crisis) – but so too is the manufacturing sector (9.7 per cent compared to 10.9 per cent).
There are now fewer jobs in finance, but also fewer in manufacturing, and pay in the finance sector continues to outpace most manufacturing industries.
Economic activity in London (21.1 per cent of output compared to 21 per cent before the financial crisis) and the South East (14.9 per cent compared to 14.3 per cent) is now a larger component of the UK economy.
In contrast, each of the Northern regions is now a smaller component of the UK economy (the North West has 9.3 per cent of output compared to 9.6 per cent before the financial crisis, the North East has 3 per cent compared to 3.1 per cent, and Yorkshire has 6.7 per cent compared to 7.1 per cent).
This inequality is not accounted for by different population sizes within these regions, the study found. Output per person is now 83.9 per cent, 73.2 per cent and 80.2 per cent of the national average in, respectively, the North West, North East and Yorkshire. Before the financial crisis, these scores were higher: 85 per cent, 73.7 per cent and 84.8 per cent, respectively.
In contrast, output per person in London is now 169.3 per cent of the national average, an increase from 167.5 per cent before the financial crisis.
Researchers also found the UK’s trade deficit has improved only marginally since the financial crisis, from £40.7 billion to £35.4 billion.
Household consumption is now a slightly smaller proportion of UK gross domestic product (61.3 per cent compared to 62.5 per cent before the financial crisis) – but so too is investment (17.2 per cent compared to 18 per cent).
Dr Berry said: “Based on the available evidence, it is fair to conclude that the coalition government failed to rebalance the British economy in any significant sense.
“The economic policy agenda pursued by the coalition, and now seemingly being taken forward and intensified by the Conservative majority government, was not sufficiently oriented towards rebalancing as a form of genuine economic change.
“However, many of the problems invoked by the rebalancing agenda must be addressed if the recovery is to be sustained over the long term. The new government should take this opportunity to consider whether its economic policy priorities are the correct ones.”
He added: “This analysis indicts not simply the Conservative Party or its former coalition partners. The notion of rebalancing has become a rare shared objective for all of the major political parties, and wider governing elites.
“We need to question whether the concept itself offers the prospect of meaningful change – the evidence to date suggests that it serves to justify longstanding economic policy practices, albeit with some relatively minor modifications.”
Today’s publication is the fourteenth in a new series of SPERI British Political Economy Briefs.
Through this series SPERI hopes to draw upon the expertise of its academic researchers to influence the debate in the UK on sustainable economic recovery.
To view the report visit: http://speri.dept.shef.ac.uk/wp-content/uploads/2015/07/Brief14-Has-the-UK-economy-been-rebalanced.pdf
Sheffield Political Economy Research Institute
The Sheffield Political Economy Research Institute (SPERI) is an academic institute based at the University of Sheffield. The institute aims to bring together leading international researchers, policy-makers, journalists and opinion formers to develop new ways of thinking about the economic and political challenges posed for the whole world by the current combination of financial crisis, shifting economic power and environmental threat.
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