Not another lost decade, surely?

The Global Financial Crisis (“GFC”) has a lot to answer for. In 2008, the GFC was triggered by a collapse in the US economy, in part as a consequence of the unregulated lending to its housing market creating a liquidity crisis. Governments panicked and an incoherent series of support mechanisms were put in place. Quantitative Easing, crashing interest rates, bank nationalisation and ad hoc stimulus packages were put in place. Short term plasters to cover the haemorrhaging of liquidity.

Then came Brexit and to top it all off, COVID. Another example of irresponsible and hastily structured economic policies. In 2007, the UK GDP was $3.1Tr.  In 2025, the UK GDP is $4.0 Tr (IMF Data). That’s a 29% increase over 18 years is pretty uninspiring and a lost decade plus. The fundamental question is whether Western Europe and the UK is post-growth and this is the new norm or whether there is a strategy that can reposition the UK with the support of government.

You can’t play the game if you don’t know the rules

A clear strategy and stable fiscal policy are absolute fundamentals to a successful economy. Fiscal policy has two core fundamentals: 1. Taxation creates government income and 2. Public spending is how government allocates the taxation to support the economy and ultimately create employment and economic demand. At the moment, the rules to the game are opaque at best. An incoherent taxation policy which has comprised two of the largest tax increases in history certainly isn’t creating stability. Let’s park taxation and assume there isn’t any further material tax increases to come in 2026. The rules are set!

How government spends its income is more important and a core growth plan is the UK’s Modern Industrial Strategy. It is a 10-year plan is focused on eight sectors:

• Advanced Manufacturing
• Clean Energy Industries
• Creative Industries
• Defence
• Digital & Technologies
• Financial Services
• Life Sciences
• Professional & Business Services
   

On first blush, a reasonable spread of sectors. The key will be how investment is deployed to drive that growth. In particular, Financial Services and Professional & Business Services are UK’s great strengths. The Services sector represents around three quarters of UK GDP. We should be building from a position of strength and focusing a disproportionate amount of government spending on these core sectors. In addition, we have advanced capabilities across the Life Sciences sector that shouldn’t be dismissed.

We don’t want to become a Jack of all trades, master of none. The US has taken the lead on Digital & Technologies and Defence, China for Advanced Manufacturing, Nordics with Clean Energy Industries. So why try and compete in sectors that already have dominant leaders? Yes, we should encourage each of these in the UK, but let’s take what we do best and catalyse it, export it and generate greater growth across our society.

The UK is the largest exporter of financial services of any country in the world, and as a sector represents ~9% of UK GDP output. The Professional & Business Services sector is absolutely core to the UK economy, whether consulting, accountancy or law. Some of the world’s biggest brands were established and are headquartered in the UK. Know what your strengths are and play to them.

Spend more on what we are good at, improve and adapt to create a future proof proposition.

Change our academic strategy to support and align with growth strategies

Having a clear strategy and a set of objectives is one thing, delivering them is another. Is the talent base sufficient and skilled to support sector-focused growth? Aligning the development of UK citizens to meet these macro objectives is absolutely imperative i.e. create the talent to support the chosen sectors. The academic system in the UK will need to refocus and adapt and the best way to achieve this is through incentivisation. Adjusting university fees downwards or even making them free for courses that sit across Financial Services, Professional & Business Services and Life Sciences sectors will help generate more talent with the skills that are needed. Accompanying this, having government sponsored ‘school-leaver’ programmes to encourage employers to take younger staff and at an earlier point of their career pathway.

The UK is blessed with globally recognised academic institutions. Four of the Top 10 universities globally are right here in the UK (Imperial, UCL, Oxford and Cambridge). Closer relationships between government and leading universities to create a conveyor belt of highly qualified individuals to meet the demands of chosen sectors is critical. Leverage the outstanding reputations of our institutions to create a country that is forward thinking, progressive and economically healthy.

The problem is obviously much more complex

It isn’t quite as simple as picking a couple of sectors and create the talent to support them. There are so many factors to consider, such as improving productivity, balance up regional inequality, greater infrastructure spend, employment initiatives, reducing red-tape, etc., but after 17 years of low investment and low growth, bigger and bolder strategies need to be implemented. Pick your horse and back it, rather than tentatively playing at the edges. The UK is globally renowned across Financial Services, Professional & Business Services and Life Sciences.  Let’s shout about it and invest. In 10 years time, we may just be saying that it’s a decade to be proud of, not lost in the annuls of time.

Written by Simon Heath.