The UK's economic turbulence of the last 15 years, and subsequent slowdown, has meant that families are on average £1,400 worse off today than they were before the global financial crisis, a new report claims.
Meanwhile, low productivity is a key issue holding the economy back, the report, produced by left-leaning think-tank the Resolution Foundation, adds.
Debates on how to address this issue are too narrowly focused on raising the productivity of existing firms (either via more innovation in cutting edge firms, or more diffusion spreading innovations to lower productivity firms), it says.
This ignores one of the key drivers of productivity growth: economic change or dynamism, as weaker firms or lower productivity sectors shrink, and more productive ones grow.
While economic change has slowed, "sectoral reallocation" – whereby some sectors of the economy shrink, while others grow – has fallen to a nine-decade low, it adds.
The research comes as the UK stares down the barrel of persistently high inflation, with the latest reading showing levels in August sitting at around 7.6%, far above the Bank of England's target of 2%. PMI reports released last week also predicted that the UK is heading for a recession.
In order to spur on growth, the Resolution Foundation has called for higher levels of economic change, by doing things like reducing transaction taxes such as stamp duty and reforming VAT thresholds to help small businesses. It has also urged better government support of workers and worker mobility.
“Britain needs more, not less, economic change. We need successful firms to grow, and struggling ones to shrink," said Greg Thwaites, research director at the Resolution Foundation.
“Policy-makers need to start embracing and encouraging economic change, from tax and welfare reforms to competition policy, while always being mindful of the need to properly support those who may lose out in the short term.”
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