Our Ideas Updates

Updated Jun 2014

Economy

The UK is emerging from a severe economic crisis. Not only has the crisis highlighted catastrophic flaws in the financial sector and the systems that support it, it has also exposed serious weaknesses in the structure and resources of the wider British economy, many of which have existed for decades.

Historically, the private sector in Britain has been slow to respond to the challenges of globalisation and rapid technological change, which have reshaped the economy, and certain sectors especially, in dramatic and irreversible ways.

We believe

the UK needs an active industrial policy that identifies and supports sectors of the economy with the greatest potential to flourish and grow all over the country

READ MORE: New priorities for British economic policy

This policy should focus in particular on supporting parts of the economy that have the potential to boost exports. The UK has run a current account deficit with the rest of the world for the last 30 years. More sustainable growth should be centred on a much stronger export performance.

This means reinventing the idea of 'picking winners': supporting sectors and industries with a competitive advantage, or the ability to create that advantage, and where demand is increasing, ideally in global markets.

This includes some of Britain's 'traditional' sectors, such as the automotive and aeronautical engineering and financial services, but also new industries, such as biotechnology, renewable energy and the creative industries, which are spread all around the UK.

READ MORE: March of the modern makers: An industrial strategy for the creative industries

In particular, supporting Britain's transition to a low-carbon economy has great potential to create jobs and exports. There is an opportunity for the UK to take a leading role in the global market for new technology development, production, installation and management.

READ MORE: Growing pains: British industry and the low-carbon transition

Capital investment, such as upgrading and expanding transport and communications infrastructure, creates a lot of jobs and provides a good return to the public purse.

Infrastructure investment is currently too skewed towards London and the south east. Other parts of the country need major investment in infrastructure to improve their connectivity and drive economic growth.

It is vital that

decisions about public investment should be focused on long-term priorities rather than short-term demands

These long-term priorities could include rebalancing the distribution of investment, regionally and by sector, encouraging innovation, and supporting a sustainable, low-carbon economy.

Cost/benefit decisions should be based on a broad definition of economic benefit rather than a narrow definition of direct pay-off, which tends to favour compounding investments already made in 'peak' places and sectors, such as London and its service industries.

READ MORE: Still on the wrong track: An updated analysis of transport infrastructure spending

It is important that our cities and regions are unleashed to drive economic growth. This means they need the freedom to shape their own local policies for training, skills and active labour markets. They need the financial autonomy to invest in infrastructure and attract foreign investment. And they need a clear, collective voice to represent local interests in national debates.

READ MORE: Northern prosperity is national prosperity: A strategy for revitalising the UK economy

Within business and industry, it is vital that the shareholder model, which prioritises short-term profit-making, is replaced by a long-term mindset that prioritises investment and sustainable growth. This idea of 'shared capitalism' is an important part of our work on jobs and skills.

Targeted support for British firms and sectors requires greatly improved access to credit and other financial services.

We support

reforming the finance industry to ensure it is fit for a post-crash economy

We propose splitting retail banking from investment banking, and encouraging increased competition and new entrants to the market.

At a national level, the Bank of England's responsibility for setting interest rates is a key instrument of economic policy. However, the Bank of England's current target – to keep inflation below 2 per cent – is too narrow.

We believe

the Bank of England's inflation target should be replaced by a wider mandate that allows it to foster growth

The Bank of England should oversee credit flows to different parts of the economy to prioritise sustainable and productive investment. This could mean, for example, opening up the flow of investment to small business while keeping a tighter rein on mortgages and other forms of non-productive finance.

We believe

the Bank of England should set limits on loan-to-value and loan-to-income ratios for mortgages

Adopted by Coalition government, May 2014

READ MORE: Don't bank on it: The financialisation of the UK economy

We support

the creation of a British Investment Bank, an autonomous bank capable of making investment decisions in the long-term interests of UK business

Adopted by Labour, Jan 2013

We also believe that local authorities should have more freedom to pool resources and borrow more freely within the prudential code.

READ MORE: Beyond big banks and big government: Strategies for local authorities to promote investment

Accessible and sustainable finance is critical to the 'green industry' especially, and to the ability of cities and regions to support sectors and 'clusters' of particular local importance. This finance could be provided by separate green and regional investment banks, or by dedicated teams within the national investment bank.

To avoid limiting their investment power

the borrowing of these banks should be excluded from any measurement of public debt

READ MORE: The green investment bank: Do it now, make it big

Back to top