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The Progressive Policy Think Tank

Article 50 has been triggered – what now?

There is no turning back. With today’s triggering of Article 50, the most serious negotiations in our post-war history will commence.

We have two years – unless the remaining EU member states agree to extend the deadline – to finalise the negotiations that will shape our new settlement for years to come.

This must be a moment of national renewal where we confront our problems. The vote to leave the EU was a signal that the status quo needs to change. As the Financial Times has pointed out, the UK has an expanding economy that shrinks wages. Voters did not back change because they did not feel the post-crash economy recovery. They voted for change because there has been no recovery outside London and the South East. In no other region of the country have incomes returned to their pre-crisis peak.

It is this reality – that the current economic model has lost its legitimacy – that previously remain campaigners must acknowledge. But former leave campaigners, having promised change in the campaign – from more resources for public services to a greater sense of control, must deliver.

We can only do that if we confront the symptoms of the UK’s distressed economy:

  • We have an investment problem. Investment drives wealth and prosperity, now and in the future. But for more than 20 years, the level of investment in the UK economy has been declining.

Cheap labour from the European Union allowed firms to increase hiring, rather than invest to drive up productivity. But communities expect the businesses they host to invest to create good quality jobs. In fact, some firms have given up on investment altogether, returning cash to shareholders and becoming net savers.

  • The lack of investment has led to low productivity growth, and therefore little growth in wages. Productivity has stalled in the UK since the crash, causing living standards to stagnate;
  • We have a large and persistent trade gap. As a proportion of the UK economy, we currently import six per cent more than we export. The gap has been persistent since the mid-1990s, and it means the UK must ‘live on the kindness of strangers’, who lend us credit and buy up our industry;
  • We are a vastly unequal society. The richest tenth of households have incomes 11 times that of the poorest tenth – in France and Germany the different is seven-fold, in Denmark it is five-fold;
  • Our economy is geographically unbalanced. London and the South East account for 40 per cent of the national output, while the other regions of the UK lag behind most of their counterparts in the UK.

The UK now carries these weaknesses outside the potentially safe harbour of the European Union, just as we must prepare for a decade of disruption that will bring profound change.

Change is being driven by a fourth industrial revolution of new technology. Without deliberate policy, it is likely this technology will send more rewards to those that already own capital, and squeeze those who must work for their livelihood.

It is also being driven by demographics. We will experience a one-third increase in the number of over-65s by 2030, but only a 3 per cent growth in the working age population who must support them, with all that means for housing, health and social care.

This is all occurring as economic power shift eastwards. By 2030 emerging economies will account for half of global output, up from one quarter today. American leadership will be in question, and the power within global institutions will shift.

The most perilous driver of change is the ecological threat. We are currently consuming resources at 1.5 times the ability of the earth to replenish them. We need a radical response if we want a sustainable, low-carbon world.

These challenges are being examined by IPPR’s timely Commission on Economic Justice, which will produce recommendations for a new economic settlement that addresses these persistent problems.

They are the context in which Brexit negotiations will happen. We must ask ourselves, what level of greater international co-operation do we need to face these challenges, requiring a continuing close relationship with the EU? To what extent will we have to be agile, able to respond rapidly and flexibly, requiring greater independence?

Article 50 has been triggered. The questions cannot be avoided any longer. The time for answers is now.

An earlier version of this article appeared in The Observer newspaper.