Ryan Bourne: We need to look back from the future to assess what government policies are needed to boost productivity

Ryan Bourne is the Economic and Statistical Researcher at the Centre for Policy Studies

In a CPS paper released today (pdf), Norman Blackwell argues that far from simply recovering or getting ‘back on track’ post-recession, the UK’s economy requires fundamental clear-sighted reforms to improve our long-term productivity. He outlines three key challenges that the country will have to face up to (rise of BRICs, ageing population and increased global demand for energy) and five areas in which evidence suggests more rigorous government policies are required to boost long-term productivity. It is essential, he argues, that we attempt to look back from the future. Below, we set out his main conclusions:

RESTRUCTURING PUBLIC SERVICES: verdict on coalition – beginning to target

The productivity deficit of the public sector has been well documented. To overcome this will require a fundamental opening up of public services, and frameworks set in place to enable provision of services by not-for-profit, charitable and fully commercial organisations.  The government must overcome political resistance to fully embrace school and NHS reform, as without the competitive elements, the aims will not be achieved.

RAISING THE UK SAVINGS LEVEL: verdict on coalition – not going far enough

International evidence suggests high rates of productivity growth and economic growth is associated with high savings ratios. The Coalition has taken some steps to boost corporate saving and move closer to a net government surplus. But it should boost household savings by simplifying the tax incentives for retirement savings by merging pensions and ISAs. Allowing higher earners to use an ISA for their full annual retirement savings could save the Treasury a substantial part of the roughly £30 billion annual cost it currently incurs in upfront pension tax.

REFOCUSING EDUCATION ON EXCELLENCE: verdict on coalition – failing

Social mobility has declined in line with the erosion of grammar schools and selection over the past forty years. It is time to admit that schools policy in this country is failing. Whilst welcoming the reforms to extend the academy programme, a new state-funded selective school in each local authority is required to provide real opportunity across a wide catchment area. These would require no compulsory test, but the ability for schools to choose based on rigorous ability assessment at multiple stages. In addition, university admissions should make greater use of American-style GMAT tests so as not to discriminate against able students from less advantaged schools, who might have been given lower quality training for A-levels and interviews.

PROMOTING EDUCATION, HEALTH AND SCIENCE RESEARCH SERVICES AS GLOBAL INDUSTRIES: verdict on coalition – failing

Education and health have traditionally been seen and managed as ‘National Overhead’ in the UK, but there is increasing opportunity for the UK to exploit them as expanding global industries. The UK already has 400,000 foreign university students, but these are often seen as a means of universities covering costs rather than a business development. Our top universities and schools should have more freedom to expand and create off-quota places and be encouraged to create overseas satellite campuses. Increased wealth arising from this could then be used to expand the research capacities of universities, particularly in the science area. In addition, entrepreneurial expansion in the health sector should be encouraged.

SECURE, LOW COST ENERGY: verdict on coalition – failing

There is a strong argument for new nuclear builds to be delivered sooner rather than later. Assessing the most recent unit cost estimates, and making comparisons with the cost of energy in France, shows that now is the time to harness means of raising finance to make these long-term investments.

He concludes:

“In many areas the Coalition is moving in the right direction, but needs to go further and faster. Creating the conditions which will enable long-term growth to flourish – rather than looking for short-term fixes – will not be easy. It will require considerable courage and commitment. Many of the policies will be controversial.

It remains to be seen whether the Coalition – and the country – are up for the challenge.”

Look Back from the Future: a radical path to growth and prosperity in the 21^st century by Norman Blackwell is published by the Centre for Policy Studies.