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The UK economy is suffering from a “sprained ankle” rather than a broken leg, chancellor Jeremy Hunt said on Monday as he sought to play up the country’s strengths, including technological innovation and education.
Speaking at an event in London, Hunt insisted that other advanced countries also had areas to improve economically and that western nations had fallen into a “low-growth paradigm” since the 2007-09 financial crisis.
“If we are going to go into dealing with the sprained ankle, rather than a broken leg, let’s do so from a perspective of positivity because we have so much going for us,” Hunt said.
The chancellor was speaking at the launch of a report by the Resolution Foundation and Centre for Economic Performance on how to end the UK’s economic stagnation and bolster equality.
The report, which concluded the two think-tanks’ joint Economy 2030 Inquiry, found that British living standards had fallen far behind a group of five peer countries amid sluggish growth, leaving the typical household facing an annual £8,300 income shortfall.
The report added that the gap would only be narrowed with a radical shift in government policy.
Hunt rejected the suggestion that Britain lagged behind its peers, insisting that since 2010 the UK’s gross domestic product had grown faster than countries including Spain, Italy and Germany.
But productivity performance, the ultimate driver of living standards, has been weaker in Britain compared with its peers, as have levels of business investment.
UK labour productivity increased 0.4 per cent a year in the 12 years following the financial crisis, half the average rate of the 25 richest countries in the OECD club of nations, the report said.
The productivity gap between the UK and the US, Germany and France has doubled to 18 per cent since 2008. The UK also has the highest level of inequality of big European economies.
The report found that if UK business investment had reached the average level of the US, Germany and France since 2008, GDP would be almost 4 per cent higher, lifting wages by approximately £1,250 a year.
Hunt pointed to government policies to boost growth, including making the full-expensing capital allowance regime for companies permanent, as he insisted the UK had strong prospects.
“You are absolutely right to say why have all of us fallen into this low-growth paradigm,” Hunt said. “This is affecting all western nations and you have to have a scheme to get out of it.”
He also said he wanted to reverse the real-terms reject in public investment when it was fiscally possible.
“I don’t think you want declining public investment. And I very much hope we’ll be able to get back into a place where we don’t have to do that,” the chancellor added.
