Chancellor of the Exchequer Rishi Sunak claimed before the election that the UK economy is currently “growing rapidly”, but that claim has been undermined by the publication today of a report which claims that growth since 2010 has not been “outstanding” and is mainly the result of population growth due to increased immigration.
The study, “Life in the Slow Lane”, by the politically independent Resolution Foundation, will add to the consensus among economists and academics that the fundamental economic issues and challenges facing the country are being avoided by political parties during the general election campaign.
Both Labour and the Conservative parties have pledged to reduce immigration if they form the next government, but have said little about how to increase investment and boost productivity to stimulate real long-term growth.The report finds that since 2010, the UK’s population has grown at an average of 0.7% per year, equivalent to six million people, and is the main driver of GDP growth. Three-quarters of this total population growth is due to immigration.
“When we look at GDP per capita taking population growth into account, the UK’s overall and relative performance is much worse,” the foundation said. “GDP per capita has grown by just 4.3% over the past 16 years, compared with 46% in the years prior to that.” The report said population growth masked the UK’s “abysmal” record of productivity (output per worker), which grew by just 0.6% per year in the 2010s. Since the 2008 financial crisis, productivity growth has been the slowest in two centuries.
David Willetts, chairman of the Resolution Foundation and a Conservative peer, said: “Our report shows that crude GDP growth figures overstate our performance because our population is growing. GDP per capita growth is far too low. We need more investment to grow the economy and party manifestos must recognise the seriousness of the problem and set out how to tackle it. The election campaign so far has not seriously addressed this challenge.”
Looking ahead, the report says the jobs boom of the 2010s is unlikely to happen again: immigration levels are expected to fall from 685,000 in 2023 to around 350,000 per year over the next five years, while unhealthy populations and the fact that many of the UK’s large baby boomer generation are retiring will put further downward pressure on future growth in the workforce.
Greg Thwaites, research director at the Resolution Foundation, said: “Adding six million people to the UK has certainly expanded the economy, but it has had almost no effect on GDP per capita. The UK’s performance on productivity, which really matters for living standards, is very poor.”
The report said that since 2019, the UK has strengthened its position as the world’s second-largest exporter of services after the United States. But “far less welcome” has been the “weak performance of trade in goods”, with 57% of manufacturers “still grappling with additional paperwork, tariffs and border checks that have increased challenges for exports post-Brexit”.
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Sunak has sought to boost the Conservative party’s chances of victory by arguing that a return to growth in the first quarter of 2024 would mean the economy is “booming”.
The Resolution Foundation report explains Sunak’s argument: “But one quarter of growth does not tell the whole story. What matters is the bigger picture of how the economy has performed since 2010, which has been stagnating since the financial crisis. In this context, it is productivity growth, not GDP growth, that ultimately matters for households’ living standards…By this measure, the annual productivity growth rate of 0.4% since 2007 has been the lowest for that period in the past 200 years, leaving average real wages £14,400 lower than pre-crisis trends.”
