The UK’s chronic underinvestment is the root cause of its stagnating productivity and sluggish wage growth. This is the view of Matt Alabaster (Partner at PwC), who was commenting on the government’s latest Industrial Strategy.
The strategy document out a new economic approach to backing the UK’s strengths, with ambitious plans for eight high-growth sectors.
“Analysis shows a staggering £2 trillion investment deficit compared to our G7 peers – a gap that cannot be closed with short-term fixes. If growth is truly the mission, then global capital is the fuel, and the UK must become the destination of choice,” said Alabaster.
He noted that a long-term industrial strategy, backed by business and delivered consistently by government, is a vital first step.
“But let’s be clear: the money won’t come from down the back of the UK’s sofa. Government capital spending, while welcome, only scratches the surface – its annual increase covers just 67 days of the levels of investment the UK has lost. And the £2 trillon deficit is approximately equal to the entire market capitalisation of the FTSE100.”
If the country is serious about turning the tide, it needs to unlock the world’s deepest pools of capital – from sovereign wealth funds to global pension giants and tech titans, he said.
“That means making the UK a magnet for international investment. The Office for Investment must be empowered to act as a bridge between ambition and action,” he said.
Replacing fog with certainty
At a time of heightened economic uncertainty, Britain is replacing policy fog with policy focus, underlining the government’s commitment to making economic policy more predictable, said Barret Kupelian (UK Chief Economist at PwC).
A credible industrial strategy means businesses can plan to grow with confidence, not just chase the next short-term cycle or worry about the next shock, he said.
“Can this strategy end the UK’s long term productivity stagnation? It certainly could. Evidence from advanced economies shows that every one percentage point of GDP devoted to industrial policy delivers, on average, a 0.25 per cent lift in labour productivity in that sector within two years.
“Nonetheless, there is still a mountain to climb: the UK still faces a cumulative capital gap of around £2 trillion compared with our peers. But productivity is not made in a day. It is built brick by brick, and this strategy lays the foundations for tomorrow’s growth.”
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