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OECD Economic Surveys: United Kingdom 2017

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After a good performance until 2016, growth slowed in the first half of 2017. The unemployment rate has fallen to below 4.5%, but real wages are in a downward trend. Planned Brexit has raised uncertainty and dented business investment. Negotiating the closest possible EU-UK economic relationship would limit the cost of exit. The authorities should allow automatic stabilisers to work and identify in advance productivity-enhancing fiscal initiatives on investment, to be implemented rapidly were growth to weaken significantly in the run-up to Brexit, while safeguarding fiscal sustainability. Comprehensive policy packages should boost the productivity of lagging regions and cities, which requires local transport investments to foster connectivity, spending on research and development to raise innovation, housing investments to ease the matching of skills to jobs, and greater educational attainment and training tailored to business needs. Enhancing teachers’ training and other incentives, in particular in disadvantaged schools, would address teacher shortages and improve skills. Low-skilled workers participate less in lifelong learning and introducing targeted re-training programmes would boost competencies more broadly. Tax and regulatory reforms of non-standard forms of employment would offset workers’ weaker bargaining power and ensure better job quality.

SPECIAL FEATURES: REGIONAL PRODUCTIVITY; PRODUCTIVITY OF LOW-SKILLED WORKERS

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Reducing regional disparities in productivity

The United Kingdom displays large regional disparities in productivity compared to most other OECD countries, with a large gap between London and most other regions. This holds back aggregate productivity and growth, and contributes to regional differences in living standards. To make the lagging regions more attractive to companies and workers, transport links between and within cities should be improved by increasing infrastructure investment outside London. Another policy priority is to improve the local business environment through more spending on innovation and increased support for investment and skills. Also, local authorities should have more freedom in setting education and training goals and the land-use planning system has to be more responsive to meet housing needs in cities. The role of subnational government is sub-par relative to the OECD average, but more devolution has recently been introduced in several city-regions. Such efforts towards more decentralisation need to continue to cover larger parts of the country and involve greater transfers of powers and responsibilities at the local level.

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