Before writing this article I searched Lib Dem Voice for articles on the economy, economic growth and the hot topic of “abundance”. I was surprised how little the economy seems to be discussed or written about, at least as the main topic of an article. This contrasts with the uncomfortable reality that the UK is in a terrible economic position.
UK real wage growth has been flat for getting on for nearly 2 decades. This is not news to anyone. It has had plenty of focus in the media, and from economic think tanks on the right and left. This is a direct reflection of stagnating real GDP per capita and, in turn, means that tax revenues are not growing at a rate able to keep up with the demands of our aging population. Hence Rachel Reeves finds herself in a horrific fiscal position.
This is felt by all of us via less purchasing power and through the increasingly obvious deterioration of the public realm and stressed public services.
Labour came to power on a mission to fix this, by getting Britain building again, coupled with the creation of a “National Wealth Fund”, adding in some devolution and various changes to the jobs market and the “skills system”. There is also a plan for a new industrial strategy.
Now, more than one year in, Labour are in the process of making some tentative changes to the planning system and are proposing some modest devolution. When it comes to the labour market, it all seems to be going wrong with a job-destroying hike in employers’ NI and continued tension around immigration. The Government published its industrial strategy in June, however the UK’s highly centralised state has not proved very capable of implementing large complex new strategies in recent years.
But leaving aside Labour’s faltering plans for a moment, it is worth considering the problem itself. There is broad agreement on what that is: UK productivity growth is in the toilet. Moreover, there is also agreement that this is due to a lack of private and public investment:
“The total capital stock of the UK is actually lower now than it was in 2016; by comparison, it is 14 percent higher on average across the rest of the G7.” UK Foundations Essay (Centre Right)
“Investing too little for one year is manageable, but doing so year after year is a recipe for relative decline. This is precisely what the UK has been doing and where it finds itself.” Resolution Foundation: Economy 2030 (Centre Left)
There is no shortage of proposed solutions. Some proposals have been tried before, including industrial strategies, it is not clear Labour’s latest effort will be any better. More recently, a new view has emerged, again supported by both the right and the left, but probably best articulated in the UK Foundations essay: “the most important economic fact about modern Britain: that it is difficult to build almost anything, anywhere.”
Although much of this “abundance” zeitgeist is focused on “getting Britain building again”, there are additional measures by which the UK’s economic performance could be both: (i) improved to increase available resources; and (ii) better shared to reduce inequality. It would not be consistent with Liberal values to achieve higher GDP at the expense of US levels of inequality.
We have a new government that has set out a mission to improve the UK’s growth rate. But they are hampered by their own prejudices and tension between the Treasury and other ministries, not to mention continued poor governance and incompetence.
We have largely stayed quiet on the growth agenda, mainly sticking to the themes of the general election. We seem to lack any sort of vision for how to achieve an improvement in economic performance. However, things seem to be changing. A Policy Working Group has recently been formed to look at our economic policy and Ed recently made a speech setting the scene for this review.
Now, therefore, seems a good time to start debating these issues, however no focused group exists to make the case for growth policies within the Lib Dems (although various Groups have made the case on individual policies in the past). In contrast, a group of Labour MPs have recently formed such a group within Labour.
Fixing the UK’s growth problem underpins EVERYTHING. Without it, we cannot fix the issues we campaign on: adult social care, SEND, the NHS, inequality…. and all the others.
* Steve Wotton has been a Lib Dem member since 2018 and, since 2024, a Lib Dem Councillor in Surrey. He is also a local activist in the Dorking & Horley Constituency. Together with several fellow Lib Dems he is part of the inaugural Lib Dems for Growth Board.
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22 Comments
The real problem about growth is that unless it is non-polluting, it totally scuppers our environmental policies. This elephant in the room has been largely ignored and not only by Liberal Democrats.
What we should be talking about is how to live well without destroying the planet. Rather than growth, we should perhaps be talking about degrowth. This means facing up to the problems caused by serious inequality and accumulated wealth and frankly LibDems have pretty weak policies on inequality (we do not talk seriously about redistribution) and we largely ignore the problems caused by a few individuals getting and hoarding huge amounts of income and wealth.
The planet won’t support yet more growth and if we don’t start saying that, who will?
If you want degrowth you must love Brexit !
@ Steve,
I’m not saying that we shouldn’t aim for growth, but it’s not the magic fix that you’re implying with your “…….the UK’s growth problem underpins EVERYTHING” statement.
We’ve had a factor of three, or so, growth since the mid 70’s but here we are 50 years later saying “the UK is in a terrible economic position.”
It isn’t. But it’s true that problems of poverty and inequality are just as bad, if not worse, than they were then.
The mistake is to think that if we become 10% richer we can afford 10% more doctors, teachers, nurses etc. We won’t be able to do that for the same reason we can’t afford three times as many as we did in the 70s. As GDP increases everyone gets more expensive to employ.
This is known as the the Baumol effect, which describes how wages in labour-intensive, low-productivity sectors increase to match wages in higher-productivity sectors. So for example services like live musical performances progressively become relatively more expensive over time.
Somewhat paradoxically, we could “afford” more orchestras in the 19th century than we can now.
So if we do manage to have some growth we should decide in advance how we are going to use that. Redistribution should be much higher on the list of priorities as Mick Taylor has indicated.
Being obsessed with economic growth is the .ain problem of both Tories and Labour We have developed i.to a ort of post industrial society that has too big a population and far too man motor cars.. It’s difficult for what we have now to become much more productive. For example we sell premier league football abroad but how can that product become more efficient ? I wouldn’t waste time worrying about growth and think more of the need for the development of our economy.
@SimonMcGrath. You have, as usual, missed the whole point I was trying to make, in order to score cheap point about something that is irrelevant to what I was saying.
If we are serious about the threats facing the planet – and we certainly claim to be – then going for growth is contrary to saving the planet, unless we can have growth that does not damage the environment.
In any event, I would argue that we cannot continue to have endless economic growth and save the planet and our party is pursuing two lines of policy that are inimical to each other, growth and environmental policy.
And yes, we have had increased prosperity all my life, but the time has come to recognise that this is no longer possible. The fact that we have allowed a small number of people to become obscenely wealthy to the extent that they challenge democracy and keep the majority of people relatively poor is something we now have to tackle by sharing income and wealth more fairly, not continuing to pretend that allowing the few to become wealthy benefits us all in the long run.
This article discusses UK growth and labour productivity in the context of the so-called UK productivity puzzle
Growth in a mature service based economy should not underpin everything. Rather quality of public services should underpin everything. A century ago, Keynes opined that by the early 21st century standards of living would have risen so much that a 15 hour work week would be the norm When John Maynard Keynes Predicted a 15-Hour Workweek “in a Hundred Year’s Time” (1930)
That has not come to pass despite the immense increases in productivity since the 1930s.
Among the key reasons so many continue to work 40 hours plus a week, is the necessity of meeting housing costs and the cost of living generally. The proportion of take home pay being spent on basic food, clothing, goods and services has declined since the 1930s while the proportion devoted to housing and energy continues to increase. This is despite massive productivity increases in energy extraction and the construction sector.
Taxing the rents that are extracted from land, mortgage interest on land and natural resource extraction can go a long way to capturing these productivity gains for the public benefit and easing cost of living pressures for the median wage worker.
We could (if in power ofc) allow local councils to compulsorily purchase agricultural land at its agricultural value (or maybe 10% more) to build social housing on. I see no good reason why landowners should get a huge bonus from owning land that is awarded planning permission for housing.
I agree with Steve Wotton about the importance of economic growth. That is why I applied to be a member of the Policy Working Group to look at our economic policy. I am pleased that I was accepted.
The fundamental problem is that too many participants in public debate do not prioritise economic growth. Recent PM Liz Truss was right – there is an anti-growth coalition in our country. What she overlooked is that its biggest component is members of the Conservative Party with their support of Brexit and opposition to onshore windfarms!
Sadly several of the comments above illustrate this same lack of prioritisation of economic growth amongst Liberal Democrats.
Thank you for the comments on the piece.
@Mick Taylor we are already trying de-growth (albeit not by intent), that is broadly the situation we are already in, with real incomes and GDP per capita pretty much static since 2008. We are, as a result, seeing the results of that in the deterioration of the public realm, hobbling of public services, cannibalisation of council budgets by adult social care and the general sense that nothing works in the UK.
@Peter Martin, I think we are in a pretty bad situation, not only with regard to the public realm and public services (as noted above), but also our debt situation and rising interest rates severely limits our room for fiscal adjustment. Restoring robust GDP growth correlates with rising tax revenues which helps to alleviate this situation, but it does not remove completely the challenges of servicing the long term liabilities of the state. As for “as GDP increases everyone gets more expensive to employ”, that is sort of the point. I want real incomes to rise.
To the various points made with respect to the impact of growth on the environment, there are trade-offs for sure, but equally we are in the middle of an enormous transition, which itself has costs, from an energy system based on fossil fuels to cleaner sources. Moreover, productivity growth and technology innovations can themselves help mitigate other human impacts.
@joseph Bourke I agree we need to work long hours to meet the high costs of housing and energy, so we need more of them! This means we need to increase supply, but unlike previous Tory policies, we cannot just wait and hope the private sector can pick up all the slack, the state needs to do its bit too.
@Mohammed Amin I wish you well on the Working Group. I would just note, that the UK’s problems predate Brexit (although it did not help) and, in addition, we also desperately need to look critically at energy costs. UK costs are currently amongst the highest in the world.
Well said Steve! (I also applied to be on the economics working group, but was not selected)
Thanks Steve. Economic growth of say 2% per capita per annum would allow significant more investment in public services without tax rises. I am sure we can get that growth without sacrificing the environment, and we need to make sure that growth is broad based and inclusive. Improving returns to labour, vs capital – is a good place to start. Let’s get to work on building such a plan.
It looks like Joseph wins the Cadillac and Mick wins the steak knives. The rest of us get fired.
A quick fix of growth – for instance by using more energy – will not fix the issue that many people find themselves having to pay over ‘rent’ (in a board sense), and that we live in a resource constrained planet. This is a hard problem. Even the Greens seem to have abandoned addressing it, in favour of populism. We cannot shrug and look for a tactical policy to go for growth.
A hint of the difficulty this week is the capital strike in the life sciences area. Due to trimming, and a long term policy in the NHS of “doing the same with less (drug budget)” Pharma has declined our offer, with hard man Wes Streeting trying to lower productivity there.
Over the last 200+ years economic growth has moved roughly in tandem with growth in energy usage at around 2%pa, doubling every 35 years. It took off when we discovered how to use coal to raise steam, slumped between 1913 and 1930 ( peak coal) and took off again between 1950 and 1980. The UK had a final boost from N.Sea oil after 1980.
But energy is now more expensive to obtain, so economic growth is throttled.
Ps. 1950 the rise of the oil economy.
Good to see an article of substance which has clearly attracted comment. Unless the Government addresses pay differentials within companies chasing inward investment in search of growth will make the rich richer and create low paid jobs for the masses as it has for the past 45 years. More of the same only more so will not achieve the stated objectives of the government. Perhaps government should undertake an income inequality and poverty audit of all it does to ensure that it is reducing and not increasing them.
It’s interesting to read this article in the light of having heard Phil Smith speak at today’s meeting of CW Champions. Phil chairs Skills England, based in Coventry. CW Champions is a huge quarterly business and public sector networking event. Phil is for growth but the right sort of growth. His recipe for achieving it is to invest to address our chronic lack of productivity. For Phil it’s about 1) simplifying the culture as much as we can (not easy if we want to keep our EDI and H&S focus which we do) 2) allowing the data to drive the policies and the processes and 3) engaging with each across sectors much more constructively. And yes, the Party should be more high profile on the issue of growth.
Once again, no specific mention of ‘sustainable growth’. Labour has based its missions on rising growth paying for improved public services, but no plan B for a stagnant economy!
Mick Taylor’s point about the capacity of the planet to sustain the current human population (about 8 billion and increasing) cannot and must not be overlooked in this debate.
I do not know whether the population is already over the carrying carrying capacity of the planet but we can’t be far off. The most stark demonstration of this is global warming; absent urgent stabilisation of global temperatures it will simply become too hot to sustain current food production. Historically over-population has been solved by the four horsemen of the apocalypse – hardly a liberal solution.
I suggest the best way to reconcile the competing needs of growth and sustainability is a liberal away is to create an economics that maximises capital – social capital, natural capital and intellectual capital – as well as financial capital – with a core requirement that the amount of natural capital available is always ample to sustain the population.
Roughly half the food we eat depends on nitrogenous fertiliser made from fossil fuel.
Jenny Barnes 17th Sep ’25 – 7:23am:
But energy is now more expensive to obtain, so economic growth is throttled.
Only because we’ve chosen to make it so. Adjusted for inflation, oil is as cheap as it’s been since 2001 and less than a third of its 2011 peak. Gas is relatively expensive in the UK and Europe, but elsewhere it’s as cheap as it’s ever been. In parts of the US it’s so abundant that prices go negative…
‘West Texas Gas Falls to 14-Month Low as Negative Prices Persist’ [15th. September 2025]:
https://www.bloomberg.com/news/articles/2025-09-15/west-texas-gas-falls-to-14-month-low-as-negative-prices-persist
It’s more expensive in terms of the energy required to get it. It clearly costs a lot more to build an deep water offshore drilling rig and platform to obtain oil now than it cost back in the day to shove a pipe in the ground in pennsylvania. Why is the oil price not much higher then? The economy – people – can’t afford the sort of prices that are needed. Around the time of the 2008 financial crisis energy pundits were predicting $200 bbl oil. It didn’t happen because the economy crashed. Energy prices up – economic activity down, energy demand down, energy prices down, economic activity up a bit, energy prices up – and repeat.
Have a look at Exxon’s energy outlook.
Does growth that relies on uk based infrastructure actually count as growth? Unless we create money there is only so much in the economy and all we do is recirculate it. It is only by exporting that we gain more. Or is this far too simplistic?