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United Kingdom: Maintain close ties with EU to meet challenges of Brexit, OECD says PDF Print E-mail
Wednesday, 18 October 2017
The U.K. economy has weakened in the aftermath of the decision to leave the European Union. Maintaining close ties with the EU and implementing policies to boost productivity will be crucial for maintaining future living standards, according to a new report from the OECD. 

The latest OECD Economic Survey of the United Kingdom details developments since the June 2016 vote to leave the EU, highlighting growing uncertainties and a number of risks. This includes the hit on households’ purchasing power from higher inflation, declining savings rates, and a fall in net migration. It lays out a range of policy options for meeting the challenges posed by Brexit and building a stronger and more inclusive U.K. economy going forward.

The Survey, presented in London by OECD Secretary-General Ángel Gurría and U.K. Chancellor of the Exchequer Philip Hammond, identifies priority areas for future action, including new productivity-enhancing fiscal initiatives and comprehensive policy reforms to boost the economic performance of lagging regions nationwide.

“The United Kingdom is facing challenging times, with Brexit creating serious economic uncertainties that could stifle growth for years to come,” Mr Gurría said. “Maintaining the closest economic relationship with the European Union will be absolutely key, for the trade of goods and services as well as the movement of labour. Macroeconomic and fiscal policy can and should continue being used to support the economy, both during and after the exit negotiations. Future prosperity will depend on new reforms to improve job quality, boost labour productivity and ensure that the benefits are shared by all.”

The Survey says that sustained economic progress will hinge on a successful outcome to negotiations with the EU and those still to come with other countries. It recommends efforts to ensure high value chain integration for network industries and high levels of access for services sectors to overseas markets.

Monetary stimulus has left “fiscal space” for greater use of productivity-enhancing investment initiatives. The Survey suggests that the Government consider swift deployment of such measures in the event that the low-growth trap continues. It also notes scope for a tax and spending review, to identify additional fiscal initiatives, including the potential for higher National Income contributions for the self-employed and indexation of state pensions on average earnings only.

The Survey says that addressing the regional productivity divide – between high-productivity areas like London and Southern England and lower-productivity regions in the North – can be a key channel for fostering long-term growth and sharing prosperity across the country. As part of the industrial strategy, locally and regionally focused investment in transportation and housing would boost the productivity-enhancing effects of agglomerations. Further decentralisation should include increased local authority oversight over property taxes.

Increasing support for innovation to help businesses adopt modern technologies, enhance business-university collaboration and adapt technical education to local business needs will raise productivity in regions, as will taking additional steps to ensure sufficient teacher training and incentives to reduce teacher shortages in disadvantaged regions, the Survey said.

With employment at high levels, labour and social policy should be directed at improving job quality as well as the productivity of low-skilled workers. This can include the introduction of tighter criteria to restrict self-employment to truly independent entrepreneurs, enhance job security rights for workers on zero-hours contracts, as well as individually targeted programmes to improve lifelong learning opportunities, the Survey said.
 

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