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Across the United Kingdom public (and private) resources have been targeted on improving broadband infrastructure. While this has served to provide new opportunities for households and firms, there has been some debate around the ability of firms to take full advantage of the opportunities that arise through this evolving infrastructure. In this respect, there has been particular debate on how far small- and medium-sized enterprises (SMEs) have taken up the challenge of effectively engaging with the resource. Drawing on the case of Wales, this paper explores the digital maturity of a sample of Welsh SMEs. The paper provides evidence of how far SMEs are successfully engaging with the new opportunities available through broadband, and develops a typology of firms according to their engagement. The paper then explores how these differences produce policy implications. [ABSTRACT FROM AUTHOR]

This paper weighs possible medium-term responsible policy choices to the extraordinary expansion of government spending in response to the COVID-19 outbreak. The paper is divided into two parts. In part 1 of the paper, we look at conventional debt sustainability and question whether conventional rules created during a period of high interest rates and high inflation remain relevant. Current and future conditions support a case for government debt/GDP to remain elevated compared to history, conditional upon limited state interference in the economy to allow appropriate allocation of capital and resources. In part 2, we consider the historical experience of the United Kingdom. History shows the country had several examples of rapid, large-scale expansion of government debt relative to the size of the economy. On each occasion, the elevated level of debt-to-GDP was later reduced by a combination of relatively benign factors, including commitment to low inflation and sound monetary system. This supported the financial probity of the UK government and allowed it to continue to borrow unimpeded. [ABSTRACT FROM AUTHOR]

This article examines the key features of the UK's spatial productivity relationships and discusses some of the key questions currently being articulated or debated as they relate to potential devolution-related discussions. The paper demonstrates that the local productivity challenges facing UK regions are nationwide in nature rather than local, and systemic rather than specific. In particular, the scale-productivity relationships across cities and regions which are evident in almost all other OECD countries are largely absent in the UK. Instead, previous prosperity is the dominant marker of current local prosperity, suggesting that cumulative causation processes define the UK regional and urban economic landscape rather than scale relations. This article explains these features in a manner which is accessible to a wide audience, in order to provide greater clarity regarding the fundamental economic problems to be addressed and also the underlying objectives which the Levelling Up agenda needs to achieve. [ABSTRACT FROM AUTHOR]

With international trade increasingly undertaken within vertically fragmented supply chains, this paper considers the impact of changes in trade costs on domestic output. In the context of the UK's exit from the EU we show that the negative impact on UK output will depend on changes in both domestic and export competitiveness. Since for many firms the majority of their sales are to the domestic market, the domestic competitiveness impact may be quantitatively more important. The impact on output will be more significant the greater the integration of firms in international supply chains, and the greater the asymmetric impact of leaving the EU on UK firms relative to EU firms. [ABSTRACT FROM AUTHOR]

Only half of investment by firms is in physical capital, such as buildings and machinery. The other half is in intangible assets, such as branding, software and training. This has been true for the past two decades or more in the UK, but only if you step beyond the measures in the National Accounts, which include only some of the recognised intangible assets. This paper surveys ongoing work at the Office for National Statistics to develop measures of investment in intangible assets, using new insights and innovative approaches. In particular, this paper reviews developments in three areas: in-house branding investments, employer-funded training investments, and in-house investments in organisational capital. We reconsider some of the key assumptions made in the literature and propose alternative approaches to measurement. The paper concludes by considering implications of this work, and identifies some of the remaining gaps in the evidence base for measuring intangible assets. [ABSTRACT FROM AUTHOR]

This special issue of the National Institute Economic Review is being published at an unsettled and uncertain time for the United Kingdom. In June 2022, the First Minister of Scotland Nicola Sturgeon called for a second referendum on Scottish independence to be held in October 2023. While it is unlikely that the referendum will be granted by the UK government, current polling suggests the outcome of such a referendum would be too close to call. Eight years after Scotland voted 55%–45% to stay in the Union, independence remains a live issue, which raises fundamental questions about economic and governance arrangements between Westminster and the UK's constituent parts. [ABSTRACT FROM AUTHOR]

This paper examines the implications of labour migration models that rely on employer sponsorship. According to UK government proposals, long-term migration into high-skilled jobs after Brexit will require workers to be sponsored by employers, while workers in low-skilled and low-wage jobs will receive short-term work permits that do not require an employer sponsor. The paper argues that choosing employer sponsorship over worker-driven routes has three key effects: it gives the government greater ability to regulate which jobs migrants fill; it gives employers more power over their workforce; and it increases the administrative burden associated with hiring workers from overseas. This implies that in high-skilled jobs, employer sponsorship is likely to improve the skill composition of labour migrants but reduce the total number of skilled workers admitted; and that in low-skilled positions the government faces a trade-off between the ability to channel workers to specific jobs (including those where employers struggle to attract workers) and the risk of increasing underpayment or exploitation. [ABSTRACT FROM AUTHOR]

As Britain prepares to leave the EU immigration policy has come to the top of the policy agenda. The Brexit vote was seen as a vote against free movement and new policies are aimed at introducing more restrictive controls. The report by the Migration Advisory Committee (MAC) in September 2018 recommended little new provision for low-skilled migration post-Brexit (MAC, 2018). This was then adopted by the Home Office in its Immigration White Paper, published in November 2018 (Home Affairs Committee, 2018). The White Paper explicitly references public concerns that migrant labour reduces opportunities for British workers and undermines their pay and conditions. Yet employers have argued that they need to be able to continue to recruit lower, as well as highly skilled labour because the supply of British workers is insufficient. The paper explores the likely impact of proposed restrictions on immigration post-Brexit, using data from NIESR studies of employers and of the general public. It combines an assessment of what is needed to meet the needs of employers, the economy and to address public concerns, finding that there is more consensus than there is often considered to be. [ABSTRACT FROM AUTHOR]

This paper describes how the large budget deficits of 2020 in the United States and the United Kingdom were financed, how central banks are in practice managed not just short-term interest rates but also yields on government bonds, and how their ability to resist a post-coronavirus surge in inflation has been compromised. [ABSTRACT FROM AUTHOR]

Over the past 15 years, productivity growth in advanced economies has significantly slowed, giving rise to the productivity paradox of the New Digital Economy – that is, the notion of increased business spending on information and communication technology assets and digital services without a noticeable increase in productivity. We argue that time lags are the most important reason for the slow emergence of the productivity effects from digital transformation. This paper provides evidence that underneath the slowing productivity growth rates at the macro level, signs of structural improvements can be detected. In the United States most of the positive contribution to productivity growth is coming from the digital producing sector. The Euro Area and the United Kingdom show larger productivity contributions from the most intensive digital-using sectors, although the United Kingdom also had a fairly large number of less intensive digital-using industries which showed productivity declines. We also find that increases in innovation competencies of the workforce are concentrated in industries showing faster growth in labor productivity, even though more research is needed to identify causality. Finally, we speculate that as the recovery from the COVID-19 recession gets underway the potential for significant productivity gains from digital transformation in the medium term is larger than during the past 15 years. [ABSTRACT FROM AUTHOR]

Defends the validity of competitiveness as a guide to economic policy formulation, particularly in Great Britain. Discussion of the government's 1994 and 1995 White Papers on competitiveness; Definition of national competitiveness; Finance for industry; Policies that have changed business conditions; Inward investment; Taxation; Gap between British and German productivity.

This paper analyses the costs and benefits of lockdown policies in the face of COVID-19. What matters for people is the quality and length of lives and one should measure costs and benefits in terms of those things. That raises difficulties in measurement, particularly in valuing potential lives saved. We draw upon guidelines used in the UK for public health decisions, as well as other measures, which allow a comparison between health effects and other economic effects. We look at evidence on the effectiveness of past severe restrictions applied in European countries, focusing on the evidence from the UK. The paper considers policy options for the degree to which restrictions are eased. There is a need to normalise how we view COVID because its costs and risks are comparable to other health problems (such as cancer, heart problems, diabetes) where governments have made resource decisions for decades. The lockdown is a public health policy and we have valued its impact using the tools that guide health care decisions in the UK public health system. The evidence suggests that the costs of continuing severe restrictions in the UK are large relative to likely benefits so that a substantial easing in general restrictions in favour of more targeted measures is warranted. [ABSTRACT FROM AUTHOR]

There is renewed interest in levelling up the regions of the UK. The combination of social and political discontent, and the sluggishness of key UK macroeconomic indicators like productivity growth, has led to increased interest in understanding the regional economies of the UK. In turn, this has led to more investment in economic statistics. Specifically, the Office for National Statistics (ONS) recently started to produce quarterly regional GDP data for the nine English regions and Wales that date back to 2012Q1. This complements existing real GVA data for the regions available from the ONS on an annual basis back to 1998; with the devolved administrations of Scotland and Northern Ireland producing their own quarterly output measures. In this paper we reconcile these two data sources along with UK quarterly output data that date back to 1970. This enables us to produce both more timely real terms estimates of quarterly economic growth in the regions of the UK and a new reconciled historical time-series of quarterly regional real output data from 1970. We explore a number of features of interest of these new data. This includes producing a new quarterly regional productivity series and commenting on the evolution of regional productivity growth in the UK. [ABSTRACT FROM AUTHOR]

The UK's automotive industry has been one of the ‘star performers’ of the UK economy in recent years – unlike most other manufacturing sectors. Output has increased by over 60 per cent since 2010 and there has been over £8 billion worth of investment in the industry in the past five years. The industry supports some 800,000 jobs in the UK. It is seen as having benefitted from EU membership. So what might Brexit mean for the UK automotive sector, and its workers? This paper considers short-run impacts, before turning to the impact of uncertainty on foreign direct investment inflows and then the nature of a possible trading relationship. Some brief reflections on policy implications round off the paper. [ABSTRACT FROM AUTHOR]

This paper studies local economic impacts of the increases in trade barriers associated with Brexit. Predictions of the local impact of Brexit are presented under two different scenarios, soft and hard Brexit, which are developed from a structural trade model. Average effects are predicted to be negative under both scenarios, and to be more negative under hard Brexit. The spatial variation in negative shocks across areas is higher in the latter case as some local areas are particularly specialised in sectors that are predicted to be badly hit by hard Brexit. Areas in the South of England, and urban areas, are harder hit by Brexit under both scenarios. Again, this pattern is explained by sector specialisation. Finally, the areas that were most likely to vote remain are those that are predicted to be most negatively impacted by Brexit [ABSTRACT FROM AUTHOR]

This paper argues that the Bank of England's independence in monetary policy has been compromised as a result of quantitative easing (QE) and makes practical suggestions for restoring it as far as possible, by transferring the gilts that the Bank has bought to the Debt Management Office of the Treasury and thereby shrinking the Bank's balance sheet. The paper discusses the problems that will arise when QE is unwound and suggests that they would be less intractable if the unwinding were managed by the Debt Management Office. [ABSTRACT FROM AUTHOR]

The part of the UK fiscal framework which determines how UK government funding is allocated across the four home nations has undergone profound change since 2012, given tax and social security devolution. The UK government's post-Brexit plans for regional development funding, state aid, regulation and trade negotiations have led to significant disagreements about the nature of the devolved fiscal and constitutional settlement. And the COVID-19 pandemic provided a major shock to a fiscal system with limited flexibility for the Scottish, Welsh and Northern Irish devolved governments. This paper reviews the changes and challenges faced during these reforms and policy shocks. We find that: tensions about reforms to funding arrangements reflect the inconsistency of principles guiding the reforms; that the UK government's post-Brexit plans do reduce the policy autonomy of the devolved governments, but reflect powers central governments often have in even highly decentralised countries; and that temporary changes to rules and the nature of the COVID-19 pandemic prevented a subnational fiscal crisis, but that more systematic change may make the system more robust to future shocks. This suggests that a review of the principles underpinning the UK's subnational fiscal and economic policies would be highly worthwhile. [ABSTRACT FROM AUTHOR]

A new skills-based immigration system, with a preference for the highly-skilled, is central to UK policy debates in the Brexit context, arguably responding to majority public opinion on migration. Through qualitative fieldwork with British, Polish and Romanian citizens living in two local authorities in England, this paper shows what participants understand by 'low-skilled' and how there is broad support of those who 'contribute', but are 'controlled' at the same time. Migrants' narratives of downskilling also illustrate why the category of 'low-skilled' migration needs to be seen through a more critical lens in research and policymaking. [ABSTRACT FROM AUTHOR]

This paper uses plant-level estimates of total factor productivity covering 40 years to examine what role, if any, productivity has played in the decline of output share and employment in British manufacturing. The results show that TFP growth in British manufacturing was negative between 1973 and 1982, marginally positive between 1982 and 1994 and strongly positive between 1994 and 2012. Poor TFP performance therefore does not appear to be the main cause of the decline of UK manufacturing. Productivity growth decompositions show that, in the latter period, the largest contributions to TFP growth come from foreign-owned plants, industries that are heavily involved in trade, and industries with high levels of intangible assets. [ABSTRACT FROM AUTHOR]

Climate change and its consequences are the most important issues affecting the UK economy over the coming century and will present a critical challenge for the UK government moving forward. In particular, the challenge of getting to net zero by 2050 is going to have major ramifications for the macroeconomy. In this commentary, I lay out some of the work that has been done on the implications of climate change and the transition to net zero for the macroeconomy. Economic activity as currently structured involves using fossil fuels as part of the production process. But this releases carbon dioxide into the atmosphere and leads to higher temperatures. I take this as given, simply noting that if this rise in temperature and the change in weather patterns associated with it are going to be stopped, if not reversed, at some point in the future, then we have to move to a 'net zero' (or even 'net negative') economy in which output is produced using only those inputs which do not produce greenhouse gases. [ABSTRACT FROM AUTHOR]

Following the covid-induced lockdowns, many commented on the role the German model of Kurzarbeit could play in reducing unemployment. Other countries emulated the model. Looking at the experiences of Germany, the UK, Sweden and the USA, the article analyses the strengths and weaknesses of short-time working (STW) schemes. It asks whether STW has been well designed to have optimal short and longer run impact. It is quite effective as a short-term palliative, but in longer downturns, its weaknesses come to the fore. It is by no means clear that the UK needs a permanent replacement for the furlough. [ABSTRACT FROM AUTHOR]

This paper explores the nature and scale of inter-regional and inter-urban inequalities in the UK in the context of international comparisons and our aim is to identify the extent to which such inequalities are associated with strong national economic performance. In order to do this, we first discuss the evolution of UK interregional inequalities relative to comparator European economies over more than a century. We then focus specifically on comparisons between the UK and the reunified Germany. These two exercises demonstrate that the experience of the UK has been rather different to other countries. We further explore UK inter-urban inequalities in the light of international evidence and then explain why observations of cities only tell us a partial story about the nature of interregional inequalities, especially in the case of the UK. Finally, we move onto an OECD-wide analysis of the relationships between economic growth and interregional inequality. What we observe is that any such relationships are very weak, and the only real evidence of a positive relationship is in the post-2008 crisis period, a result which points to differentials in regional resilience rather than inequality-led growth. Moreover, once former transition economies are removed from the sample, the relationship disappears, or if anything becomes slightly negative. As such, the international evidence suggests that the UK's very high spatial inequalities have hampered, rather than facilitated, national economic growth. [ABSTRACT FROM AUTHOR]

Radical changes have been implemented to pension schemes across the UK public sector from April 2015. This paper simulates how these changes will affect the lifetime pension and how the negotiated pension changes compare across six public sector schemes by level of education. Specifically, we simulate the occupation specific Defined Benefit (DB) pension wealth accumulated for a representative employee over the lifecycle by factoring in the recent changes to pension conditions. We find that less educated workers with low or moderate earnings in the NHS, Local Government and Civil Service schemes are the winners having secured an increase in the value of their pension of between 10–20 per cent. Graduate workers with faster wage growth in the Civil Service, Teachers and Local Government schemes lose between 3 per cent and 5 per cent. This is in sharp contrast with the Police and Fire services who have lost around 40 per cent irrespective of their education. [ABSTRACT FROM AUTHOR]

This paper argues that successive governments since the 1980s have struggled to establish the necessary foundations to enable the majority of young people to make effective and supported transitions from education to the labour market and, further, to create labour market conditions that protect and nurture young people's potential. The paper sets its analysis within a time-frame that began in 1981 and has come full circle in 2010 with the Labour Government's announcement of the Young Person's Guarantee. Whilst acknowledging that current economic conditions, and the predicted severe cuts in public spending, will make it difficult for an incoming government to make significant changes, the paper argues that new approaches are required to revitalise both the economy and individual life chances. [ABSTRACT FROM AUTHOR]

The current financial crisis has raised queries about the adequacy of the present regulatory regime. Whilst the immediate priority may be to plug the obvious holes in the system, there are some long-term generic problems with almost any system of financial regulation. This paper explores one such concern, i.e. the boundary problem. This arises because effective regulation, one that actually bites, is likely to penalise those within the regulated sector, relative to those just outside, causing substitution flows towards the unregulated. This boundary problem impacts on many proposals, such as 'narrow banking' and my own, with Avinash Persaud, for state and time-varying capital adequacy requirements. The question of how and where to set the boundary is considered. Such boundaries will always be criticised as leading to disintermediation, competitive inequality (no level-playing-field), inefficiency and higher spreads and borrowing rates; and such criticisms will be valid up to a point. The paper ends by discussing how best to respond. [ABSTRACT FROM AUTHOR]

Global trade in the 21st century is characterised by complex value chains. Successful exporters usually rely on quality imports, and exported goods cross borders many times before reaching their final consumer. This poses challenges to economic measurement as well as policymaking because it becomes difficult to characterise the true interdependencies between countries. Currently, estimates of the share of imports from a trade partner destined for re-exports, and the share used in the domestic economy, are crude at best. We develop a novel approach to estimate these shares. Instead of assigning imports for re-exports proportionally across all source countries, we consider the origin of imports for each trader who re-exports goods. The method is illustrated for the Netherlands, a major re-exporter. We find that non-European member states export 10 billion euros of commodities to the Netherlands that are destined for re-export to the United Kingdom. We also find that the goods trade deficit between the Netherlands and the United States is drastically reduced when taking re-export flows into account. [ABSTRACT FROM AUTHOR]

Free movement has been at the heart of the Brexit debate, with the government grappling between satisfying public and business demands for restrictive and liberal approaches to immigration respectively. In response the government have advocated temporary migration as a potential solution, including an expanded UK-EU Youth Mobility Scheme (YMS) modelled on the current T5 YMS on the assumption that YMS migrants undertake low-skilled jobs. Little is known about this visa or the labour market activity of YMS migrants. Drawing on policy analysis alongside survey and interview data from Australian YMS migrants, this paper seeks to bridge some of these knowledge gaps, arguing that an expanded EU YMS will not attract significant EU migrants, and is far from a remedy for free movement ending. [ABSTRACT FROM AUTHOR]

The UK's recent productivity performance has been strikingly weak. Output per hour worked, which increased by around 2.1 per cent per year in the decade leading up to the economic downturn, increased by just 0.2 per cent per year in the ten years following the global financial crisis. This paper presents three 'stylised facts' on the UK's recent productivity performance through the lens of official statistics: the weakness of recent productivity growth; the 'gap' in productivity terms between the UK and other leading economies; and the large differences in productivity between businesses. It surveys recent work by ONS to help researchers and policy-makers to understand the UK's productivity performance, including new experimental and official statistics, analysis and research. It concludes by drawing together the key findings of these new statistics, highlighting how further improvements might be made through the greater use of survey and administrative data. [ABSTRACT FROM AUTHOR]

This paper considers two aspects of this question. First, Brexit has already induced a devaluation of sterling of around 14 per cent since June 2016, which has started to work through to consumer prices: between June 2016 and July 2017 consumer prices increased by around 2.5 per cent. Second, while it is not government policy, nor the desire of the UK public, that the outcome of negotiations is a ‘MFN Brexit’, this remains a distinct possibility. Thus we ask how the imposition of tariffs on imports from the EU will work through into consumer prices. Making very conservative assumptions, we conclude that ‘MFN Brexit’ will increase the average cost of living by around 1 per cent and increase it for 8 per cent of households by 2 per cent or more. We present results for different groups of households according to their employment and structural characteristics and show that the impact will generally be largest on unemployed, single parent and pensioner households. [ABSTRACT FROM AUTHOR]

The paper looks at the ‘new normal’ in so many of the world's central banks, and specifically the UK. It examines the position of the monetary policy framework, instrument settings, the underlying models, unconventional policy measures, real interest rates, and the interface with macroprudential policy. It explores both the advantages and challenges involved in any move to return towards pre-crisis arrangements, and offers suggestions for possible ways in which current policy dilemmas might be resolved. [ABSTRACT FROM AUTHOR]

Both the physical and transition-related impacts of climate change pose substantial macroeconomic risks. Yet, markets still lack credible estimates of how climate change will affect debt sustainability, sovereign creditworthiness and the public finances of major economies. We present a taxonomy for tracing the physical and transition impacts of climate change through to impacts on sovereign risk. We then apply the taxonomy to the UK's potential transition to net zero. Meeting internationally agreed climate targets will require an unprecedented structural transformation of the global economy over the next two or three decades. The changing landscape of risks warrants new risk management and hedging strategies to contain climate risk and minimise the impact of asset stranding and asset devaluation. Yet, conditional on action being taken early, the opportunities from managing a net zero transition would substantially outweigh the costs. [ABSTRACT FROM AUTHOR]

Restoring sustainable public finances in the aftermath of the Great Recession is a key challenge in most EU countries. In order to learn from history, our paper examines consolidation episodes in the EU since 1970. We shed light on the factors that favour the start of a consolidation episode and determine its success. Compared to the existing literature, we add a number of new dimensions in the analysis. First, we explore a broader set of potential ingredients of the 'recipe for success', including the quality and strength of fiscal governance and the implementation of structural reforms. Secondly, we check whether the 'recipe for success' changed over time. Our analysis broadly confirms received wisdom concerning the conditions triggering a consolidation episode and the role of the composition of adjustment for success, with some qualifications related to the role played by government wages. In addition it provides evidence that well-designed fiscal governance as well as structural reforms improve the odds of both starting a consolidation episode and achieving a lasting fiscal correction. We also show that, over time, successful and unsuccessful consolidation episodes have become more similar in terms of adjustment composition. [ABSTRACT FROM AUTHOR]

The UK, with its relatively liberal immigration policies following recent enlargements, has been one of the main recipients of migrants from new EU member states .This paper poses the questions: what is the effect of immigration on a receiving economy such as the UK? Is the effect beneficial or adverse for growth? Does emigration have brain drain effects on sending economies? How differently would skilled (or unskilled) migration affect both receiving and sending economies? What factors would contribute to immigration/emigration benefits/costs and economic growth driven by migration? Who are the winners and losers in both the sending and host regions? We utilise a two-bloc endogenous growth model with labour mobility of different skill compositions to address these questions. We show that migration, in general, is beneficial to the receiving country and increases the world growth rate. With remittances, the sending country in aggregate can also benefit. The only exception is in the case of unskilled migration, which can actually have a detrimental impact on the world growth rate. This possibility however seems to be unlikely by our examination of migration trends. Winners are migrants, and the skill group in the region that sees its relative size decrease. [ABSTRACT FROM AUTHOR]

This paper analyses Labour's record on monetary policy and the record of the MPC which it created. The paper begins by discussing the conceptual framework and institutions behind inflation targeting as it operates in the UK. We then discuss the successes that it enjoyed up to 2007 and debate the lessons that are being learned as a consequence of the experience since then. We then raise some of the formidable challenges that UK monetary policy must now face up to including maintaining the credibility of the inflation targeting regime in the face of greater interdependence between monetary and fiscal policy, and between monetary policy and support to the banking system and financial markets. [ABSTRACT FROM AUTHOR]

In this paper we explore for the first time regional differences in the patterning of occupational social mobility in the UK. Drawing on data from Understanding Society (US), supported by the Labour Force Survey (LFS), we examine how rates of absolute and relative intergenerational occupational mobility vary across 19 regions of England, Scotland and Wales. Our findings somewhat problematise the dominant policy narrative on regional social mobility, which presents London as the national ‘engine-room’ of social mobility. In contrast, we find that those currently living in Inner London have experienced the lowest regional rate of absolute upward mobility, the highest regional rate of downward mobility, and a comparatively low rate of relative upward mobility into professional and managerial occupations. This stands in stark contrast to Merseyside and particularly Tyne and Wear where rates of both absolute and relative upward mobility are high, and downward mobility is low. We then examine this Inner London effect further, finding that it is driven in part by two dimensions of migration. First, among international migrants, we find strikingly low rates of upward mobility and high rates of downward mobility. Second, among domestic migrants, we find a striking overrepresentation of those from professional and managerial backgrounds. These privileged domestic migrants, our results indicate, are less likely to experience downward mobility than those from similar backgrounds elsewhere in the country. This may be partly explained by higher educational qualifications, but may also be indicative of a glass floor or opportunity hoarding. [ABSTRACT FROM AUTHOR]

This paper examines the short and long-term impacts of the UK referendum on migration flows and migration policy. Even in the short term – before any policy change – the vote will affect migration flows directly and indirectly through both economic and other channels. Post Brexit, two key issues will need to be addressed. Will the UK preserve a substantial measure of preference for EU citizens in any new system? And will policy tilt in a liberal or restrictive direction? [ABSTRACT FROM AUTHOR]

This paper considers the evolution of the UK's pension programme in the light of various stated rationales for public intervention. It argues that the publicly-provided (tax-financed) pension programme has gone through four distinct stages since 1946. It examines some of the issues that have arisen in the context of private pension provision in the UK, both in the form of so-called ‘defined benefit’ and ‘defined contribution’ pension plans, as well as individual purchases of annuities. [ABSTRACT FROM AUTHOR]

The UK economy is facing an unusual level of uncertainty because of Brexit. This uncertainty primarily stems from the yet to be defined relationship between the UK and the EU but also from the economy's response to the new framework once it emerges. The UK government's White Paper, which set out its preferences for that new relationship, has failed to unite the government or Parliament, leaving open an entire spectrum of possible outcomes. Our central forecast under a ‘soft Brexit’ scenario is that the economy will grow at a pace that is consistent with its potential. This translates to annual GDP growth of 1.4 per cent this year and 1.7 per cent next year, which is broadly unchanged from our previous forecast. The risks to our GDP growth forecast are wider than before and tilted to the downside. As before, we condition our forecast on a gentle path of monetary policy normalisation with the next 25 basis point rate increase this month. On the fiscal side, we recommend that the government maintains its current level of spending (as a share of GDP) and raises the quality of public services. [ABSTRACT FROM AUTHOR]

Examines the role of macroeconomic models in the policy design process. Use of policy optimization techniques on the National Institute United Kingdom model; Macroeconomic policy options facing policy-makers; Policy optimization problem; Policy conclusions; Design of monetary policy; Design of fiscal policy.

This paper examines whether EU membership enhances or diminishes the UK's financial sector stability, and therefore its prominence in global finance. The UK is host to the largest share of financial services in the EU, despite being outside of the Eurozone. An important reason is that, as a member of the EU, the UK has direct access to the Eurozone's financial infrastructure. If the UK leaves the EU (and EEA) banks and other financial services firms may continue to have access to the Single Market, but they are unlikely to have direct access to the Eurozone's infrastructure. Banks in the UK will no longer be direct members the Eurozone's payments system. The swap arrangement between the European Central Bank and Bank of England would have no legal enforcement mechanism. Resolution of cross-border banks would be more challenging with less incentive for a cooperative outcome. While some may welcome the reduced size of the financial system, not without reason, this could be achieved more effectively with domestic regulation than by leaving the EU. Given the uncertainty that would follow a vote to leave, there is a risk of capital flight. [ABSTRACT FROM AUTHOR]

I assess a novel rule that was introduced in the UK in 2015. It gave the British government fiscal flexibility whenever GDP growth warranted it. This rule lasted just a year, but it had features worth exploring. I apply solution methods for models with occasionally-binding constraints to assess the demand stabilisation properties of state-contingent fiscal rules. First it is shown that fiscal flexibility can make recessions shallower. Second, it is suggested that GDP growth, rather than measures of the output gap, is a better indicator for triggering fiscal flexibility. [ABSTRACT FROM AUTHOR]

We propose a nowcasting system to obtain real-time predictive intervals for the first-release of UK quarterly GDP growth that can be implemented in a menu-driven econometric software. We design a bottom-up approach: forecasts for GDP components (from the output and the expenditure approaches) are inputs into the computation of probabilistic forecasts for GDP growth. For each GDP component considered, mixed-data-sampling regressions are applied to extract predictive content from monthly and quarterly indicators. We find that predictions from the nowcasting system are accurate, in particular when nowcasts are computed using monthly indicators 30 days before the GDP release. The system is also able to provide well-calibrated predictive intervals. [ABSTRACT FROM AUTHOR]

We estimate trend UK labour productivity growth using a Hodrick-Prescott filter method. We use the results to compare downturns where the economy fell below its pre-existing trend. We find that the current productivity slowdown has resulted in productivity being 19.7 per cent below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity shortfall ten years after the start of a downturn. On this criterion the slowdown is unprecedented in the past 250 years. We conjecture that this reflects a combination of adverse circumstances, namely, a financial crisis, a weakening impact of ICT and impending Brexit. [ABSTRACT FROM AUTHOR]

Executive Summary: Economic policymaking in the UK has historically focussed more on the demand side than on the supply side of the economy. Yet it is on the supply side – the way in which an economy adapts to change while growing productive capacity on a sustainable basis – that medium- to long-term economic performance largely depends. There is an urgent need now to rebalance policy by focussing, in particular, on measures to enhance labour-force productivity, including radically enhanced support for training and skills development. This does not involve wholesale structural reform of the economic framework. The UK benefits from having one of the most flexible economies in the OECD, with competitive product markets, relatively low labour costs and historically high employment levels, accompanied by a so-far-successful adoption of an escalating minimum wage. We suggest that in the post-Brexit era politicians would do well to avoid changes in the regulatory regime that would create undue misalignments with EU standards. Nevertheless, the concomitants of the UK's form of flexibility are a dismal performance on productivity and stagnating living standards. Productivity is now actually falling quarter on quarter ten years after the last economic downturn – a position unprecedented in the past 250 years. This problem must be addressed if the UK is to progress towards fulfilling its economic potential. Central to this are both so-called Active Labour Market Policies (ALMPs) to provide people who have become unemployed with new skills that help them remain in the workforce, and investments in effective upskilling of mid-career and older workers. ALMPs can help raise average per capita income over time, yet UK spending on this area is well under half the OECD average and a fraction of the sums spent in the more successful Nordic economies, Germany, Austria, Switzerland, and Australia. The UK's many attempts to develop new training and apprenticeship schemes in recent decades have been dogged by poor quality and a lack of support from employers and labour unions. This needs to change: we propose a concerted effort to raise UK spending on ALMPs to the OECD average, especially for 16–24 year-olds. Improving labour-force mobility – for example by radically improving availability of affordable housing – is also critical. Structural reforms of this kind will require sustained political effort and support. [ABSTRACT FROM AUTHOR]

Executive Summary: A backlash against numerous inequalities – and in particular against perceived unfairness in society – is a significant driver of the UK's current political malaise. Addressing inequalities between income groups, regions and generations will thus be key to re-establishing faith in government and avoiding further decline or even the threat of social unrest. In income terms, the UK has become much more unequal than in the immediate post-war decades, and it should be a goal to reverse that trend – targeting the OECD average for income inequality and a halving of the number of those living below the poverty line. Measures to deal with perceived unfairnesses could include tighter scrutiny of competition in high-yielding sectors such as technology, and incentives for the appointment of worker representatives to company boards. But a government intent on tackling inequalities will inescapably need to raise public spending and direct taxation of income and capital from their current historically low levels. In particular spending on education and active labour market policies needs to increase, while gaps in the benefits system and regional imbalances are addressed. Given the scale of technological change and the severe implications for the labour market, the risk is that policy will be insufficiently bold to deal with widespread disenchantment, which could ultimately pose a threat to democracy. [ABSTRACT FROM AUTHOR]

Executive Summary: Alongside the challenge of maintaining economic competitiveness in the face of great uncertainty, Brexit brings an opportunity for the government to set out a new industrial strategy. The case for doing so rests on the need to address areas of persistent structural weakness in the UK economy, including low productivity. But it is important that any new industrial strategy be based on appropriately granular data reflecting the real structure of the UK corporate sector: the overwhelmingly preponderant role of services as opposed to manufacturing, for example; the importance of young, fast-growing firms as opposed to SMEs; the relatively high failure rate of companies in the UK; and the relative lack of successful mid-sized firms. Such a data-driven approach might spawn an industrial strategy quite different from the piecemeal programmes of recent years. Internationally, the UK is a laggard in this area, and the recently-created Industrial Strategy Council does not look strong enough to change that position. To move forward, the government needs to make industrial strategy a central plank of economic policy, embedded at the heart of the administration with its own staff and funding, and operations based on a comprehensive review of the economic contribution and potential of various types of firm. Needless to say, it cannot be a substitute for a continuing commitment to competition and markets, or a stalking horse for protectionism: interventions should be justified by carefully-argued market failure arguments, be time-limited, and transparently evaluated. [ABSTRACT FROM AUTHOR]

Executive Summary: The need to decarbonise the economy in order to slow the pace of climate change is now recognised as one of the most pressing international policy challenges. While the UK cannot by itself materially affect global climate change, it has an opportunity to play an influential role, both by persuading others of the need for action but also by reshaping its domestic economy to benefit from a low-carbon transition. Far from hampering competitiveness, adoption of a coordinated policy approach to climate change today would generate positive benefits for the UK economy, especially if it addresses the multiple market failures that promote pollution and places decarbonisation at the heart of structural economic policy. Desirable strategies would include public support for research, development, and deployment of new technologies, and measures to foster an environment where innovation can rapidly shift the economy from dirty to clean production systems. Focusing UK industrial strategy on securing strong domestic supply chains for green products and services, for example, could help create an early mover advantage in rapidly growing global market sectors. Interventions could include the establishment of a National Infrastructure Bank to support decarbonisation in crucial sectors such as energy and transport, and would also need to encompass measures to assist structural adjustment in affected industries and their workforces. [ABSTRACT FROM AUTHOR]