Securing economic growth with Professor Wendy Carlin

Ahead of Rachel Reeves speech at the Labour Party Conference,  Professor Wendy Carlin, co-director of the Stone Centre, spoke to a packed audience at a UCL Policy Lab in event ‘Delivering Growth: exploring a Labour blueprint for economic growth’.

Three ideas from Wendy on how Britian can get growth back. 

Unwavering Commitment to the Green Transition

Securing growth requires an unwavering commitment to the green transition. This commitment is not just about addressing environmental concerns; it is also about providing certainty for various aspects of our lives.

One key aspect is business investment. Companies need a stable environment to confidently invest in green technologies and infrastructure. Certainty in this regard not only encourages economic growth but also ensures that businesses are aligned with environmental goals.

Moreover, households planning significant purchases, such as homes, cars, or home heating systems, require clear guidelines and incentives to choose sustainable options. Young people, too, should have confidence in pursuing careers that are aligned with a greener future.

To gain public support for these efforts, governments must align their incentives with private decisions. For instance, road taxes could be structured to replace fuel duty only when there is sufficient charging infrastructure in place. Similarly, when considering banning new internal combustion engine car sales, it should be done gradually, ensuring that alternative options and infrastructure are readily accessible.

In the context of energy-efficient homes a no bans on gas boiler sales without house-by-house energy transition plans approach. Upgrading Energy Performance Certificates into a comprehensive digital infrastructure can empower households with the knowledge of how to transition to a more sustainable lifestyle, thus contributing to local skills upgrading and economic growth.

Organising Policies to Promote Risk-Taking

The UK needs to promote risk-taking across the population. In a rapidly evolving world, the ability to adapt and take calculated risks is crucial for individual growth and societal progress.

This type of risk-taking encompasses various aspects, from changing jobs and occupations to seeking new opportunities and starting businesses. However, the UK has seen a decline in dynamism over the past decades, which threatens economic vibrancy.

A key part of this is the role of wealth in enabling individuals to take risks. Yet, many people lack substantial wealth, owning only their homes. This underscores the need for policies that promote risk-taking for all.

Temporary increases in Universal Basic Income (UBI) can provide the security needed for individuals to explore better job opportunities, as demonstrated during the Covid-19 pandemic. Shifting subsidies from small, low-productivity firms to new businesses can also stimulate risk-taking.

Furthermore, changes to the tax system can help facilitate broad-based risk-taking. She suggests a progressive property tax with green discounts and deferred payments, which could redistribute wealth and open up opportunities for risk-taking beyond the elite.

Embracing the Risks of AI

The UK should work to embrace the opportunities presented by Artificial Intelligence (AI). AI has the potential to break free from decades of stagnant productivity, benefiting individuals with lower education and skills.

In contrast to the IT revolution of the 1990s, AI is akin to “providing power tools to replace hand tools”. The potential for AI-driven productivity growth, estimated at 1.5% per annum, holds the promise of transformative change. This growth could impact labor-absorbing services such as healthcare, and even reshape public finances by pushing economic growth above interest rates.

A commitment to the green transition, promotion of risk-taking, and embracing the potential of AI—map out crucial building blocks for a sustainable and dynamic economy. And build on the work of the UCL Policy Lab in bringing together social and economic research to tackle the pressing issues facing Britain.

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Find out more about the Stone Centre at UCL here.