Jobs, growth and productivity after coronavirus – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Author: Treasury Committee

Related inquiry: Jobs, growth, and productivity after coronavirus

Date Published: 13 July 2022

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Growth Strategy and the Plan for Growth

Witnesses were mostly unpersuaded by the Government’s arguments for the abolition of the Industrial Strategy and its replacement with the Plan for Growth. More importantly, we are particularly concerned at the ‘chop and change’ and lack of long-termism in growth strategy and policy, without which businesses themselves are unable to plan and invest themselves. This churn also makes it difficult to assess the success or otherwise of initiatives such as the Industrial Strategy in improving growth and productivity.

Although witnesses were generally in agreement with the broad aims and priorities in the Plan for Growth, there was some dissatisfaction in both written and oral evidence with other aspects. It was suggested that there was a lack of detail and a lack of collaboration with businesses and regional bodies, and that there was no overall strategic vision of what the UK’s economic problems were, how they should be prioritised, and what policies and interventions were therefore effective. It is not clear to us how the Plan for Growth offered an advance on the Industrial Strategy.

We are concerned at the abolition of, and the lack of a replacement for, the Industrial Strategy Council, which provided oversight and evaluation of the Government’s growth strategy, and a suite of detailed metrics against which to judge the success of growth policies. The Council was a force for consistency and long-termism.

The Government as a whole is spending a large amount of money and time on devising growth strategies and policies. It is important to have a robust, overarching strategy for this that drives co-ordination across departments. This function may well sit best in the Treasury. However, it is unclear to what extent the Plan for Growth is an active strategy driving the Treasury’s activities as the co-ordinating economics ministry. As a result, there is a risk that growth strategy and policy are fragmenting across departments.

In its response to this Report, the Treasury should set out how it is making the Plan for Growth an effective successor to the Industrial Strategy, given that it is not taking on additional resources for this purpose, and in particular the steps it is taking to ensure co-operation across departments, to take feedback and to monitor results.

We do not believe that the Plan for Growth should necessarily be discontinued, let alone the Industrial Strategy revived, as another wholesale change in policy would exacerbate the lack of long termism and consistency in policymaking. Nonetheless, there needs to be a renewed effort at a co-ordinated growth strategy across Government, with clear lines of accountability and co-ordination across departments, and with clearly defined and measurable metrics for success. Government should think about how to build institutional approaches that will embed its strategy across departments for the long term. It should also put in place an effective mechanism for carrying out oversight and evaluation of its growth strategy.


Post-pandemic scarring seems likely to be much less of a problem than first feared. But there are still risks, especially outside the labour market, that need Government attention. Notably, these include the long-term legacy of interruptions to education. Business indebtedness might also be a factor restraining investment and should be monitored carefully.

There are productivity-enhancing opportunities arising from the pandemic, in an increased take up of digital technologies and in remote working in certain circumstances. The Government should be looking at how it can facilitate these positive developments, while also being mindful of the challenges it could present to the UK’s existing economic structure and geography.

Brexit has not been a major focus of this particular inquiry. Nonetheless, it will clearly have a profound impact on the economy’s future direction and growth prospects, potentially greater than the long-term effect of the pandemic. In its response to this report, the Treasury should explain how growth policy is identifying and helping those sectors most adversely affected by changes in trade between the UK and EU, as well as more clearly identifying the economic opportunities that may arise from Brexit.

A consistent theme in this inquiry was that a significant part of the UK’s productivity shortfall compared to other countries is due to a ‘long tail’ of low-productivity firms, usually small ones. Relatively poor digital technology adoption and management skills were seen as key interlocking causes.

Help to Grow: Management and Help to Grow: Digital are promising responses to the problems of relatively poor digital technology adoption and management skills among businesses, but there have been some difficulties in the early days of the schemes. Considering the importance of long-term stability in growth policy, it will be important to persist with these schemes while taking feedback and adjusting them as necessary. That will require backing from the Treasury. If a success can be made of the schemes, there may be scope for expansion. It its response to this report, the Treasury should indicate whether funding will be available for longer than the three years first suggested in Budget 2021 and on what success criteria continued funding would depend. This is important, given the negative impacts and costs of repeated policy change.

The Chancellor is correct to pinpoint business investment as a component of the UK’s shortfall in productivity compared to other major advanced economies. The UK’s record in this area has worsened since 2016. In addressing this investment shortfall the Chancellor’s focus on reforms to tax incentives is a good start, and the Treasury should take on board the criticisms made of the super-deduction while designing future tax incentives. But wider economic certainty and coherence and stability in the Government’s growth policy, which are currently deficient, are also important for getting businesses to invest.

The target to spend 2.4 per cent of GDP on research and development (R&D) is an important aspect of growth policy. We re-iterate our disappointment over the pushing-back of the target to spend £22 billion of public money on R&D and continue to warn against any further slippage.


The Treasury has allocated significant and welcome resources to initiatives to help people who are seeking work gain employment. However, a more urgent problem now seems to be becoming clear in the sharp fall in the number of people looking for work, compared to pre-pandemic trends. This is harming economic activity and could exacerbate inflation. The Treasury needs to consider allocating or reallocating resources to address the fall in the number of people looking for work since the start of the pandemic. In part, that may mean additional resourcing for ‘long covid’ treatment, to enable those suffering from long-term sickness to re-enter the workforce in greater numbers.

The Prime Minister has suggested that labour shortages should not be resolved through immigration, as part of a drive for a high-wage economy. At most, some witnesses to our inquiry thought this could have a small effect on wages. Moreover, labour and skills scarcity could hold back growth and stoke inflation. The Government should be looking to prioritise addressing the gaps in the UK’s skills and taking steps to ease labour shortages.

We have received a large number of proposals for reform of the Apprentice Levy in England. A full review is needed, and the Treasury should confirm that it is going ahead with such a review.

Macroeconomic policy issues: summary of evidence

Global energy prices and supply chain disruptions arising from the pandemic are the main factors behind the outbreak of inflation. But second-round effects, in the form of inflation expectations among the public, and domestic factors in the UK, such as a tight labour market, Brexit, and weakness in sterling, could mean that inflation will not go automatically back to the 2 per cent target once energy prices stabilise or fall back.

There were mixed views on whether the Monetary Policy Committee should have raised rates earlier. Some former Monetary Policy Committee members now advocate steeper rises than the current Committee appears to have in mind, and there was concern that the Bank may need to do more to prepare people for the possibility that interest rates rise by more than currently indicated by its forecasts and guidance.

Interest rates are currently on a tightening cycle, but there was disagreement in the evidence we received over whether interest rates and inflationary pressures would continue to rise or would return to the low levels of the period between the financial crisis and recession. However, there was a general agreement amongst witnesses that it is desirable to have interest rates away from zero and to have quantitative easing wound down.

There were mixed views on the suitability of the existing 2 per cent inflation target set for the Monetary Policy Committee, but most witnesses felt that it was still suitable.

Witnesses did not express concerns to us about whether the Monetary Policy Committee had acted independently of the Government during and after the pandemic, although some noted the possibility of a perception of such interference.

Some witnesses argued that a looser fiscal policy could have helped lift interest rates off the floor over the period since the financial crisis, and that fiscal policy was too focused on borrowing and debt targets. However, for the time being, the ongoing outbreak of inflation has lifted interest rates off the floor in any case.

Several witnesses thought that the current fiscal framework was too restrictive of investment, notwithstanding the planned rises in public sector net investment. In particular, the net zero transition may need substantial public investment, and they thought the Treasury had been wrong to rule out financing this through borrowing. Witnesses also thought there was not currently a pressing need for tax rises.

Some witnesses saw a link between the strength of aggregate demand in the economy and productivity growth, and that this may help to explain the weakness in productivity growth since the financial crisis. However, there was scepticism over whether macroeconomic policy could exploit this by ‘running the economy hot,’ especially given the ongoing outbreak of inflation.