What policies could kick-start economic growth in the UK?

For two decades, the UK economy has seen weak growth, driven by low business investment, inadequate market dynamism and persistent policy instability. These failures shape the daily reality of households whose living standards have stagnated. New policies are needed that can stimulate growth and move the country back on a path to prosperity.

Productivity growth is a key driver of rising wages and living standards. Yet, since the global financial crisis of 2007-09, labour productivity in the UK, as measured by GDP per hour worked, has performed poorly relative to key comparator countries such as France, Germany and the United States (Valero and Van Reenen, 2024).

Between 2011 and 2019, productivity grew by 0.5% per year in the UK, compared with 0.8% annually in France and the United States, and 1.1% in Germany (The Conference Board Total Economy Database^TM Summary Tables, 2025). This is also a poor record relative to the country’s own past: productivity is 26% lower today than it would have been had it followed the same trend of the period between 1979 and 2007. This is one reason why real wages have barely risen in two decades (Machin, 2024).

There are two roots of the problem of poor productivity growth: low investment and weak business dynamism. For example, if business investment in the UK had kept pace with the average of the country’s peers between 2008 and 2022, GDP would be roughly 4% higher, raising average wages by around £1,250 a year (Brandily et al, 2023). The problems of the private sector are compounded by the instability of UK economic policy-making, with frequently shifting priorities and key decisions inadequately focused on long-term needs.

Increasing investment to support growth

Investment in machinery, buildings, human capital and research and development (R&D) is what powers productivity growth. But UK firms have underinvested across these areas for years, holding back innovation and competitiveness.

Low capital investment has coincided with relatively high profit rates on existing capital, implying that UK firms may often have the financial means to invest but choose not to (Brandily et al, 2023).

UK firms are also, on average, less well managed than their international counterparts. Poorly managed firms are less likely to innovate, to make accurate forecasts or to invest in new technologies (Bloom et al, 2022). Research suggests that around one-fifth of the productivity gap between countries can be explained by management quality – and a quarter of that by the lack of movement of resources from badly managed firms to those that are well managed (Bloom et al, 2025).

The problem is compounded by limited pressure from either shareholders or employees to prioritise long-term performance (Brandily et al, 2023). Firm ownership is often dispersed, with many firms lacking shareholders who can affect corporate decisions.

The UK also lacks formal mechanisms for amplifying workers’ voices at the company level. By contrast, many European countries give workers a formal role in company decision-making, often through representation on company boards – a practice that is associated with higher labour productivity (Harju et al, 2021).

The UK could follow suit by introducing mandatory worker representation at the board level, at least in larger and listed firms. Combined with pension reforms to strengthen shareholder engagement, this would bring both owners and workers back into the conversation about long-term growth. Pension funds were once a way of concentrating domestic ownership of UK equities: the Pension Schemes Bill currently going through parliament may help to improve corporate governance and stimulate private investment.

The planning system, which remains largely discretionary and focuses on case-by-case applications, is another major bottleneck. Moving to a rules-based system, one that sets out clear and consistent guidelines, would make the system more transparent and efficient (Cheshire, 2025). The government’s proposed planning reforms are a step in this direction, with the latest amendments aimed at tackling blockages to development (Pickard, 2025).

Restoring market dynamism

Alongside low investment, the UK economy has become markedly less dynamic. Fewer new firms are starting up, job reallocation between sectors has slowed and workers are moving less frequently between companies (Davies et al, 2023). This weakening market dynamism has implications for ‘creative destruction’ – the process by which new ideas, technologies and businesses replace older, less productive ones.

As shown by the work of two of the three co-recipients of the 2025 Nobel Prize in Economic Sciences (Aghion and Howitt, 1992), creative destruction is an important driver of long-term growth. Slowing dynamism constrains this process, limiting the productivity gains from innovation and firm turnover.

Policy needs to ensure that markets are better equipped to enable capital and labour to move into more productive firms with good jobs. Policies that encourage entrepreneurship and innovation, including in the industrial strategy’s growth sectors (Department for Business and Trade, 2025a) and technologies where the UK has strengths, should help new businesses with high growth potential to start up and expand.

But improving dynamism also requires action to remove barriers to change. For example, stamp duty on property transactions discourages mobility for both households and businesses. Analysis has shown that halving stamp duty on residential and commercial sales would reduce these frictions, helping labour and capital move to where they are most productive. Business support needs to be re-orientated to target young and growing businesses that can drive change, irrespective of size (Davies et al, 2023).

Finally, competition and openness should be encouraged. Weak competition allows low-productivity firms to linger in the market. Robust competition, both domestic and international, puts pressure on firms to innovate and improve. Effective competition policy is one part of this, and in May 2025, the government issued a new strategic steer to the Competition and Markets Authority (CMA), emphasising its importance in supporting growth and investment (Department for Business and Trade, 2025b).

But higher trading costs with the European Union (EU) since Brexit continue to reduce competitive pressure on domestic firms. While the UK has new trade deals with other countries, including India and nations of eastern and southern Africa, research shows that these deals cannot compensate for the increased trade barriers with the EU (Novy et al, 2024). Rebuilding openness with the EU remains essential for strengthening investment and productivity growth.

Creating a stable policy environment

A more dynamic economy inevitably brings disruption, and businesses and people need support through these transitions. This means creating a stronger safety net that allows individuals to take risks (Cominetti et al, 2023), an education and training system that equips workers with adaptable skills (Costa et al, 2023), affordable housing and reliable transport to connect people to jobs, and modern digital and physical infrastructure that helps firms access talent and markets.

The government’s forthcoming education and skills reforms, prioritisation of public sector investment and planning reforms all have the potential to shape these enabling conditions. But their success will depend as much on consistency as on design.

Policy instability has been a defining feature of UK economic policy in recent decades. Since 2010, the UK has seen four departmental structures for business policy, 11 secretaries of state for business, and repeated shifts in industrial strategy and corporation tax policy (Brandily et al, 2023).

This constant churn, combined with geo-political shifts, creates domestic policy uncertainty and undermines confidence, leaving firms reluctant to commit to long-term projects. Stability as much as reform is essential if the UK is to escape its low-growth trap.

A long-term growth strategy

Productivity stagnation in the UK is not the result of a single problem, but of many interconnected ones. Solving these issues and putting the country back on a growth trajectory will require broad and sustained policy efforts, as well as tough choices.

A successful growth strategy must do several things at once: encourage investment and innovation, empower workers, remove barriers to change, and build the infrastructure and skills that connect people to opportunity. Above all, it must stick with these policies long enough for them to work.

While progress has been made on initiatives to deliver on the government’s growth mission – including in its industrial strategy, the employment rights bill and planning reforms – the upcoming budget offers a chance to reset the UK’s approach and move away from short-term fixes in taxation and towards a consistent and credible plan for long-term growth. Central to this reset should be an overhaul of the tax system to provide better support for growth, including reforms to stamp duty and council tax (Smith and Wood, 2025).

The question is no longer what needs to be done, but whether we can hold firm on the policies that ensure stability and foster growth. Policies need to deliver – and ultimately they must ensure that people can enjoy higher wages and a better standard of living.

Where can I find out more?

Ending stagnation: a new economic strategy for Britain: final report of the Economy 2030 Inquiry by the Resolution Foundation and the Centre for Economic Performance (CEP), funded by the Nuffield Foundation.
The UK’s productivity challenge: people, firms and places: article by Bart van Ark and Mary O’Mahony in The Productivity Agenda, published by the Productivity Institute.
Cracking the productivity code: An international comparison of UK productivity: Programme on Innovation and Diffusion paper by John Van Reenen and Xuyi Yang.
The UK’s Modern Industrial Strategy: the Department for Business and Trade White Paper published in June 2025.
The new Industrial Strategy: How does it measure up?: assessment by Paul Swinney at the Centre for Cities.
Eight sectors, one story: The geography of the Industrial Strategy: assessment by Yunze Wang and Paul Swinney at the Centre for Cities.
Under-performing: How can we boost Britain’s low productivity? recording from the 2024 Festival of Economics.
The Productivity Agenda: report edited by Diane Coyle, Bart van Ark and Jim Pendrill for the Productivity Institute.