The government should reroute billions of pounds that currently goes to the EU budget to support inclusive growth after Brexit, according to a commission set up by businesses, local government and non-profit groups.
A new £76bn fund would deliver growth across the whole of the UK, lowering inequality and raising overall productivity, the report by the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) Inclusive Growth Commission says.
Stephanie Flanders, chief UK and European market strategist at JP Morgan Asset Management and chair of the commission, said: “The way the economy and public services are run in the UK has failed.
“We need to empower all levels of government to deliver a more inclusive vision of prosperity across the UK – otherwise there is a real risk that the country will become more divided outside the EU than it ever was within it,” she said.
The report finds successive governments have targeted headline GDP growth at the expense of broader prosperity. The commission recommends the Office for National Statistics release a new quarterly measure of inclusive growth alongside the heavily scrutinised GDP figures.
The move towards inclusive growth should involve more devolution of spending powers and economic policy to local governments, the report finds.
Mayoral elections will be held this year in Manchester, Liverpool and the West Midlands. However, the report by the RSA recommends extending this approach further.
Such an approach would also have major implications for London, where the mayor already has significant powers over spending in areas such as transport.
Councillor Claire Kober, chair of London Councils, said: “I could not agree more with the need to move away from the centralised form of government that currently exists, to a model where our cities and regions are able to direct investment and resources in a way that best fits their local ambitions.”
Priorities for a more powerful London government could be tackling housing costs, the report says. Housing accounts for up to 37 per cent of average household income in parts of inner London.
Devolution should be accompanied by higher investments in “social infrastructure” such as skills education, and public health spending. This would have the knock-on effect of boosting productivity and moving workers up the value chain, to more complex jobs that are more resilient to automation.
This could also bring political dividends. Despite the fact the UK economy has fared well relative to peers since the financial crisis, productivity has lagged and low-skilled, insecure work has proliferated.
In 2014 the UK’s productivity grew by 0.3 per cent, below the G7 average, according to the Organisation for Economic Co-operation and Development (OECD).
The slow growth of UK productivity is intimately tied to regional inequality. The Bank of England’s chief economist, Andy Haldane, pointed in January to a “fat tail” of less productive firms dragging on the UK’s total performance.