Sustainable growth in the UK: Seizing opportunities from technological change and the transition to a low-carbon economy


Promoting strong, sustainable, balanced and inclusive growth is a priority for G20 governments, including the United Kingdom’s, reflecting the need to drive improvements in labour and resource productivity through more and better investments in innovation, infrastructure and skills. This special report for the LSE Growth Commission shows why it is sensible for environmental sustainability to be at the heart of the UK’s growth strategy and how this can be achieved.

This report builds on previous LSE Growth Commission reports (2013, 2017), which laid out a blueprint for boosting growth in the UK and its inclusiveness via institutional and policy reforms to drive investment in these complementary areas. It embraces, deepens and strengthens the previous reports in light of technical advances, a stronger understanding of environmental issues, and the changing politics and economy of a UK that is building a new role in the world. It recognises the challenge of managing global trends, powerful forces that are transforming the UK economy, including the impacts of technological progress (such as AI and robotics), and globalisation.

The recommendations provide a framework and strategy for sustainable growth in the UK. They have strong relevance in particular for Her Majesty’s Treasury and the Department for Business, Energy & Industrial Strategy, as well as the Ministry of Housing, Communities & Local Government, the Department for Education, and the Department for International Development.

Summary of recommendations for policymakers

Our recommendations are built around four policy priority areas: innovation, infrastructure, skills and cities.

Innovation

  • Bring together existing growth and green innovation strategies, in particular the innovation priorities in the Government’s Industrial Strategy and Clean Growth Strategy, to ensure low-carbon and resource-efficient innovation is embedded throughout the economy.
  • Develop UK research priorities based on a range of metrics, including positive technology spillovers, rather than comparative advantage alone. This approach suggests high productivity benefits from R&D support for areas such as efficient aviation and marine technologies.
  • Create a clear and credible carbon price across the economy, both to replace the less efficient and long established patchwork approach to reducing emissions that currently exists, and to increase the coherence of incentives to help shift and align expectations towards low-carbon innovation.
  • Work together with hard-to-decarbonise sectors to create roadmaps for achieving a circular economy by 2050, which are designed to deliver substantial increases in resource productivity.

Infrastructure

  • Bring together the Industrial Strategy and Clean Growth Strategy to create one coherent strategy for sustainable infrastructure investment across the economy.
  • Develop and publish a pipeline of clean and sustainable infrastructure investments. The pipeline would contribute to meeting the UK’s 2050 decarbonisation targets, avoid locking into capital assets that could render the UK uncompetitive or require scrapping/retrofitting, and be consistent with the recommendations of the National Infrastructure Commission and other relevant statutory bodies.
  • Establish a National Infrastructure Bank, with an explicit sustainability mandate, which can both signal the scale and type of sustainable finance needed from the private sector and use a range of financial instruments to ‘crowd in’ private finance.
  • Develop a governance structure for infrastructure that joins up and empowers local authorities, enabling coordination of infrastructure investments across regions and cities, in particular across housing and related infrastructure investments. Prioritise regions where productivity would be most responsive to higher capital intensity.

Skills

  • Bring together the Industrial Strategy and Clean Growth Strategy to create a single forward-looking and coherent plan for strengthening the UK’s human capital for the low-carbon transition. There should be a particular focus on improving outcomes and opportunities for disadvantaged students.
  • Devise targeted employment transition policies in areas at high risk of disruption from the forces of change, such as Northeast England and South Wales, to improve the resilience of local communities.
  • Ensure education institutions are responsive and flexible as the low-carbon transition accelerates and the demand for skills shifts, by working closely with other economic, environmental, technological and social institutions. This will require better data and metrics for assessing employment changes and shifting demand for skills.
  • Help firms overcome barriers to in-house training through tax credits and partnerships with education providers.

Cities

  • Commit to investment in smart cities across all UK regions. This commitment could be supported by a national smart city strategy, which sits at the heart of government and is overseen by a high-level cross-ministerial committee.
  • Foster deeper partnerships between universities, business and local policymakers, to help build on local strengths or address local weaknesses.
  • Devolve greater policy and fiscal autonomy to cities and regions, while concurrently building their fiscal capabilities, building on the Cities and Local Government Devolution Act 2016, and other recent moves to empower cities.
  • Encourage creativity and experimentation around policies for productivity and sustainable growth and improve evidence, evaluation and data collection to gain a better understanding of what works.

Contributing authors: Samuela Bassi, Sandra Bernick, Arlan Brucal, Maria Carvalho, James Hamilton, Tobias Kruse, Karlygash Kuralbayeva, Myra Mohnen, Misato Sato, Nicholas Stern, Dimitri Zenghelis

This report has been published with the Centre for Economic Performance at the London School of Economics and Political Science.