
Table of contents
- 1. UK economic growth: context skip to link
- 2. Generating economic growth skip to link
- 3. Culture and economic growth skip to link
- 4. Read more skip to link
Approximate read time: 15 minutes
On 23 January 2025 the House of Lords is due to debate the following motion:
Lord Farmer (Conservative) to move that this House gives consideration to the conditions required for economic growth.
1. UK economic growth: context
Economic growth is measured using changes in gross domestic product (GDP). GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time.[1] GDP can be adjusted for changes in population to give a measure of GDP per person.
1.1 Historical growth in the UK economy
Sustained growth in the UK economy has been the norm since the first industrial revolution in the middle of the 18th century. As figure 1 shows, after adjusting for inflation, GDP per person in 2023 was six times higher than at the start of the 20th century and 19 times higher than at the start of the 18th century.
Figure 1. Real GDP in £ per person, 1270–2023

1.2 Economy’s recent growth performance
Since the global financial crisis (GFC) of 2007 and 2008, growth in the UK economy has been unusually weak by post-war standards. As figure 2 shows, the impact of the GFC led to a downward shift in economic growth, which was compounded by the Covid-19 pandemic. As of the third quarter of 2024, GDP per person was 28% lower than if the post-war trend prior to 2008 had been sustained. In other words, if growth had continued at the pre-2008 rate, GDP per person would have been almost 40% higher. GDP per person in Q3 2024 was also around 2% below the level it would have been had the economy’s comparatively weak performance between 2008 and 2019 (just prior to the Covid-19 pandemic) continued.
Figure 2. UK real GDP per person: 1955–2024

A deterioration in economic growth since the financial crisis has also been true in other advanced economies, although to a lesser degree. In terms of growth post-GFC, UK GDP per person rose 7.8% from 2008 to 2023. Among the G7 economies, this was behind the US (22.8%), Germany (10.3%), Japan (10.2%) and France (8.2%). Canada saw a smaller, 5.8%, rise in GDP per person. Italy was the worst performing G7 economy between 2008 and 2023, with growth in GDP per person of 1.2%.
Figure 3. Real GDP per person in G7 countries between 2007 and 2023

2. Generating economic growth
2.1 Sources of economic growth
Arithmetically, growth in the economy is a function of inputs of labour and capital equipment, such as machinery, and the efficiency with which those inputs are used (referred to as productivity). Consequently, the economy’s rate of growth is primarily driven by increases in the number of hours worked and the rate at which people become more productive while in work. Increasing labour supply and productivity growth is therefore central to maintaining and raising economic growth.
2.2 Boosting economic growth
How to promote economic growth is the subject of debate among economists and policymakers. Suggested growth-friendly policies typically encompass some combination of reforms and incentives to increase employment and investment, and improvements in the way in which monetary and fiscal policy are conducted.
2.2.1 Recent government ambitions to raise growth
One of the ‘missions’ of the current government is to raise economic growth.[2] The government is hoping to achieve this through a framework structured into seven pillars:
- economic and fiscal stability: macroeconomic and financial stability, fiscal sustainability and policy certainty
- investment, infrastructure and planning: higher public and private investment, improved infrastructure like transport, and planning reform
- place: regional growth through investment, devolution and reform, and support for house building
- people: more people in good jobs, improved employment prospects, skills, and productivity
- industrial strategy and trade: an industrial strategy and a trade strategy to bolster growth-driving sectors and free, open trade
- innovation: support for scientific breakthroughs, research and development (R&D), and the diffusion of technologies, including artificial intelligence
- net zero: net zero delivered in a way that supports growth and captures economic opportunities[3]
‘The growth plan 2022’, published by HM Treasury under the Conservative government of Liz Truss, set out the following policies to boost growth:[4]
- increasing investment by creating the right conditions and removing barriers to the flow of private capital—whether taxes or regulation
- helping the unemployed into work and those in jobs secure better paid work
- accelerating the construction of infrastructure projects by liberalising the planning system and streamlining consultation and approval requirements
- improving the functioning of the housing market to make it more feasible for workers to move to where jobs are
- encouraging enterprise by cutting red tape and freeing business to grow and invest
Among economists, a division exists between what have been termed the ‘boosters’ and the ‘doomsters’.[5] ‘Boosters’ are those who are optimistic about the potential for policy reforms and other measures to lift economic growth on a sustained basis. Conversely, ‘doomsters’ think structural and other headwinds mean the post-financial crisis norm of weak growth will persist.
2.3 Economic growth: the view of the ‘boosters’
2.3.1 Raising growth through better policies
According to Sam Bowman, founding editor of the online magazine Works in Progress, improving economic policy could quickly deliver stronger growth. He points to the damaging effects on growth of the UK’s high cost of housing and the adverse effect this has on the mobility of workers and the ability of economically successful parts of the country to grow. He believes measures to increase housing supply could address these issues. In addition, he states:
Lots else is wrong with the British economy in ways that policy seems able to fix, at least in principle. The UK’s corporate tax is one of the most badly structured in the world, ranking 35th out of 36 countries in the OECD in terms of how heavily we tax capital investments made by businesses. There are many other extremely important areas that the UK does pretty badly on—infrastructure, healthcare, policing, regulation, access to capital, immigration and education are all pretty dysfunctional and affect big parts of the economy.[6]
Sam Bowman expanded upon this argument in a piece co-authored with fellow founder and editor of Works in Progress, Ben Southwood, and head of housing at the Centre for Policy Studies, Samuel Hughes.[7] The essay argues that the UK needs to build more and better infrastructure, including housing, roads, transport networks and power. They claim that the ability to do so at present has been effectively “banned” by overregulation, including green belts and overburdensome environmental impact assessments. According to the authors:
[T]he most important economic fact about modern Britain: that it is difficult to build almost anything, anywhere. This prevents investment, increases energy costs, and makes it harder for productive economic clusters to expand. This, in turn, lowers our productivity, incomes, and tax revenues.[8]
However, in the view of the authors:
[…] Britain can have rapid economic growth in the near future, swiftly catching up with the world’s most prosperous countries. It can do this because the sources of its current sclerosis are easy to identify and straightforward, in principle, to fix. The problem is not too little investment by the state. It is that the state has prohibited most of the investments we need to make. The solution is to remove these obstacles to investment, mobility and trade, in a politically viable and durable way.[9]
According to John Cochrane, senior fellow of the Hoover Institution at Stanford and formerly a professor of economics at the University of Chicago Booth School of Business, the barriers to raising growth are more political than economic.[10] Writing about the feasibility of raising US annual GDP growth to 4% on a sustained basis, Cochrane judges that implementing a set of pro-growth policies, including major reform to the tax code, the abolition of subsidies, deregulation and unilateral free trade would achieve that aim. In his view:
Sclerotic growth is the economic issue of our time. Economists should be cheering any policy agenda focused on growth. If you think the policies needed to give us growth are hard, and out of the current political mainstream, that’s ever more reason to keep reminding people that growth is possible and needs big changes, not to confuse “it’s unlikely they’ll do it” with “it’s economically impossible”.[11]
2.3.2 Exploiting room for ‘catch-up’
From a UK perspective, growth optimists point to the gap in living standards which has opened with some other advanced economies, particularly the US. This creates the potential for so-called ‘catch-up’ growth, where economic growth can be raised, at least for a period, by emulating policies pursued by more economically successful peers. According to data from the International Monetary Fund (IMF), real GDP per person in the UK in 2023 was almost 27% lower than in the US, the largest gap since the data series began in 1980.
Figure 4. UK real GDP per person as a share of US real GDP per person*

One potential source of ‘catch-up’, it is argued, would be to narrow the gap between the relatively high cost of energy in the UK and cheaper energy elsewhere, particularly the US.[12] In 2023, UK industrial electricity prices were the highest among the 25 countries surveyed by the International Energy Agency (IEA) and four times higher than in the US.
Figure 5. Industrial electricity prices in 2023 (pence per kilowatt-hour including taxes)

2.4 Economic growth: the view of the ‘doomsters’
Other economists are sceptical about the effectiveness of policies aimed at boosting an economy’s rate of growth. They suggest that gains from economic reforms tend to be exaggerated and structural economic headwinds will hold back growth.
2.4.1 Gains from structural reforms may be limited
Giles Wilkes, a senior fellow at the Institute for Government, argues that “it is very hard to shift [the] long-term supply-side picture”. Referring to measures announced in budgets and other fiscal events, he argues:
At the macro level, what the chancellor announces is usually a rounding error, and already factored in Bank of England calculations. Supply-wise, to change your mind on what the economy can produce, you need to change radically your assessment of some gigantic things: the stock of trillions in capital investment; the number and skill level of 31 million actual workers, or our scientific capability, a thing of accumulated quality generated from decades of investment, learning, international interaction and toil within universities, businesses and institutes.[13]
Mr Wilkes notes that even the major economic reforms under the Thatcher government in the 1980s, such as large cuts in marginal tax rates, privatisation and the creation of the European single market, appear to have done little to boost long-run growth. Taking the rolling 10-year average of annual GDP growth, growth over the 1980s was lower than the 1970s, which in turn was lower than the 1960s.
Figure 6. Change in UK real GDP, 1959–2023

Dietz Vollrath, an associate professor of economics at the University of Houston, is also cautious about the extent to which policy reforms can boost growth. In his view:
Massive structural reforms are not capable of generating immediate short-run jumps in growth rates […] They play out over long periods of time, and the empirics we have suggest that by long periods we mean decades and decades of slightly above average growth […] Structural reforms don’t generate massive short-term changes in growth rates because they are fiddling with marginal decisions, making people marginally more likely to invest, or change jobs, or get an education, or start a company. By permanently changing those marginal decisions, structural reforms act like glaciers, slowly carving the economy into a new shape over long periods of time.[14]
2.4.2 Demographic barriers to growth
Pessimists also highlight the drag on growth presented by demographics. The UK birth rate has fallen—in 2022, there were 51.8 live births per 1,000 women in England and Wales, the lowest since the data series began in 1938.[15] Projections from the ONS show the ratio of people aged 20 to 64 compared to those aged 65 and older declining from 3.1 in 2023 to 2.8 by the end of this decade, and then to 2.5 by 2040.[16]
A smaller share of workers in the total population means a smaller share of people to act as entrepreneurs and innovators. It also means fewer taxpayers to fund the higher spending needed for the extra and longer-lived older people. This means that taxes may have to rise on those who are left working, which commentators state can also slow down growth.[17] According to a recent report from McKinsey, the UK, as well as Germany, Japan and the US, would have to see productivity rise at double the pace seen over the past decade to maintain the same growth in living standards witnessed since the 1990s.[18]
2.4.3 More investment may not deliver much of a pay-off
That higher investment could quickly deliver stronger sustained economic growth has been questioned. Some commentators suggest that under plausible assumptions around the sensitivity of GDP to changes in the capital stock (the quantity of non-financial assets with a lifespan of more than a year (for example, buildings and machinery), even a major increase in the latter would have probably only a relatively modest effect on the former.[19] Moreover, hopes that new industries, such as artificial intelligence, could deliver a quick and significant uplift to growth face challenges. According to Mr Dillow:
New industries, by definition, are small and so even if they expand tremendously their macroeconomic impact is small; an industry that accounts for 1% of GDP and trebles over ten years will add only 0.2 percentage points a year to GDP growth—and less insofar as it detracts demand from older businesses.[20]
Historical evidence supports the view that investment in new technology can take a long time to boost growth. According to the late economic historian Nick Crafts (latterly professor of economic history at the University of Sussex Business School):
[V]iewing the industrial revolution through the lens of the literature on general purpose technologies (technologies that initially have much scope for improvement and eventually comes to be widely used and to have many uses) […] the early years of a general purpose technology will see little or no impact on aggregate productivity growth.[21]
Between 1760 and 1830, UK GDP per head grew by only an average of 0.2% a year even in the face of major technological change.[22]
3. Culture and economic growth
Some economists and social scientists have focused on the role of cultural factors as drivers of, or impediments to, economic growth. From this perspective, it has been argued that the UK faces larger obstacles to growth than other economies such as the US.
The economist Mancur Olson used cross-country evidence to argue that periods of political and economic stability often brought forth the emergence of privileged groups more concerned with holding on to what they had than accepting the creative destruction that inevitably accompanies economic change and growth.[23] In Olsen’s view, the economic sclerosis which follows typically needs a major shock, such as war, revolution, or a serious economic crisis, to break free of.
Martin Wiener, in his book ‘English Culture and the Decline of the Industrial Spirit’, saw this ‘anti-growthism’ as a problem the UK (or more specifically, England) was particularly prone to. In the author’s view, this reflected the hostility of the middle- and upper-classes towards industrialism and growth and their hankering for a mythical “green and pleasant land”.[24]
According to Janan Ganesh, an associate editor for the Financial Times, the UK is culturally unserious about raising economic growth. He argues:
Britain’s problem is that almost everyone names growth as their priority, and almost no one means it. There is always another consideration that takes precedence, whether geopolitical, ecological, cultural or egalitarian. The result is the worst of all worlds: no serious drive for economic success, but also no tacit national agreement that we should bed down for a life of low-drama stagnation.[25]
From this cultural perspective, what Mr Ganesh calls the “growth preference” of a nation’s population may be as important in determining an economy’s growth prospects as identifying and implementing the right policies.
4. Read more
- Martin Wolf, ‘The UK needs a reform road map to avoid stagnation’, Financial Times (£), 15 April 2024.
- Resolution Foundation, ‘Ending stagnation: A new economic strategy for Britain’, 4 December 2023
- Bank of England, ‘Why does economic growth matter?’, 19 May 2020
Cover image by jcomp on Freepik.
This briefing was updated on 22 January 2025.
References
- Tim Callen, ‘Gross domestic product: an economy’s all’, International Monetary Fund. Return to text
- Prime Minister’s Office, ‘Kickstarting economic growth’, 5 December 2024. Return to text
- HM Treasury, ‘Autumn budget 2024’, 30 October 2024, HC 295 of session 2024–25, p 62. Return to text
- HM Treasury, ‘The growth plan 2022’, CP 743, 22 September 2022. Return to text
- Sam Bowman, ‘Boosters and doomsters: The real divide in British economics’, Consumer Surplus blog, 23 July 2023. Return to text
- As above. Return to text
- Sam Bowman et al, ‘Foundations: Why Britain has stagnated’, September 2024. Return to text
- As above. Return to text
- As above. Return to text
- John Cochrane, ‘4% growth’, The Grumpy Economist blog, 24 June 2015. Return to text
- As above. Return to text
- Matt Oliver, ‘Britain paying highest electricity prices in the world’, Telegraph (£), 26 September 2024. Return to text
- Giles Wilkes, ‘No, the chancellor cannot just ‘unleash growth’’, Freethinking Economist blog, 3 November 2021. Return to text
- Dietz Vollrath, ‘You can’t reform your way to rapid growth’, Growth Economics blog, 22 July 2015. Return to text
- Office for National Statistics, ‘Births in England and Wales: Summary tables’, 23 February 2024. Return to text
- Office for National Statistics, ‘Principal projection: UK population in age groups’, 30 January 2024. Return to text
- Valentina Romei, ‘Falling birth rates raise prospect of sharp decline in living standards’, Financial Times (£), 15 January 2025. Return to text
- McKinsey Global Institute, ‘Dependency and depopulation? Confronting the consequences of a new demographic reality’, 15 January 2025. Return to text
- Chris Dillow, ‘Investment and growth: Some problems’, Stumbling and Mumbling blog, 13 July 2024. Return to text
- As above. Return to text
- Nick Crafts, ‘Productivity growth in the industrial revolution: A new growth accounting perspective’, London School of Economics, January 2002, p 19. Return to text
- Bank of England, ‘Research datasets: A millennium of macroeconomic data for the UK’, updated August 2024. Return to text
- Mancur Olson, ‘The rise and decline of nations: Economic growth, stagflation, and social rigidities’, 1982. Return to text
- Martin J Wiener, ‘English Culture and the Decline of the Industrial Spirit, 1850–1980’, Cambridge University Press, 1981. Return to text
- Janan Ganesh, ‘Britain should stop pretending it wants more economic growth’, Financial Times (£,) 15 January 2025. Return to text