COMMISSION STAFF WORKING DOCUMENT Country Report United Kingdom 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: United Kingdom, economic situation, labour market, macroeconomics, public finance, social policy, structural adjustment, sustainable development, tax system, withdrawal from the EU

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 527 final  COMMISSION STAFF WORKING DOCUMENT Country Report United Kingdom 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011      {COM(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 

3.2.  Financial sector 

3.3.  Labour market, education and social policies 

3.4.   Competitiveness, reforms and investment 

3.5.  Environmental sustainability 

Annex A: Overview Table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Financial soundness indicators, all banks in UK 

Assessment of 2019 CSR implementation 

Key economic and financial indicators 

Table 1.1: 
Table 2.1: 
Table 3.1.1:  Composition of tax revenues 2018 
Table 3.2.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 

Financial market indicators 

Green Growth 

Social inclusion and health indicators 

Headline Social Scoreboard Indicators 

Labour market and education indicators 

Product market performance and policy indicators 

LIST OF GRAPHS 

Graph 1.1: 

Annual real GDP growth 

1 

3 

7 

15 

19 

19 

22 

27 

34 

45 

49 

53 

54 

60 

65 

14 
17 
19 
22 
54 
55 
56 
57 
58 
59 

7 

 
 
 
 
7 
7 
8 
9 
9 
10 
10 
12 
15 
20 
23 
25 

29 
34 

35 

38 
39 
40 
43 
43 

45 

18 
28 
36 
44 

Potential GDP growth 

Key employment rates 

Real household saving ratio 

Private consumption and wages 

Inflation and the nominal effective exchange rate 

Graph 1.2: 
Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7:  Wage growth: actual and predicted based on economic fundamentals, 1999-2019 
Graph 1.8: 
Graph 1.9: 
Graph 2.1:  Overall multiannual implementation of 2011-2019 CSRs to date 
Graph 3.1.1:  Public debt as % of GDP 
Graph 3.2.1:  Real house price growth 
Graph 3.2.2:  Quarterly housing starts and completions 
Graph 3.3.1:  Net childcare-related costs and benefits as a percentage of disposable income, by 

Current account balance 

Consumer credit growth 

three earning levels 

Graph 3.4.1:  Trends in UK labour productivity and real wage 
Graph 3.4.2:  Contribution of production factors to labour productivity growth including intangible 

assets 

Graph 3.4.3:  Quarters needed to recover 2007 investment levels (in chained volume measures ref. 

2016) 

Graph 3.4.4:  Breakdown of intangible investment in the market sector (current prices) 
Graph 3.4.5:  Trends in new infrastructure and housing work 
Graph 3.4.6:  GDP per capita (2017) and GDP per capita growth (2011-2017) 
Graph 3.4.7:  GDP per head (PPS) in UK, NUTS 2 regions (2017), EU=100 
Graph 3.5.1: 

Indicative rates of decarbonisation required to achieve 80% and 100% reductions by 

2050 

LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in the UK 

Box 3.3,1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.4.1: Key drivers of the recent weakness of UK productivity 

Box 3.4.2: Investment challenges and reforms in the UK 

2 

 
 
 
 
 
EXECUTIVE SUMMARY 

The United Kingdom has high employment but 
low,  stagnant  productivity.  Unemployment  is 
low  and  the  UK  business  environment  has  many 
positive  aspects,  including  relatively  free  and 
efficient  product,  labour  and  capital  markets. 
However,  labour  productivity  and  investment  are 
low and not improving. The UK faces a broad need 
for  more  investment  in  equipment,  infrastructure 
and  housing,  while  also  bringing  down  project 
costs. There  is scope to  improve  the  effectiveness 
of education and training systems in areas such as 
basic  and  technical  skills.  Tight  regulation  of  the 
land  market  can  also  prevent  capital  and  labour 
from moving to where it is most needed(1). 

in 

the 

Following the withdrawal by the UK from the EU 
on 31 January 2020 and the entry into force of the 
Withdrawal  Agreement, 
the  UK  entered  a 
transition period, lasting  until 31 December 2020. 
During  this  period,  EU  law  —  including  that 
related  to  the  European  Semester  —  continues  to 
apply to and within the UK. The UK will continue 
to  participate 
implementation  of  EU 
programmes and activities committed to under the 
2014-2020  multiannual  financial  framework  until 
their  final  closure.  During  the  transition  period, 
trading relations between the EU and the  UK will 
remain essentially unchanged. Beyond this period, 
however,  they  will  depend  on  the  outcome  of  the 
negotiations  on  the  UK’s  future  relationship  with 
the  EU.  This  report  does  not  speculate  on  the 
impact  of  different  scenarios,  and  the  projections 
technical 
for  2021  are  based  on  a  purely 
assumption  of  status  quo  beyond  the  transition 
period in terms of trading relations between the EU 
and  the  UK.  This  means  that  the  2021  projection 
does  not  reflect  the  fact  that,  even  in  a  scenario 
where  a  free  trade  agreement  is  concluded,  the 
resulting situation will be less beneficial to EU-UK 
trading  relations  than  when  the  UK  was  in  the 
Internal Market and the Customs Union. 

In  2019,  UK  GDP  growth  remained  subdued. 
Annual growth was 1.4% in 2019, slightly up from 

(1)  This  report  assesses the  UK’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, Commission sets out a new strategy  on how  to 
address  not  only  the  short-term  economic  challenges  but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

3 

2018  (1.3%).  Growth  in  private  consumption 
continued  to  slow,  despite  increasing  real  wage 
growth,  linked  to  subdued  consumer  confidence. 
After  falling  in  2018,  business  investment  has 
stabilised. Investment remains subdued, in part due 
to  uncertainty  over 
trading 
relations  with  the  EU.  On  the  basis  of  the  purely 
technical  forecast  assumption,  the  UK’s  GDP 
growth  is  expected  to  be  1.2%  per  year  over  the 
is 
forecast  period,  as  consumption  growth 
supported  by 
an 
and 
expansionary  fiscal stance but investment remains 
subdued. 

the  UK’s  future 

real  wages 

rising 

Consumer  price  inflation  eased  to  1.3%  in 
December  2019.  This  is  well  below  a  peak  of 
3.1%  in  November  2017  and  reflects  lower  oil 
prices and the fading impact of the depreciation in 
sterling by about 15% from late 2015 to mid-2016. 
After  a  period  of  relative  stability,  sterling  fell 
further  in  mid-2019  in  the  context  of  very  high 
Brexit-related  uncertainty.  However,  it  has  since 
recovered to a level slightly higher than in most of 
the  post-referendum  period.  Annual  inflation  was 
1.8%  in  2019.  It  is  expected  to  remain  slightly 
below target at 1.7% in 2020, before picking up to 
2.0% in 2021. 

is  high.  The  employment  rate 
Employment 
(people  aged  20-64)  stood  at  79.1%  and 
unemployment  was  low  and  stable  at  3.8%  in  the 
third quarter of 2019. Wage growth was relatively 
strong in 2019, peaking in the middle of the  year. 
Average  weekly  earnings  increased  by  3.6%  in 
September-November  2019  (1.8%  in  real  terms). 
However,  if  labour  productivity  remains  stagnant, 
the  current  rate  of  real  wage  growth  does  not 
appear to be sustainable. 

After  widening  in  2018,  the  current  account 
deficit was volatile over 2019. The deficit rose to 
6.8%  of  GDP  in  the  first  quarter  of  2019  before 
falling to 2.8% of GDP in the third quarter, largely 
due  to  fluctuations  in  the  trade  balance.  The 
overall  net  trade  response  to  the  2016  sterling 
depreciation  has  been  disappointing,  as  evidenced 
by recent losses in the UK’s export market share.  

Household  debt  remains  high,  at  83%  of  GDP 
in  2018.  After  falling  gradually  for  a  number  of 
years from its peak of 96% in 2009, the household 
debt  ratio  has  broadly  stabilised  in  the  past  four 
years.  Growth  in  total  lending  to  households  has 

 
 
                                                           
Executive summary 

below  that  which  what  would  be  necessary  to 
meet estimated demand, due in part to capacity 
constraints  in  the  construction  sector.  Real 
house  prices  are  no  longer  rising  though  the 
cost  of  housing  remains  high  in  many  places. 
The  government  has  extended  and  revised  a 
number  of  housing  policies,  including  further 
changes to the planning system, but major new 
initiatives have been limited. 

to  congestion, 

this  contributes 

  Sustainable  transport.  Use  of  the  UK’s  road, 
rail and aviation networks is reaching capacity 
rail 
and 
reliability issues and air pollution. Public sector 
investment  in  transport  has  increased  but  the 
effects  of  decades  of  under-investment  in 
infrastructure  will  take  time  to  address.  After 
some signs of improvement in project delivery, 
major rail schemes have recently fallen behind 
schedule  and  over  budget.  The  UK  is  taking 
action  to  fulfil  its  ambition  to  be  at  the 
forefront  of  zero  emission  vehicles,  though  it 
currently  lags  in  the  proportion  of  renewable 
energy used in the transport sector. 

  Low carbon and energy transition. With its new 
commitment to net   carbon emissions by 2050, 
the  government's  ambitions  are  clear.  The 
for  allocating  planned 
preparatory  work 
increases in investment is advanced. The scale 
of the  decarbonisation challenge  will require  a 
more  detailed 
and 
investment 
sustained commitment. In the electricity sector, 
the  UK  continues 
in 
attracting 
large-scale  cost-
competitive  renewables,  particularly  offshore. 
Progress  is  slower  in  the  heating  and  cooling 
sector and the UK is not on course to meet its 
overall 2020 renewables target. 

to  make  progress 

investment 

strategy 

in 

There  has  been  limited  progress  in  the  following 
areas: 

  Training  and 

increased, 

looking  for  work  has 

improving  skills.  While 

the 
number of people with low levels of skills who 
the 
are 
polarisation  of  job  growth  towards  high  and 
low-skilled 
roles 
requiring  a  medium  level  of  skill)  has  been 
accompanied  by  increased  skills  mismatches. 
Implementing 
reformed  apprenticeship 
system  is  proving  a  challenge,  with  fewer 

(and  away 

roles 

from 

the 

also remained broadly stable, at 3.8% year-on-year 
in December 2019.  

Most  parts  of  the  UK  financial  sector  are  well 
capitalised and in a position to absorb potential 
shocks.  The  UK  banking  system  has  maintained 
good capital adequacy and liquidity and continues 
to improve its profitability. However, the insurance 
sector  faces  a  number  of  challenges  that  have 
weakened its profitability. The Bank of England’s 
Financial  Policy  Committee  judges  that  the  UK 
banking  system  would  be  resilient  to  major  and 
simultaneous domestic and global shocks.  

The UK stands out among advanced economies 
for its low rate of investment. UK investment fell 
particularly  sharply  in  the  financial  crisis,  then 
recovered robustly until 2015, as the economy and 
employment  grew.  In  the  last  3  years,  however, 
private  investment  has  stalled  in  the  context  of 
high  Brexit-related  uncertainty,  despite  the  UK 
having  been  in  the  phase  of  the  economic  cycle 
where  investment  is  usually  strongest.  Growth  in 
intangibles  investment  has  also  slowed  markedly. 
Direct public sector investment is close to the EU 
average and currently growing. 

Overall, the UK has  made some (2) progress in 
country-specific 
2019 
its 
addressing 
recommendations.  

There  has  been  some  progress  in  the  following 
areas: 

  Research  and 

innovation.  UK  universities 
remain  global  research  leaders.  However,  UK 
R&D  intensity  is  flat  and  below  the  EU 
average,  and  knowledge  diffusion  is  uneven. 
Delivering  the  recent  ambitious  proposals  for 
future research and innovation support will be a 
challenge. 

  Housing 

investment.  Annual  net  housing 
supply  has  continued  to  rise  but  planning 
permissions  have  levelled  off  and  there  are 
signs  of  a  slowdown  in  new  housing  starts. 
House  building looks set to stabilise at a level 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
the 
country-specific  recommendation 
overview table in the Annex. 

is  presented 

in 

4 

 
                                                           
that 

registrations  than  in  previous  years.  There  is 
levy, 
evidence 
introduced 
funding 
increasingly  used  to  train  more  senior  staff  at 
the expense of entry-level apprenticeships. 

in  2017,  has 

apprenticeship 

seen 

the 

indicators  of 

The  UK  performs  relatively  well  on  a  number 
the  Social  Scoreboard 
of 
supporting the European Pillar of Social Rights, 
but  some  challenges  remain.  The  labour  market 
shows robust performance in terms of job creation 
and  reducing  unemployment.  However,  some 
groups still have relatively high numbers of people 
who are not in work or who are looking for work. 
The proportion of young people who are neither in 
employment nor in education and training (NEET) 
increased slightly  in 2018 and is now in line  with 
the  EU  average  (after  having  been  consistently 
below  it  since  2014).  While  the  employment  rate 
for  women  (74.4%  in  Q3-2019)  reached  the 
highest  level  in  recent  decades,  the  employment 
gap  between  men  and  women  is  still  close  to 
10pps. The risk-of-poverty or social exclusion has 
increased considerably, exceeding the EU average. 

Regarding progress in reaching the national targets 
set  in  the  Europe  2020  strategy,  the  UK  is 
performing  well  on  reducing  greenhouse  gas 
emissions.  It  is  on  track  to  meet  its  2020  energy 
efficiency  targets  but  additional  effort  is  likely  to 
be  required  if  it  is  to  achieve  the  2020  renewable 
energy targets. 

environment-related 

The  UK  has  made  progress  towards  achieving 
most  aspects  of  the  UN  Sustainable  Development 
Goals  (SDGs).  There  has  been  particular  progress 
on 
including 
“Affordable  and  Clean  Energy"  (SDG  7).  There 
has  been  some  deterioration  over  the  past  5  years 
in several aspects of the SDGs relating to poverty 
and  deprivation,  including  "Reduced  Inequalities" 
(SDG 10) (3). 

SDGs 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex D) presents a statistical 
assessment  of  trends  in  relation  to  SDGs  in  the  United 
Kingdom  during  the  past  five  years,  based  on  Eurostat’s 
EU SDG indicator set. 

Executive summary 

Key structural issues analysed in this report, which 
highlight  particular  challenges 
the  UK 
economy, include: 

for 

  General  government  debt  remains  high. 
After  several  years  of  fiscal  tightening  and  an 
improving  budget  balance, 
the  general 
government  deficit  is  projected  to  increase 
from  1.8%  of  GDP  in  2018-2019  to  2.2%  in 
2019-2020  and  2.4%  in  2020-2021.  Debt  is 
projected  to  fall  slightly,  but  is  expected  to 
remain  above  80%  of  GDP  over  the  forecast 
period. The impact of an ageing population and 
non-demographic  cost  pressures  on  health  and 
social  care  represent  significant 
long-term 
fiscal risks. 

  The availability and affordability of housing 
remains  a  major  challenge.  The  housing 
market  has  softened  and  real  house  prices  are 
no longer growing. However, house prices and 
rents remain high in areas of high demand, and 
there  are  signs  of  overvaluation.  Significantly 
fewer young adults now own their own homes 
and  this  contributes  to  inequality  between 
generations.  The  amount  and  location  of  land 
available  for  new  housing  is  limited  by  tight 
regulation  of  the  land  market,  particularly 
around big towns and cities. This has prevented 
housing  supply  from  responding  adequately  to 
shifts  in  demand,  and  inflated  the  price  of 
land  and  existing  houses.  The 
building 
range  of 
government 
measures  to  boost  housing  supply.  House 
building  remains  below  what  is  required  to 
alleviate existing housing shortages. 

implementing  a 

is 

  Not all groups have shared the benefits of a 
high  employment  rate.  The  employment  rate 
(20-64)  reached  a  record  79.1%  in  Q3-2019, 
well above the EU average (74.1%). However, 
significant challenges remain, including slower 
growth  in  labour  productivity,  polarisation  of 
jobs towards high- and low-skilled roles, a high 
number  of  zero-hour  contracts  and 
jobs 
allocated  through  online  platforms  ('the  gig 
economy'), and a persistent gender employment 
gap.  There  has  been  a  significant  increase  in 
the  use  of  zero-hour  contracts,  which  are 
social 
lower 
characterised  by 
protection,  skills  progression  and  productivity. 
The number of women who are not in work or 

levels  of 

5 

 
                                                           
Executive summary 

who  are  not  seeking  work  due  to  caring 
responsibilities  is  higher  than  the  EU  average. 
This  is  partly  due  to  high  childcare  costs 
especially for low-income earners.  

‘National  Infrastructure  Strategy’  has  been 
delayed,  and  is  expected  to  be  published 
alongside the March 2020 Budget. 

  Major 

require 

large-scale 

investment  and  reforms  will  be 
needed  to  continue  the  transition  to  a 
climate-neutral  economy.  The  UK  has  made 
good  progress  to  date  in  reducing  greenhouse 
gas  emissions.  In  2019,  the  UK  committed  to 
reach net zero carbon emissions by 2050. This 
will 
and 
behavioural  changes  across  the  economy.  The 
the 
prospects 
renewable  electricity  sector  are  encouraging. 
Reducing the amount of energy used for home 
heating  is  complicated  by  the  age  of  the 
housing stock. Congestion and long commutes 
will be a challenge in reducing transport sector 
emissions. 

investment 

investment 

further 

for 

in 

  The  risk  of  poverty  or  social  exclusion 
increased  significantly  from  22%  to  23.6% 
between  2017  and  2018,  surpassing  the  EU 
average.  This  translates  into  an  additional 
1.1 million  people  at  risk  of  poverty  or  social 
exclusion.  The  number  of  people  turning  to 
food  banks  in  the  UK  has  increased  over  the 
last year. Market income inequality is high, but 
social  benefits  have  a  strong  poverty-reducing 
effect.  In-work  poverty  and  child  poverty 
remain  high.  Monetary  poverty  is  projected  to 
rise  further.  Homelessness  figures  show  no 
signs of abating.  

  Labour  productivity,  which  was  already 
relatively low, has stagnated. Output per hour 
is  significantly  lower  in  the  UK  than  in  most 
other  developed  economies,  and  is  barely 
higher  than  it  was  before  the  financial  crisis. 
Recent GDP  growth  has been driven by rising 
employment,  not  increases  in  productivity. 
Despite  a  tight  labour  market,  UK  labour 
productivity  has  been  essentially  flat  since 
increase 
early  2018.  There 
to 
productivity 
broad-based 
problems such as low investment in equipment, 
infrastructure  and  R&D,  and  skills  gaps 
(especially in basic and technical skills). Many 
parts  of  the  UK  are  relatively  poor  with 
comparatively  low  levels  of  investment  in 
skills  and  infrastructure,  and  inter-regional 
disparities  have  continued  to  grow.  The  UK 
aims to invest more in research and innovation 
and  improve  the  use  of  existing  technologies 
across the economy. 

is  scope 
addressing 

by 

  Infrastructure networks are under pressure. 
Use  of  the  UK’s  road,  rail  and  aviation 
networks  is  reaching  capacity  and  the  country 
needs  to  deliver  a  substantial  amount  of  new 
physical infrastructure. After decades of public 
under-investment, the government is starting to 
deal  with  the  infrastructure  deficit.  In  July 
2018,  the  National  Infrastructure  Commission 
published a wide-ranging long-term assessment 
of infrastructure needs between now and 2050. 
A  full  government  response  in  the  form  of  a 

6 

 
1.  ECONOMIC SITUATION AND OUTLOOK 

suggest  that  Brexit  uncertainty  has  weighed  on 
consumer  goods  demand,  in  particular  on  ‘non-
essential’  spending  (Bank  of  England,  2019b). 
According  to  the  Commission  2019  Autumn 
Forecast,  growth 
is 
expected  to  recover  somewhat  over  the  forecast 
period,  supported  by  rising  real  wages  and  an 
expansionary fiscal policy. 

in  private  consumption 

Graph 1.2: 

Private consumption and wages 

GDP growth  

UK  GDP  growth  remained  subdued  in  2019. 
Real GDP grew by 1.4% in 2019. While increasing 
slightly from 2018 (1.3%), recent growth has been 
well  below  the  post-crisis  peak  of  2.6%  in  2014 
(Graph 1.1).  Stockpiling  and  other  actions  by  UK 
businesses,  in  advance  of  the  possible  disorderly 
withdrawal  from  the  EU  on  29  March  2019, 
temporarily  boosted  growth  in  Q1-2019.  The 
unwinding  of  this  mitigation  activity  had  an 
the  following 
opposite,  dampening  effect 
quarter. A similar, though less pronounced pattern 
was  visible  in  the  months  around  the  possible 
withdrawal date at the end of October 2019 (4). 

in 

Graph 1.1:  Annual real GDP growth 

Source: Office for National Statistics 

Graph 1.3: 

Real household saving ratio 

Source: Office for National Statistics, European Commission 

The  household  saving  ratio  increased  in  2018 
and has since stabilised (Graph 1.3). It increased 
from  5.3%  in  2017  to  5.8%  in  2018.  In  Q3-2019, 
the  savings  ratio  stood  at  5.4%.  The  cash-basis 
saving ratio (which captures only the immediately 
available 
to 
households) increased to 2.8% in 2018 from 1.6% 
in  2017,  in  line  with  the  increase  in  the  national 

observed 

directly 

cash 

and 

Source: Office for National Statistics, European Commission 

Growth  in  private  consumption  continued  to 
slow. From its post  global  financial crisis peak of 
3.6%  in  2016,  growth  in  private  consumption 
eased  to  1.6%  in  2018  and  1.3%  in  2019  (Graph 
1.2). The slowdown in 2018 was despite increasing 
real  wage  growth  but  was  consistent  with  a 
significant  deterioration 
the  Commission’s 
consumer  confidence  indicator  over  the  second 
half of the year. Private consumption continued to 
grow at a modest pace in 2019, as the boost from 
rising  real  wages  was  dampened  by  subdued 
consumer  confidence.  The  Bank  of  England 

in 

(4)  If not mentioned otherwise, data used in Section 1 is from 

the UK Office for National Statistics (ONS). 

7 

-4-2024681012140304050607080910111213141516171819%, Q dataHousehold savings ratio (National accounts)Household savings ratio (cash basis) 
  
                                                           
  
 
   
1. Economic situation and outlook 

accounts  household  saving  ratio.  In  Q3-2019,  the 
cash-basis  ratio  had  fallen  to  2.1%.  In  2020  and 
2021, growth in household expenditure is expected 
to  grow  generally  in-line  with  gross  household 
disposable  income  growth.  The  household  saving 
ratio  is  therefore  expected  to  remain  broadly 
stable. 

Business investment remains subdued. Business 
investment grew by 0.3% in 2019 and it has been 
weak  for  the  last  3  years  (see  Box  3.4.1). 
According to the 2019/2020 Investment Survey by 
the  European  Investment  Bank,  uncertainty  was 
the  most  cited  barrier  to  investment  (88%  of  the 
firms  surveyed,  up  from  76%  in  2018/2019)  and 
well  above  the  EU  average  (72%)  (EIB,  2019). 
Over  the  forecast  period,  business  investment  is 
expected  to  remain  weak  as  uncertainty  about  the 
UK’s  future  trading  relationship  with  the  EU 
persists. 

Trade was volatile through 2019. Net trade made 
a  negative  contribution  to  growth  in  2018  (-
0.3pps),  and  no  contribution  in  2019  (0.0pps). 
Mitigation  activity  by  firms  before  the  possible 
disorderly  withdrawal  from  the  EU  on  29  March 
2019  and  its  subsequent  unwinding  introduced 
significant volatility in UK trade data over the first 
half of 2019, and a similar, though less pronounced 
pattern  was  observable  around 
the  possible 
withdrawal date in October 2019. Over the forecast 
period,  net  exports  are  projected  to  weigh  on 
growth,  as  continued  weak  external  demand 
inhibits  export  growth  while  domestic  demand 
supports moderate import growth. 

transition  period.  For 

UK GDP is forecast to grow at a broadly stable 
pace  in  2020  and  2021.  Whereas  during  the 
transition period trading relations between the  EU 
and the UK are unchanged, there is uncertainty as 
regards  their  future  economic  relationship  beyond 
that  reason,  2021 
the 
projections  for  the  UK  are  based  on  the  purely 
technical  assumption  of  status  quo  in  terms  of 
trading relations between the EU and the UK. This 
is  for  forecasting  purposes  only  and  does  not 
reflect any assumptions or predictions with regard 
to the outcome of the negotiations between the EU 
and the UK, nor the fact that, in any outcome, their 
trading  relations  will  be  less  beneficial  than 
compared  to  when  the  UK  was  a  member  of  the 
Internal  Market  and  the  Customs  Union.  On  that 
basis,  and  assuming  an  expansionary  fiscal  stance 

on 

the 

based 
Spending  Review 
2019 
announcements (see below), annual GDP growth is 
forecast to be 1.2% in both 2020 and 2021. 

Potential growth 

Weak  productivity  growth  continues  to  weigh 
on potential GDP growth. Potential GDP growth 
has  remained  relatively  subdued  compared  to  the 
pre-crisis  period  (Graph  1.4).  This  is  in  line  with 
the  stagnation  of  labour  productivity  since  the 
global financial crisis. In particular, growth in the 
labour  force  and  employment  contributed  to  the 
increase  in  potential  GDP  growth  after  the  crisis, 
and  with  a  small  deterioration  in  2016  and  2017, 
continues  to  be  the  main  contributor.  In  recent 
to  have  opted  for 
years,  companies  appear 
increasing  labour  inputs  over  capacity  enhancing 
capital  investments  (see  Section  3.4  for  detail  on 
UK productivity developments). 

Graph 1.4: 

Potential GDP growth 

Source: European Commission 

Inflation 

After easing in 2019, inflation is expected to rise 
gradually  over  the  forecast  period.  Despite  the 
tight labour market, consumer price inflation eased 
to 1.3% in December 2019, and was 1.8% in 2019 
as  a  whole  (Graph  1.5).  This  was  significantly 
down  from  2.5%  in  2018,  partly  due  to  lower  oil 
prices and the unwinding of the effect of sterling’s 
depreciation in 2016. After falling by around 15% 
between  late  2015  and  the  aftermath  of  the  UK’s 
vote to leave the EU in mid-2016, the sterling net 

8 

0.00.51.01.52.02.5070809101112131415161718192021222324Rate of change y-o-y (%)Capital accumulation contributionTFP contributionTotal labour (hours) contributionPF potential growth  
1. Economic situation and outlook 

effective  exchange  rate  has  been  relatively  stable 
at this lower level. Sterling fell further in mid-2019 
in 
the  context  of  very  high  Brexit-related 
uncertainty,  but  has  since  recovered  to  a  level 
slightly higher than in most of the post-referendum 
period.  Inflation  is  projected  to  remain  slightly 
below target at 1.7% in 2020, before picking up to 
2.0% in 2021. 

expected  to  have  averaged  over  3%  in  2019  (vs. 
2.9%  in  2018).  This  is  marginally  above  a  model 
prediction of what might be expected on the basis 
of  developments  in  inflation,  productivity  and 
unemployment (2.9% for 2019, see Graph 1.7) (5). 
However, the current rate of real wage growth may 
not  be  sustainable  if  labour  productivity  remains 
stagnant (see Section 3.4). 

Graph 1.5: 

Inflation and the nominal effective exchange 
rate 

Graph 1.6: 

Key employment rates 

Source: Eurostat 

Long-term international migration continued to 
add  to  the  UK  population,  but  the  balance  has 
shifted  away  from  the  EU.  In  the  year  to  June 
2019  net  migration  was  212,000.  Net  migration 
from  the  EU  has  continued  to  fall  from  a  peak  of 
218,000 in 2015 and at 48,000 in the year to June 
2019  is  at  its  lowest  level  since  2003.  Net 
migration from outside the EU has stabilised at an 
annual  rate  of  over  200,000,  after  a  gradual 
increase since 2013. 

(5)  This  is  a  benchmark  for  wage  growth  consistent  with 
internal  labour  market  conditions.  It  is  wage  growth 
predicted  on  the  basis  of  changes  in  labour  productivity, 
prices and unemployment rate (see Arpaia and Kiss, 2015).  

Source: European Commission 

Labour market 

The  labour  market  continues  to  perform  well 
but  employment  growth  has  slowed  down.  The 
labour market has been strong in recent years (see 
Graph  1.6).  Based  on  Eurostat  data, 
the 
employment rate  was a record 79.1% in Q3-2019. 
Employment  has  increased  across  most  sectors. 
The activity rate  reached 81.9% in Q3-2019, after 
flattening in mid-2018. Unemployment was stable 
at 3.8% in Q3-2019, the lowest level over the last 
two  decades.  At  the  same  time,  job-finding  rates 
(11.8% of unemployed people found a job in Q1-
2019)  have  stagnated  since  mid-2017.  The 
percentage  of  underemployed  part-time  workers 
has remained above the EU average (4.2% vs 3.2% 
in  Q3-2019),  though  it  has  decreased  in  recent 
years. 

Wage  growth  has  accelerated  and  remains 
broadly  in  line  with  economic  fundamentals. 
After years of relatively weak wage dynamics, real 
wage  growth  picked  up  through  2019  to  nearly 
2%.  Nominal  wage  growth  has  accelerated  and  is 

9 

8090100110120130140012345603040506070809101112131415161718192010=100% y/yHICPNEER757677787980818205101520252000200120022003200420052006200720082009201020112012201320142015201620172018%%UKActivity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs)  
      
                                                           
Graph 1.7:  Wage growth: actual and predicted based on 

economic fundamentals, 1999-2019 

1. Economic situation and outlook 

around zero suggested by fundamentals (6). While 
the  current  account  deficit  increased  to  6.8%  in 
Q1-2019, it improved to 2.8% in the third quarter, 
both  movements  driven  by  changes  in  the  trade 
balance. Trade was volatile in 2019 in part due to 
stockpiling  activities  ahead  of  the  UK’s  expected 
withdrawal  from  the  EU  in  March  2019,  and 
sterling’s 
subsequent 
depreciation in 2016, the net trade response to the 
depreciating  real  effective  exchange  rate  and 
associated  improved  price  competitiveness  has 
been disappointing, as evidenced by recent export 
market share losses. 

unwinding. 

Since 

Graph 1.8:  Current account balance 

Source: European Commission 

Social developments 

to  have 

to  23.6% 

increased  further 

The  at-risk-of-poverty-or-social-exclusion  rate 
increased  by  1.6pps 
in  2018, 
significantly  exceeding  the  EU  average  of 
21.9%.  Both 
relative  poverty  and  material 
deprivation  rose.  In  2018,  the  at-risk-of-poverty 
rate increased to 18.9% (from 17% in 2017) and is 
in  2019 
expected 
(Eurostat, 2019a). The severe material deprivation 
rate increased to 4.6% (from 4.1% in 2017). Due to 
major  reforms  of  the  social  security  system,  the 
poverty 
transfers 
reducing  effect  of  social 
decreased  from  41.7%  in  2017  to  35.9%  in  2018, 
bringing it closer to the EU average of 33.2%. As a 
result,  income  inequality  after  transfers,  measured 
by the income quintile share ratio, increased from 
5.4 in 2017 to 5.95 in 2018. In the past 5 years, the 
UK  has  moved  away  from  reaching  SDG  10 
(reducing inequalities). 

External position 

The deterioration in the trade balance led to the 
current account deficit widening in 2018, while 
movements were more volatile in 2019. The UK 
current account deficit widened to 3.9% of GDP in 
2018  from  3.5%  in  2017  (see  Graph  1.8).  This 
deterioration  was  largely  driven  by  an  increase  in 
the  trade  deficit,  which  widened  to  1.4%  of  GDP 
in 2018 from 1.2% in 2017. In cyclically-adjusted 
terms,  the  current  account  position  remained 
considerably below the country-specific ‘norm’ of 

Source: Office for National Statistics & European Commission 

The  primary 
income  deficit  widened  very 
slightly to 1.3% of GDP in 2018, from 1.2% in 
2017  and  stood  at  1.6%  in  Q3-2019.  The  main 
driver  was  a  reduction  of  the  foreign  direct 
investment  (FDI)  income  balance  as  the  rates  of 
return  earned  on  FDI-related  investments  in  the 
UK increased, and these maintained a better rate of 
return than that earned on UK investments abroad. 
This  was  partially  offset  by  the  portfolio  income 
deficit  narrowing  from  2.3%  of  GDP  in  2017  to 
2.0%  in  2018  and  the  other  investment  deficit 
narrowing  from 0.4% of GDP in 2017 to 0.3% in 
2018.  

(6)  The  benchmark  is  derived  from  reduced-form  regressions 
capturing  the  main  determinants  of  the  saving-investment 
balance, 
(e.g. 
demography, resources), policy factors and global financial 
conditions. See also Coutinho, Turrini and Zeugner (2018). 

fundamental  determinants 

including 

10 

-2-10123456719992001200320052007200920112013201520172019%UKPrediction based on inflation, productivity andunemploymentActual nominal compensation growth-12-10-8-6-4-202468040506070809101112131415161718% GDPGoodsServicesPrimary incomeSecondary incomeCAB      
  
                                                           
1. Economic situation and outlook 

bond purchases, financed by the issuance of central 
bank  reserves,  at  £10 billion  (€11.4 billion).  The 
Committee also voted unanimously to maintain the 
stock of UK government bond purchases, financed 
by  the  issuance  of  central  bank  reserves,  at 
£435 billion  (€496 billion).  In  its  summary,  the 
Committee  stated,  ‘policy  may  need  to  reinforce 
the  expected  recovery  in  UK  GDP  growth  should 
the more positive signals from recent indicators of 
global  and  domestic  activity  not  be  sustained  or 
should 
indicators  of  domestic  prices  remain 
relatively  weak.  Further  ahead,  if  the  economy 
recovers  broadly  in  line  with  the  MPC’s  latest 
projections, some modest tightening of policy may 
be  needed  to  maintain  inflation  sustainably  at  the 
target’ (Bank of England, 2020). 

Financial sector and private debt 

The  UK  banking  sector’s  profitability  has 
increased.  Banking  profits  have  grown,  mainly 
driven by an increase in non-interest income and a 
reduction  in  impairment  charges.  As  discussed  in 
Section 3.2.1, the sector has increased provisioning 
for  misconduct  costs  but  future  misconduct  costs 
are  expected  to  be  lower.  However,  the  insurance 
sector faces issues of weak profitability, due to the 
intensity  of  competition,  regulatory  scrutiny  and 
increasing attrition costs (see Section 3.2.1.). 

In  December  2019,  the  Bank  of  England’s 
Financial  Policy  Committee  (FPC)  raised  the 
UK countercyclical capital buffer rate from 1% 
to  2%.  The  FPC  continued  to  judge  that,  apart 
from  those  risks  related  to  Brexit,  domestic 
financial  stability  risks  remained  at  a  standard 
level overall. The FPC also judged that the Bank’s 
2019  stress  test  showed  that  the  UK  banking 
system was resilient to deep simultaneous UK and 
global  recessions  that  were  more  severe  overall 
than 
the  global  financial  crisis,  and  would 
encompass  ‘a  worst-case  disorderly  Brexit’  (Bank 
of  England,  2019a).  The  2018  European  Banking 
Authority  stress  test  produced  unexpectedly  weak 
results  for  UK  banks,  which  partly  reflects 
differences  in  methodology  and  the  scenarios 
applied (see Section 3.2.1). 

Total  net  investment  inflows  into  the  UK 
decreased in 2018 and stabilised in the first half 
of  2019.  Total  net  inward  investment  flows  into 
the UK decreased substantially to 9.0% of GDP in 
2018 from 23.7% in 2017. This was mostly due to 
a  reduction  in  volatile  other  investment  inflows 
from  10.8%  of  GDP  in  2017  to  0.0%  in  2018.  In 
contrast, other investment inflows recorded a large 
net inflow of overall investment in the first half of 
2019. Other investments, which includes loans and 
deposits  to  banks,  are  volatile  as  they  are  short-
term in nature and are therefore subject to foreign 
investors’ appetite and refinancing risk.  

from 

the  Department 

Inflows  of  FDI,  a  more  stable  form  of  inward 
investment,  dropped  to  2.8%  of  GDP  in  2018, 
from  4.6%  in  2017.  Interpreting  aggregate  FDI 
statistics  is  often  challenging  as  they  can  be 
affected  by  mergers  and  acquisitions  activity  that 
may  not  result  in  a  significant  economic  benefit. 
for 
However,  data 
International  Trade  (DIT,  2019)  shows  that  in 
2018-2019,  the  number  of  total  FDI  projects 
decreased by 14% compared to 2017-2018. Within 
this overall reduction, the number of FDI projects 
related 
to  mergers  and  acquisitions  actually 
increased by 8% but the number of new investment 
projects  decreased  by  12%.  Reflecting  this,  the 
number  of  new  jobs  created  from  FDI  decreased 
by 24% in 2018-19 when compared to 2017-2018. 
As  new  FDI  is  believed  to  support  productivity 
growth,  this  decline  is  a  concern  in  light  of  the 
UK’s  ongoing  productivity  growth  challenge  (see 
Section 3.4).  

Despite  persistent  external  deficits,  the  net 
international investment position (NIIP) is close 
to balance. The NIIP widened to 12.8% of GDP in 
2018, from 10.0% in 2017, as the increase in total 
assets  of  £259 billion  (€296 billion)  was  less  than 
the 
liabilities  of  £326 billion 
(€372 billion). This widening of the NIIP was due 
to both positive net investment  flows into the  UK 
by  foreign  investors  and  sterling  appreciation 
effects. 

increase 

in 

Monetary Policy 

In  January  2020, 
the  Bank  of  England 
maintained  Bank  Rate  at  0.75%.  The  Bank’s 
Monetary  Policy  Committee  (MPC)  also  voted  in 
its  January  meeting  to  maintain  the  stock  of 
sterling  non-financial  investment-grade  corporate 

in  total 

The  pace  of  growth 
lending  to 
households  stabilised  in  2019.  Total  lending  to 
households  grew  by  3.8%  year-on-year 
in 
December 2019, slightly below its 2018 average of 
4.2%. Lending secured on dwellings grew by 3.4% 

11 

(Graph 1.9) and it has been broadly stable for the 
last 3 years. Unsecured consumer credit growth is 
6.1%,  well  below  its  post  crisis  peak  of  10.9%  in 
November  2016.  The  Bank  of  England’s  2019 
stress  test  showed  that  the  UK  banking  system 
could  successfully  absorb  potential  losses  on 
household  debt,  even  in  a  severe  downturn  (Bank 
of England, 2019a). 

Graph 1.9:  Consumer credit growth 

Source: Bank of England 

Despite stabilising over recent years, household 
debt  remains  high.  After  falling  steadily  from  a 
peak of 96% of GDP in 2009, household debt has 
broadly stabilised in the past four years. In 2018, it 
stood  at  just  over  83%  of  GDP,  broadly  stable 
from  2017.  In  its  December  2019  Financial 
Stability Report, the FPC stated that the proportion 
of  households  with  high  mortgage  debt-servicing 
ratios remains low. Nonetheless, the Commission’s 
fundamentals-based 
prudential 
that 
benchmarks  for  household  debt  suggest 
household 
financial 
indebtedness  still  poses 
stability  risks  (7).  Furthermore,  the  Commission’s 
household  debt  sustainability  indicators  (S1  and 
S2)  suggest  that  the  near  record-low  household 
saving  ratio  would  need  to  increase  to  make  debt 

threshold  and 

(7)  Fundamentals-based  benchmarks 

are  derived 

from 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which the probability of a banking crisis is relatively high. 
Methodologies  are  described  in  European  Commission 
(2017)  and  updates  to  the  methodology  have  been 
subsequently proposed in European Commission (2018a). 

1. Economic situation and outlook 

levels  sustainable  over  both  the  medium  and  long 
term. 

Growth  in  credit  to  non-financial  corporations 
was 3.2% year-on-year in December 2019. This 
growth  was  driven  by  credit  to  large  businesses, 
which  grew  by  4.4%  annually.  At  the  same  time, 
growth  in  credit  to  small  and  medium-sized 
enterprises grew by a more modest 0.8%. The ratio 
of  gross  non-performing  loans  improved  and  was 
one of the lowest in the EU at 1.3% as of Q2-2019 
(the  EU  average  is  3.0%)  (European  Banking 
Authority, 2019). 

Public finances 

Several methodological and data changes to the 
public  sector  finance  data  led  to  an  upward 
revision of the budget deficit. In September 2019, 
the  Office  for  National  Statistics  (ONS)  changed 
its  accounting  treatment  of  student  loans  to  better 
reflect  the  fiscal  cost  of  loans  that  are  not  repaid, 
and  revised  other  data,  including  on  public  sector 
pensions  and  corporate  taxes.  The  changes  led  to 
an  upward  revision  of  the  deficit  from  2000-2001 
onwards.  For  2017-2018,  the  general  government 
deficit was revised up from 2.1% of GDP to 2.7%, 
and from 1.2% to 1.8% for 2018-2019.  

After  several  years  of  fiscal  tightening  and  an 
improving budget balance, a looser fiscal stance 
is  projected  for  the  coming  years.  According  to 
the 
the  Commission  2019  Autumn  Forecast, 
general government deficit is projected to increase 
to  2.2%  of  GDP  in  2019-2020  and  to  2.4%  in 
2020-2021, before falling slightly to 2.3% in 2021-
2022. The structural deficit is projected to increase 
from  2.2%  of  GDP  in  2018-2019  to  around  2.4% 
over the  forecast period. In addition to previously 
announced  extra 
from  2019-2020 
spending 
onwards,  in  particular  on  the  National  Health 
Service,  the  Commission’s  forecast  also  includes 
increases 
limits 
announced in the Spending Round on 4 September 
2019. Due to the general election on 12 December 
2019,  the  government  cancelled  its  2019  autumn 
budget.  The  next  Budget  will  be  presented  in 
March 2020. 

departmental 

spending 

to 

General government debt continues to fall. The 
methodological and data changes mentioned above 
had  only  a 
the  general 
government debt-to-GDP ratio. For 2018-2019, the 

impact  on 

limited 

12 

  
                                                           
1. Economic situation and outlook 

ratio  was  revised  down  slightly,  from  85.2%  to 
the  Commission  2019 
84.3%.  According 
Autumn  Forecast, 
is 
projected to continue to fall, from 84.1% in 2019-
2020 to 83% in 2021-2022. 

to 
the  debt-to-GDP 

ratio 

Sustainable development goals 

of 

aspects 

the  UK  has 

The  UK  has  made  progress  towards  achieving 
Sustainable 
most 
the  UN 
Development  Goals.  According 
to  Eurostat’s 
Sustainable  Development  Goals  (SDG)  indicators 
registered 
(see  Annex  D), 
improvements in most of the goals over the past 5 
years.  There  has  been  particular  progress  on 
environment-related  SDGs  including  “Affordable 
(SDG 7),  “Responsible 
and  Clean  Energy” 
Consumption  and  Production”  (SDG 12)  and 
“Climate  Action”  (SDG 13).  In  many  of  the 
indicators in these areas, the UK’s performance is 
in line with the EU average as many EU Member 
States  have  also  made  good  progress.  There  has 
been  some  deterioration  over  the  past  5  years  in 
several  elements  of  the  SDGs  related  to  poverty 
and  deprivation,  namely  “No  poverty”  (SDG 1), 
“Zero  Hunger” 
“Reduced 
(SDG 2) 
Inequalities”  (SDG 10).  On  several  deprivation-
related  indicators  the  UK  scores  below  the  EU 
average,  despite  the  UK’s  high  employment  rate 
and quite redistributive tax-benefit system. 

and 

13 

1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators 

14 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)2.70.12.31.91.31.31.21.2Potential growth (y-o-y)2.41.01.41.51.61.61.61.5Private consumption (y-o-y)2.4-0.12.92.21.6...Public consumption (y-o-y)2.81.21.10.30.4...Gross fixed capital formation (y-o-y)3.4-2.84.31.6-0.2...Exports of goods and services (y-o-y)5.51.32.26.11.2...Imports of goods and services (y-o-y) 5.00.24.23.52.0...Contribution to GDP growth:Domestic demand (y-o-y)2.7-0.32.81.81.1...Inventories (y-o-y)0.00.0-0.1-0.60.3...Net exports (y-o-y)0.00.3-0.60.7-0.3...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.50.70.50.70.70.60.6Capital accumulation (y-o-y)0.70.20.40.40.40.40.40.4Total factor productivity (y-o-y)1.20.30.30.50.50.50.60.6Output gap1.3-2.9-0.50.90.60.40.20.1Unemployment rate5.17.45.94.34.03.84.04.1GDP deflator (y-o-y)2.62.01.61.92.11.92.11.9Harmonised index of consumer prices (HICP, y-o-y)2.03.31.22.72.51.81.72.0Nominal compensation per employee (y-o-y)5.21.52.03.22.94.03.33.1Labour productivity (real, person employed, y-o-y)1.7-0.20.50.90.1...Unit labour costs (ULC, whole economy, y-o-y)3.51.71.52.22.73.72.62.4Real unit labour costs (y-o-y)0.9-0.3-0.10.40.61.80.50.5Real effective exchange rate (ULC, y-o-y)3.5-4.40.3-4.42.20.73.90.6Real effective exchange rate (HICP, y-o-y)0.8-3.6-0.2-4.82.3-0.33.50.2Net savings rate of households (net saving as percentage of net disposable income)3.95.43.5-0.30.1...Private credit flow, consolidated (% of GDP)15.32.16.17.24.4...Private sector debt, consolidated (% of GDP)172.6182.5165.5167.7163.3...of which household debt, consolidated (% of GDP)86.891.283.683.183.2...of which non-financial corporate debt, consolidated (% of GDP)85.891.381.884.580.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)........Corporations, net lending (+) or net borrowing (-) (% of GDP)-1.30.5-3.2-1.4-2.0-2.5-2.4-2.4Corporations, gross operating surplus (% of GDP)21.221.521.621.520.920.320.420.2Households, net lending (+) or net borrowing (-) (% of GDP)1.54.52.90.20.31.01.01.0Deflated house price index (y-o-y)7.9-4.16.13.10.6...Residential investment (% of GDP)4.13.33.43.73.8...Current account balance (% of GDP), balance of payments-2.6-3.1-4.9-3.5-3.9-4.3-4.2-4.2Trade balance (% of GDP), balance of payments-2.2-1.6-1.4-1.2-1.4...Terms of trade of goods and services (y-o-y)-0.2-0.31.6-0.90.21.31.00.9Capital account balance (% of GDP)0.00.0-0.1-0.1-0.1...Net international investment position (% of GDP)-6.0-11.0-15.7-10.0-12.8...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-25.3-26.9-10.1-2.63.1...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)355.0539.6413.8378.1377.8...Export performance vs. advanced countries (% change over 5 years)-1.7-15.6-1.4-3.9-3.6...Export market share, goods and services (y-o-y)-3.4-4.70.7-4.0-1.00.0-0.8-1.5Net FDI flows (% of GDP)0.20.3-5.20.6-0.8...General government balance (% of GDP)-2.9-8.0-4.8-2.4-2.3-2.2-2.4-2.2Structural budget balance (% of GDP)..-4.5-2.9-2.6-2.4-2.5-2.3General government gross debt (% of GDP)40.070.186.086.285.985.284.784.2Tax-to-GDP ratio (%) (3)34.634.734.135.035.135.335.435.4Tax rate for a single person earning the average wage (%) (4)26.925.223.623.523.5...Tax rate for a single person earning 50% of the average wage (%) (4)20.819.015.215.014.9...Key economic and financial indicators - United Kingdomforecast(1) NIIP excluding direct investment and portfolio equity shares(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the section on taxation(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a percentage of gross wage earningsSource: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for real GDP and HICP, Autumn forecast 2019 otherwise) 
  
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

Since  the  start  of  the  European  Semester  in 
2011,  the  UK  has  recorded  at  least  ‘some 
progress’ on 94% of CSRs addressed to it. This 
includes 10%, covering access to finance and fiscal 
policy,  where  it  achieved  ‘substantial’  progress. 
On  the  other  6%  of  CSRs,  it  has  recorded  only 
‘limited’  progress  (see  Graph 2.1).  On  labour 
market,  housing  and  infrastructure  CSRs,  it  has 
tended  to  record  ‘some’  progress.  While  the 
government  has  put  in  place  a  range  of  relevant 
policies, these are all deep-rooted and longstanding 
policy  challenges  still  requiring  sustained  reform 
efforts.  There  has  been  more  variation  in  the 
assessment of fiscal CSRs over time as the pace of 
ongoing  fiscal  consolidation  has  fluctuated,  as 
have trends in public investment. 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 CSRs to date 

(1) The overall assessment of the CSRs related to fiscal policy 
exclude compliance with the Stability and Growth Pact. 
(2) 2011-2012: Different CSR assessment categories 
(3) The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2020 Country Report. 
Source: European Commission 

The  fiscal  deficit  gradually  decreased  to  below 
3%  of  GDP,  though  it  is  no  longer  falling.  The 
UK  left  the  Excessive  Deficit  Procedure  of  the 
Stability and Growth Pact in 2017. 

The  UK  received  a  recommendation  on 
investment  in  2019  that  encompasses  areas 
covered by previous recommendations. The UK 
stands out among advanced economies for its low 
investment 
rate  of 

investment.  UK  private 

investment 

recovered  robustly  from  the  financial  crisis  until 
2015.  Private  investment  has  since  stalled  in  the 
context of high levels of Brexit-related uncertainty, 
despite  the  UK  having  been  in  the  phase  of  the 
economic  cycle  where 
is  usually 
strongest.  Growth  in  intangibles  investment  has 
also slowed markedly. Direct public investment is 
close to the  EU average and  is currently growing, 
and it  has been increasingly  focused on economic 
infrastructure. The UK’s research base is excellent, 
but  the  diffusion  of  knowledge  and  process 
innovation  across  the  economy  is  uneven.  Many 
parts  of 
relatively  poor  with 
comparatively  low  levels  of  physical  and  human 
capital, 
inter-regional  disparities  have 
continued to grow. 

the  UK  are 

and 

The  UK  has  announced  a  range  of  policy 
measures to increase housing supply. Residential 
construction has risen in recent years, due both to a 
cyclical  recovery  and  policy  action,  including 
major reforms to the planning system. Though real 
house prices have flattened, the cost of housing is 
particularly  high  in  major  urban  centres  and  there 
is a structural shortage of housing in many parts of 
the  country.  The  government  has  set  itself  the 
difficult  goal  of  increasing  annual  housing  supply 
in  England  to  300,000  units  by  the  mid-2020s. 
Household  debt  remains  high  but  household 
balance sheets are strong on aggregate.  

The  UK  has  received  recommendations  on  a 
range  of  labour  market  and  social  issues. 
Concerns persist regarding the implications of low 
workforce  skills 
for  career  progression  and 
productivity. Skills mismatches and shortages have 
increased  as  employment  rates  have  hit  historical 
highs. However, career progression is difficult for 
many  and  upskilling  of  those  in  work  needs 
sustained  policy  efforts  and  investment.  Publicly 
funded  childcare  provision  has  expanded  over  the 
last  decade,  though  net  childcare  costs  for  low-
income earners remain highest in the UK. The UK 
also received recommendations from 2011 to 2014 
on  poverty  and  the  welfare  system.  These  had  a 
particular  focus  on  child  poverty,  which  remains 
quite high and is predicted to increase due to cuts 
in public expenditure resulting from the rollout of 
Universal Credit.  

15 

Limited progress6%Some progress84%Substantial progress10% 
  
2. Progress with country-specific recommendations 

skills.  While 

The UK has made limited progress on training and 
improving 
labour  market 
participation  by  low-skilled  people  has  improved, 
the  polarisation  of  job  growth  towards  high  and 
low-skilled roles (and away from roles requiring a 
medium  level  of  skills)  has  been  accompanied  by 
increased  skills  mismatches.  Implementing  the 
is  proving  a 
reformed  apprenticeship  system 
challenge,  with  registrations  down  compared  to 
previous  years.  There 
the 
apprenticeship  levy,  introduced  in  2017,  has  seen 
funding increasingly used to train more senior staff 
at the expense of entry-level apprenticeships. 

is  evidence 

that 

The  UK  has  made  some  progress  in  sustainable 
transport.  Use  of  the  UK’s  road,  rail  and  aviation 
networks is reaching capacity and this contributes 
to  high  levels  of  congestion,  rail  reliability  issues 
and  air  pollution.  Public  investment  in  transport 
has  increased  but  the  effects  of  decades  of  under-
investment  in  infrastructure  will  take  time  to 
address.  After  some  signs  of  improvement  in 
delivery,  major  rail  schemes  have  recently  fallen 
behind  schedule  and  over  budget.  The  UK  is 
taking  action  to  meet  its  ambition  to  be  at  the 
forefront  of  zero  emission  vehicles,  though  it 
currently  lags  in  the  proportion  of  renewable 
energy used in the transport sector. 

allocating 

The  UK  has  made  some  progress  on  the  low 
carbon  and  energy  transition.  With  the  new 
commitment to net zero carbon emissions by 2050 
the  government's  ambitions  are  clear,  and  the 
preparatory  work 
increases 
for 
announced  in  investment  is  advanced.  In  the 
electricity  sector,  the  UK  continues  to  make 
progress  in  attracting  investment  cost-competitive 
renewables, particularly offshore wind. Progress is 
slower  in  the  heating  and  cooling  sector  and  the 
UK  is  not  on  course  to  meet  its  overall  2020 
renewables target. The scale of the decarbonisation 
challenge  will  require  a  more  detailed  investment 
strategy and sustained commitment. The Industrial 
Energy  Transformation  Fund,  announced 
in 
summer  2019,  will  provide  £315  million 
(€359 million)  to  businesses  to  reduce  the  impact 
of emissions from the industrial sector. 

received 

recommendations 

The  UK 
on 
infrastructure  from  2012  to  2014, and  again  in 
2016  and  2019.  In  March  2020  the  government 
will  issue  a  comprehensive  national  infrastructure 
strategy,  in  response  to  the  long-term  National 
the 
Infrastructure  Assessment  published  by 
National  Infrastructure  Commission 
in  2018. 
While  pressure  on  networks  is  still  building,  the 
UK  is  starting  to  deal  with  the  cumulative  effects 
of  decades  of  public  under-investment 
in 
infrastructure.  Rail  usage  has  increased  in  recent 
years  though  a  number  of  new  rail  projects  and 
existing  rail  services  have  experienced  problems. 
In  2019,  the  UK  committed  to  reach  net  zero 
carbon emissions by 2050. There has been positive 
progress  on 
renewable  energy, 
especially offshore wind. 

the  use  of 

the 

2019 

The  UK  has  made  some (8)  progress 
in 
addressing 
country-specific 
recommendations (CSRs).  The UK currently has 
two  CSRs.  CSR 1  on  fiscal  issues  is  not  assessed 
in  this  country  report.  There  has  been  some 
progress  on  CSR 2  as  a  whole,  which  relates  to 
several aspects of investment.  

There  has  been  some  progress  on  supporting 
research  and  innovation.  UK  universities  remain 
global research leaders. However, UK research and 
development (R&D) intensity is flat and below the 
EU  average.  Delivering  on  the  recent  ambitious 
proposals  for  future  research  and 
innovation 
support will be a challenge. 

There has been some progress on boosting housing 
supply.  Annual  net  housing  supply  has  continued 
to  rise  but  grants  of  planning  permission  have 
levelled  off  and  there  are  signs  of  a  slowdown  in 
housing starts. House building looks set to stabilise 
at a level below that which would be necessary to 
meet  estimated  demand,  due  in  part  to  capacity 
constraints. Real house prices are no longer rising 
though  the  cost  of  housing  remains  high  in  many 
places. The government has extended and revised a 
number  of  housing  policies,  including  tweaks  to 
the  planning  system,  but  major  new  initiatives 
have been limited. 

(8)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR  is  presented  in  the  overview  table  in  Annex A.  This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

16 

                                                           
 
 
 
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2019 CSR implementation 

Source: European Commission 

17 

The United Kingdom Overall assessment of progress with 2019 CSRs: Some progress. CSR 1: Ensure that the nominal growth rate of net primary government expenditure does not exceed 1.9% in 2020-2021, corresponding to an annual structural adjustment of 0.6% of GDP. The compliance assessment with the Stability and Growth Pact will be included when final data for 2019-2020 will be available. CSR 2: Focus investment-related economic policy on research and innovation, housing, training and improving skills, sustainable transport and low carbon and energy transition, taking into account regional diversity. The UK has made some progress on addressing CSR 2:  Some progress on supporting research and innovation.  Some progress on boosting housing supply.  Limited progress on training and improving skills.  Some progress on sustainable transport.  Some progress on the low carbon and energy transition.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in the UK 

The UK is a beneficiary of EU support and will continue to participate in the implementation of 
all European Structural and Investment Funds (ESIF) (1) programmes committed under the 2014-
2020 Multiannual Financial Framework  until their  final closure. Its financial  allocation  from  the 
EU  cohesion  policy  funds  (2)  amounts  to  €11 billion  (£9.65 billion)  in  the  current  Multiannual 
Financial Framework. By the end of 2019, 85% had been allocated to specific projects and 33% 
was reported as having been spent by the selected projects (3) showing a level of implementation 
below the EU average. 

EU  cohesion  policy  funding  is  invested  in  operations  that  address  specific  structural 
challenges  in  the  UK:  €3.7 billion  (£3.25 billion)  is  allocated  to  investments  in  smart  growth, 
€1.7 billion  for  sustainable  growth  and  sustainable  transport  and  €5.2 billion  (£4.56 billion)  for 
inclusive growth. 

EU  cohesion  policy  funding  is  contributing  to  transformations  of  the  UK  economy  by 
promoting  growth  and  employment  via  investment  in:  research;  technological  development  and 
innovation;  the  competitiveness  of  enterprises;  sustainable  transport;  energy  transition;  and 
employment  and  labour  mobility.  By  2019,  investments  supported  by  the  European  Regional 
Development  Fund  had  already  supported  over  44,000  enterprises,  of  which  more  than  10,000 
were  start-ups,  and  helped  more  than  2,000  enterprises  in  their  cooperation  with  research 
institutions.  The  European  Social  Fund  has  provided  training  to  approximately  1.3 million 
participants,  with an emphasis on disadvantaged groups. Of the participants, 245,500 came from 
an  ethnic  minority  background,  241,000  had  some  form  of  disability,  and  some  295,000  were 
lacking basic skills. 110,000 of the participants subsequently moved into employment and 140,000 
gained new or complementary skills, improving their employability. 

Agricultural  and  fisheries  funds  and  other  EU  programmes  also  help  to  address  the  UK’s 
investment  needs.  The  UK  is  eligible  for  €5.2 billion  (£4.56 billion)  of  European  Agricultural 
Fund  for  Rural  Development  (EAFRD)  support,  and  €243 million  (£213 million)  from  the 
European Maritime and Fisheries Fund (EMFF). In addition, €340 million (£298 million) has been 
allocated from the Connecting Europe Facility to specific projects on strategic transport networks 
in the UK and €6.1 billion (£5.35 billion) of EU funding from the Horizon 2020 programme has 
been allocated to Research and Innovation projects, of which €811 million (£711 million) has been 
allocated to 1 425 SMEs. 

EU funding also supports the mobilisation of significant private investment. 8.4% of the ESIF 
funding  allocation  is  invested  through  loans,  guarantees  and  equity  funds,  which  in  turn  is 
expected to mobilise substantial additional private sector capital. 

EU  funds  already  invest  substantial  amounts  on  actions  that  support  the  Sustainable 
Development  Goals  (SDGs). In the UK, the ESIF  funds  support 12 out the 17 SDGs and up to 
96% of the ESIF expenditure is contributing to those goals. 

(1)  European  Regional  Development  Fund,  European  Social  Fund,  European  Agricultural  Fund  for  Rural  Development, 

European Maritime and Fisheries Fund 

(2)  European Regional Development Fund, European Social Fund, Youth Employment Initiative 
(3)  https://cohesiondata.ec.europa.eu/countries/UK 

18 

 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Taxation policy 

At  33.8%,  the  UK’s  tax-to-GDP  ratio  remains 
well  below  the  GDP-weighted  EU  average  of 
39.2%  (Table  3.1.1).  Total  UK  tax  revenues 
increased by 2.8% between 2017 and 2018.  

Table 3.1.1:  Composition of tax revenues 2018 

Commission, 2018b). The UK dividend tax regime 
may  also  have  wider  effects  in  the  economy.  UK 
dividend payments as a share of companies' gross 
operating surplus have risen significantly over the 
last  decades  (ONS,  2019a).  The  higher  dividend 
payouts  have  occurred  during  a  period  of  weak 
investment  in  the  UK  as  companies  retain  less 
funds for investment (see also Section 3.4). 

The  UK  has  acted  to  curb  aggressive  tax 
planning  by  transposing  the  European  Union 
ATAD1 (10)  and  ATAD2  provisions  on  hybrid 
mismatches (11) 
law.  At 
international level, the UK has broadly transposed 
the  provisions  of  the  OECD  Action  Plan  on  Base 
Erosion and Profit Shifting (BEPS) (12).  

its  domestic 

into 

In  2019,  the  European  Commission  concluded 
that  the  UK’s  controlled  foreign  company 
(CFC)  rules(13)  were  partly  in  breach  of  EU 
State  Aid  rules,  by  giving  illegal  advantages  to 
certain multinational companies through the Group 
Financing  Exemption  (European  Commission, 
2019a),  a  ruling  the  UK  does  not  agree  with  and 
has  appealed.  This  exemption  partially  (75%)  or 
fully exempted from taxation  in the UK financing 
income  received  by  an  offshore  subsidiary  from 
another foreign group company, even if the capital 
being used was ‘UK connected’ or this income was 
derived from ‘UK activities’, with the latter being 
ruled  illegal.  A  multinational  active  in  the  UK 
using this exemption was able to provide financing 
to  a  foreign  group  company  via  an  offshore 
subsidiary  paying  little  or  no  tax  on  the  profits 
from these transactions. In the context of ATAD1, 
the  UK  changed  the  scheme  so  that  it  complied 
with  EU  rules  as  of  1  January  2019.  The  UK  is 
obliged  to  recover  illegal  State  aid,  pending  the 
outcome  of  the  appeal,  to  remove  the  distortion 
created. 

(10)  ATAD – Anti-Tax Avoidance Directive: Council Directive 

2016/1164 of 12 July 2016 

(11)  Rules designed to prevent businesses lowering or avoiding 
taxation  due  to  tax  classification  differences  in  a  cross-
border context. 

(12)  Including the ratification of the Multilateral Convention to 
Implement  Tax  Treaty  Related  Measures  to  Prevent  Base 
Erosion and Profit Shifting (MLI). 

(13)  CFC  Rules  are  an  anti-avoidance  measure  to  counteract 
diverting  profits  to  low  tax  jurisdictions.  CFC  rules  are 
included in ATAD 1.  

Source: European Commission, Taxation Trends in the 
European Union, 2020 Edition (forthcoming) 

to 

by 

fell 

3% 

In  comparison  to  2017,  corporate  income  tax 
receipts 
£57.4 billion 
(€59.2 billion) in 2018. At 2.7% of GDP they are 
now  in  line  with  the  EU  average.  The  effective 
marginal  tax  rate  for  new  investment  dropped 
slightly  from  23.6%  in  2017  to  22.7%  in  2018. 
However, it continues to be one of the highest rates 
in  the  EU  (ZEW,  2019)  and  may  discourage 
corporate investment.  

The  tax  burden  on  labour  is  among  the  lowest 
in  the  EU  across  the  income  scale.  Personal 
income  tax  and  national  insurance  contributions 
make  the  biggest  contribution  to  tax  revenues.  At 
28.93%  of  the  average  wage  for  a  two-earner 
couple  with  two  children,  the  UK’s  tax  wedge  is 
one  of  the  lowest  in  the  EU  (the  EU  average  was 
36.34% in 2018) (9).  

The  UK’s  dividend  tax  regime  and  the  UK’s 
high  number  of  bilateral  tax  treaties  are 
features  that  may  be  used  by  companies  that 
engage  in  aggressive  tax  planning.  The  UK  is 
ranked high on indicators that identify a country as 
having features that can be used by companies for 
(European 
tax  optimal 

repatriation 

schemes 

(9)  The  tax  wedge  shows  the  proportional  difference  between 
the costs of a worker to their employer and the employee’s 
the  European 
net  earnings.  Data  are 
Commission Tax and Benefit Indicator database. 

taken 

from 

19 

 
 
 
 
                                                           
                                                           
3.1. Public finances and taxation 

The UK VAT gap is slightly lower than the EU 
average (14).  It  was  estimated  at  10.6%  in  2017 
(EU:  11.2%).  According  to  the  estimated  policy 
gap,  the  government  loses  potential  revenues  by 
using reduced VAT rates (15). The actionable VAT 
policy gap, resulting from exemptions and reduced 
rates,  was  higher  (16.6%)  than  the  EU  average 
(13.0%) in 2017 (CASE, 2019). The UK forecasts 
the VAT gap to have been 9.6% of GDP in 2018-
2019  (OBR,  2019a).  Foregone  revenues  due  to 
zero and reduced VAT rates are estimated to have 
been  £52.7  billion (€60.1  billion)  in  2018-2019 
(HMRC, 2019). 

Debt sustainability analysis and fiscal risks 

Despite  a  high  debt-to-GDP  ratio,  there  are  no 
significant fiscal sustainability risks for the UK 
in  the  short  term.  The  Commission’s  early 
detection  indicator  for  fiscal  stress  S0  (indicating 
risk due to a high level of gross financing needs, of 
the  primary  deficit  and  of  public  debt)  remains 
below its critical threshold (see Annex B).  

Graph 3.1.1:  Public debt as % of GDP 

of 

tax 

taxes 

While the UK’s environmental tax revenue is in 
line with the EU average of 2.4% of GDP, as a 
revenue, 
total  UK 
percentage 
environmental 
are  declining.  The 
composition  of  UK  environmental  tax  revenues 
reflects 
taxes 
the  EU  average  with  energy 
accounting  for  74%  of  total  revenues.  Transport 
fuel  taxes  remain  a  significant  source  of  revenue 
for  the  UK.  Like  Belgium,  the  UK  has  equalised 
its  nominal  tax  rates  on  petrol  and  diesel  for 
private  use.  These  do  however  not  reflect  the  full 
social  costs  of  transport,  including  congestion 
(European  Commission,  2019b).  Government 
plans to increase the duty rate in line with inflation 
have  frequently been postponed or cancelled; as a 
consequence,  the  fuel  duty  rates  have  fallen  by 
17% in real terms  since the last actual increase in 
2010-2011.  Nevertheless,  the  fuel  duty  rates  are 
among  the  highest  in  the  European  Union  (IFS, 
2019a).  Pollution  /  resources  taxes  account  for 
only 3% of total environmental tax revenue, which 
is  roughly  in  line  with  the  corresponding  share  in 
the EU. The Landfill Tax, introduced in 1996, has 
increased  recycling,  however  the  current  Landfill 
Tax  gap  (the  gap  between  the  potential  and  the 
actual revenue from the expected tax) is estimated 
to be £125 million (€143 million) or 12% (Noel et 
al,  2018).  The  tax  was  extended  to  cover  illegal 
waste sites in April 2018, which may increase tax 
revenues. 

(14)  The  VAT  gap  as  a  %  of  the  total  VAT  liability  (CASE, 

2019).  

(15)  The  UK  applies  a  reduced  rate  of  5%  to,  among  others, 
domestic  fuel  and  power,  energy-saving  materials  and 
certain  residential  renovations.  A  zero  rate  applies  to  a 
broad  range  of  goods  and  services  including  many 
foodstuffs,  books,  pharmaceutical  products,  water  supply, 
passenger transport and the construction of new dwellings. 

Source: European Commission, Fiscal Sustainability Report 
2020, forthcoming. 

Over the medium term, the UK faces high fiscal 
sustainability  risks.  While  the  Commission’s 
medium-term  fiscal  sustainability  indicator  S1 
indicates  a  medium  level  of  risk,  due  to  the  high 
initial  debt  ratio,  the  Debt  Sustainability  Analysis 
(DSA)  points  to  high  risk.  In  the  baseline  no-
policy  change  scenario,  debt  is  expected  to  fall 
slightly,  but  remain  high  at  78.6%  of  GDP  by 
2030.  If  the  structural  primary  balance  (SPB) 
reverted  to  historical  levels,  as  modelled  in  the 
historical scenario, debt could increase to 91.6% of 
GDP by 2030, leading to an overall assessment of 
a  high  fiscal  sustainability  risk  over  the  medium 
term (see Graph 3.1.1.). 

The  UK  also  faces  high  fiscal  sustainability 
risks in the long term. This  assessment is driven 
by  the  DSA  historical  scenario  mentioned  above. 
The Commission’s S2 indicator points to  medium 
risk,  showing  that,  relative  to  the  baseline  no-
policy-change scenario, an improvement of 4.3pps 
of the structural primary balance would be needed 
to stabilise the debt-to-GDP ratio in the long term. 
According  to  the  Fiscal  Risks  Report  from  the 
Office  for  Budget  Responsibility  (OBR),  the 
impact  of  an  ageing  population  and  non-
demographic  cost  pressures  on  health  and  social 
care  are  the  most  significant  long-term  risks  for 

20 

606570758085909510020172018201920202021202220232024202520262027202820292030BaselineHistorical SPB scenarioSGP scenario                                                           
   
3.1. Public finances and taxation 

public  spending  (OBR,  2019b).  The  report  also 
addresses fiscal risks due to climate change, which 
could  be  very  significant  but  have  not  yet  been 
quantified.  

limit on welfare spending. With the 2019 Autumn 
Budget  having  being  cancelled  due  to  the  general 
election,  the  new  government  is  expected  to 
publish  the  outcome  of  the  review  of  the  fiscal 
rules at the rescheduled Budget on 11 March 2020.  

the 

2019a). 

Several 
risks 

While 
latest  official  assessment  of 
compliance  with  the  current  fiscal  rules  is 
favourable,  there  are  several  downside  risks  to 
the assessment. In its March 2019 Economic and 
Fiscal Outlook, the OBR expected the government 
to meet all three fiscal targets, but saw only a 40% 
chance  of  the  government  meeting  the  fiscal 
new 
objective 
(OBR, 
developments  create  downside 
this 
assessment,  in  particular  for  the  fiscal  mandate. 
Methodological  and  data  changes  (see  section  1) 
have  led  to  a  significant  upward  revision  of  the 
deficit.  In  addition,  in  the  one-year  September 
2019  Spending  Round,  the  government  set  out 
increase  departmental  spending  by 
plans 
£13.8 billion  (€15.7 billion)  in  2020-21.  These 
developments are not included in the March OBR 
assessment  (16).  The  next  multi-annual  Spending 
Review,  originally  planned  for  2019,  has  been 
postponed until the second half of 2020. 

to 

to 

(16)  The restated March 2019 forecast, published in December 
2019, updated the numbers for the methodological and data 
changes, but did not include an assessment  of  compliance 
with the fiscal rules (OBR, 2019c).  

Healthcare 

Funding for the health system has not kept pace 
with  the  growth  in  demand  for  health  services 
since  2008  (OECD/European  Observatory  on 
Health  Systems  and  Policies,  2019).  Public 
spending  on  health 
in  England  has  roughly 
increased in line with demographic pressures in the 
past  decade,  but  other  pressures,  such  as  higher 
costs for new treatments and increasing wages for 
healthcare  staff, create additional financing  needs. 
In  addition,  since  2014-2015  money  meant  for 
capital  investments  has  frequently  been  shifted  to 
resource spending (IFS, 2019b).  

and 

£150 million 

(€171 million) 

The  2019  Spending  Round  reaffirmed  the 
previously  announced  increase  of  £33.9 billion 
(€38.6 billion) 
in  cash  terms  to  the  NHS 
England  budget  by  2023-2024,  compared  to 
2018-2019.  The  government  also  committed  to 
around  £1.85 billion  (€2.1 billion) 
to  upgrade 
outdated  hospital  facilities  and  equipment,  an 
additional 
for 
continuing professional development of healthcare 
staff, 
of 
investment  in  artificial  intelligence  solutions  for 
healthcare. The financing from the 2019 Spending 
Round  has  been  welcomed  by  stakeholders  but 
with  reservations  that  it  does  not  go  far  enough 
(O’Dowd,  2019).  NHS  Providers  considers  that  a 
doubling  of  the  annual  capital  spending  of  NHS 
England, currently around £6 billion (€6.8 billion), 
is required over the next 5 to 10 years in order to 
overcome  maintenance  backlogs  and  meet  patient 
needs (NHS Providers, 2019).  

(€285 million) 

£250 million 

Fiscal frameworks 

In September 2019, the Chancellor announced a 
review of the fiscal rules in the next Budget. The 
current  overall  fiscal  objective,  as  set  out  in  the 
January 2017 Charter of Budget Responsibility, is 
to  return  public  finances  to  balance  by  the  mid-
2020s.  The  fiscal  targets  are  the  reduction  of  the 
structural deficit below 2% of GDP by 2020-2021 
(fiscal mandate); a fall of public sector net debt as 
a  percentage  of  GDP 
(the 
supplementary target) and a ‘welfare cap’, setting a 

in  2020-2021 

21 

                                                           
3.2.  FINANCIAL SECTOR 

3.2.1.  FINANCIAL SECTOR 

The UK banking system has maintained a good 
capital  and  liquidity  position.  From  Q2-2018  to 
Q2-2019,  UK  banks  managed  to  increase  their 
Common Equity Tier 1 (CET 1) capital ratio from 
15.0%  to  15.4%  (see  Table  3.2.1),  just  above  the 
EU  average  (15%).  According  to  Copenhagen 
Economics (2019), capital requirements might rise 
significantly  for  UK  banks  once  Basel  III  is  fully 
implemented.  On  a  non-risk-weighted-basis,  UK 
banks’ leverage ratios also remained above the EU 
average.  Capital  accumulation  was  helped  by 
improved  profitability.  In  Q2-2019,  the  return  on 
assets  and  equity  increased  to  0.4%  and  6.9%, 
respectively,  about  the  same  as  the  EU  average. 
Growth in profit was mainly driven by an increase 
in  non-interest 
in 
impairment  charges.  The  proportion  of  non-
performing  loans  in  the  UK’s  total  loans  further 
decreased further and in mid-2019, it was less than 
half  of  the  EU  average  (1.2%  versus  2.5%).  UK 
banks  have  ample  high-quality  liquid  assets  and 
comfortably  meet  the  liquidity  coverage  ratio 
for 
requirement.  After  more 
misconduct  and  settlements  on  a  number  of 
conduct  issues  in  2018,  the  Bank  of  England’s 
Financial  Policy  Committee 
(FPC)  expects 
misconduct costs to be lower in the future. 

income  and  a 

provisioning 

reduction 

Table 3.2.1: 

Financial soundness indicators, all banks in UK 

(1) Annualised data 
Source: ECB - CBD2 - Consolidated Banking data; own 
calculation 

In  contrast,  the  insurance  sector  faces  poor 
profitability issues, attributed to the intensity of 
competition, regulatory scrutiny and increasing 
attrition costs. This is particularly the case for the 
motor  insurance  industry,  which  may  face  losses 
this  year  due  to  falling  prices  and  rising  claims 
costs.  According  to  the  European  Insurance  and 

Occupational  Pensions  Authority  (EIOPA),  at  the 
end  of  March  2019,  the  UK  insurance  sector’s 
solvency coverage ratio (1.52) was well below the 
EEA  median  value  (2.36)  (EIOPA,  2019).  The 
flatter  risk-free  rate  curves  also  have  a  negative 
impact on the sector´s technical provisions. 

The  Bank  of  England’s  Financial  Policy 
Committee  (FPC)  judges  that  the  UK  banking 
system  would  be  resilient 
to  major  and 
simultaneous domestic and global shocks. Based 
on its 2019 stress test of major UK banks, the FPC 
concluded  that  the  UK  financial  system  would  be 
able to  withstand an economic shock  more  severe 
even  than  a  worst-case  disorderly  Brexit  coupled 
with  a  global  trade  war.  The  Bank  of  England 
found  that  UK  banks  would  be  able  to  keep 
lending to  households and businesses in the event 
of  a  major  economic  crisis,  while  also  continuing 
to  pay  billions  of  pounds  in  fines  to  address 
misconduct (BoE/FPC, 2019a). The Commission’s 
assessment  is  that  firms  had  largely  prepared  for 
the  possibility  of  a  withdrawal  from  the  EU 
without  an  agreement,  including  by  relocating 
some  activities  and  applying  for  authorisation  in 
the  EU.  As  indicated  in  its  Communication  of  4 
September  2019  (European  Commission,  2019c), 
the  Commission  ‘does  not  consider  that  the 
adoption  of  additional  contingency  measures  is 
necessary’.  Following  the  ratification  and  entry 
into  force  of  the  Withdrawal  Agreement  and  the 
Political  Declaration 
(European  Commission, 
2019d) the EU and the UK will start assessing the 
equivalence  of  their  respective  regulatory  and 
supervisory  frameworks  in  the  relevant  areas  as 
soon  as  possible,  endeavouring  to  conclude  such 
assessments by the end of June 2020.  

investment  markets 

The  UK  is  among  the  most  active  venture-
capital 
in  Europe.  At 
0.085%  of  GDP 
in  2018,  venture  capital 
investment  in  the  UK  is  above  the  EU  average 
(0.05% of GDP) (Invest Europe, 2019). However, 
the  availability  of  equity  is  lower  for  scale-ups 
than  start-ups.  Private  equity  and  risk  capital  is 
particularly  available  for  entrepreneurship  and 
high-tech  sectors  such  as 
fintech,  artificial 
intelligence,  and  information  and  communication 
technologies. With over 800 deals in 2019, London 
remains the main European hub for venture capital 
investment  in  technology  firms,  including  for 
producing  of  venture  capital  backed  ‘unicorns’ 
(start-ups  reaching  a  market  value  above  one 

22 

 (%) 2014 2015 2016 2017 2018 2019Q2        Non-performing loans 3.3 - 1.9 1.5 1.2 1.2 o/w foreign entities 2.3 - 1.1 0.9 0.5 0.5 o/w NFC & HH sectors 4.1 - 2.7 2.3 2.0 2.0 o/w NFC sector 5.4 - 3.7 3.1 2.4 2.5 o/w HH sector 3.3 - 2.2 1.9 1.8 1.8 Coverage ratio 77.2 - 31.8 33.5 30.0 30.3 Return on equity(1) 3.8 3.2 2.1 4.3 5.5 6.9 Return on assets(1) 0.2 0.2 0.1 0.3 0.4 0.4 Total capital ratio - 19.5 20.8 20.5 21.4 21.1 CET 1 ratio - 13.8 15.0 14.9 15.5 15.4 Tier 1 ratio - 15.6 16.9 17.1 17.9 17.7 Loan to deposit ratio 90.8 105.9 89.8 86.3 93.7 95.2   
 
 
 
3.2. Financial sector 

(both  supply  and  demand)  were  quite  weak 
through  most  of  2019.  Nominal  national  house 
price  growth  (year-on-year)  picked  up  to  2.2%  in 
November  2019  (ONS,  2020a),  slightly  above 
consumer  price  inflation.  Growth  in  the  price  of 
buying and renting property has slowed the most in 
more expensive regions. In London, nominal house 
prices rose by 0.2% in the year to November 2019 
and  are  no  higher  than  in  early  2017.  Leading 
indicators  of  housing  transactions  and  prices 
suggest the  market for  house  purchases is picking 
up somewhat (RICS, 2019). 

Graph 3.2.1:  Real house price growth 

Source: Eurostat 

following 

House  prices  and  rents  remain  high,  especially 
in  areas  of  high  housing  demand.  The  average 
UK  house  price  was  £235,000  (€268,000)  in 
November  2019  (ONS,  2020a).  The  ratio  of 
median  house  prices  to  median  annual  earnings 
remained  at  a  record  high  of  7.8  in  2018  (ONS, 
2019b), 
five  years  of  decreasing 
affordability.  The  ratio  is  higher  for  newly  built 
dwellings  (9.6)  than  existing  ones  (7.6),  and  the 
decline in affordability since 2013 has been greater 
for new builds. The Commission estimates that, on 
average,  UK  housing  is  around  20%  overvalued. 
After tending to widen over time, the gap in prices 
between  more  expensive  and  cheaper  areas  has 
started  to  close  slightly.  Average  house  prices  in 
each  of  Scotland,  Wales  and  Northern  Ireland  are 
more than a third below the English level. Private 
sector  rent  growth  has  been  slightly  below 
inflation since early 2017, and stood at 1.4% year-
on-year in December 2019 (ONS, 2020b). 

billion  US  dollars)  (Dealroom  as  reported  by 
Atomico, 2019). 

Innovation  in  payments  could  bring  significant 
benefits  for  users,  but  may  pose  risks  to  areas 
such as investor protection, legal certainty, and 
financial stability. In June 2019, the UK Treasury 
announced that it will conduct a long-term review 
of  the  UK's  payments  landscape  and  regulatory 
framework to lay the ground work for a new wave 
of  fintech  innovation  (e.g.  digital  tokens)  (HM 
Treasury,  2019a).  In  the  most  recent  Financial 
Stability  Report,  the  Bank  of  England’s  FPC 
developed  a  new  approach  to  financial  stability 
regulation  of  systemic  payment  chains.  The 
emphasis is on regulation that reflects the financial 
legal  form  of 
than 
stability  risk  rather 
payments. 
that 
suggests 
Furthermore, 
systemically  important  firms  should  be  subject  to 
standards 
they  pose. 
(BoE/FPC, 2019a). 

the 
it 

reflect 

risks 

that 

the 

3.2.2.  HOUSING SECTOR 

supply  has 

The  UK has a persistent  housing  shortage. The 
availability  and  affordability  of  housing  are  a 
particular  challenge  in  areas  of  high  and  growing 
demand,  such  as  in  and  around  urban  centres. 
Annual  net  housing 
increased 
significantly  from  post-crisis  lows.  However,  a 
recent fall in housing construction starts suggests it 
will  peak  at  a  level  below  that  which  would  be 
necessary  to  meet  estimated  demand.  In  recent 
years  the  government  has  put  in  place  a  range  of 
policy  initiatives  and  set  ambitious  objectives  to 
increase  housing  supply,  though  the  flow  of  new 
time, 
in  2019.  At 
policy  slowed 
regulation of the land market is still tight, and the 
government  has  reaffirmed  its  commitment  to 
limiting  development  around  urban  centres.  The 
UK  has  a  lot  of  old  and  often  energy-inefficient 
housing and little of this is being replaced. 

the  same 

Housing affordability and demand 

Real  house  prices  are  broadly  flat  nationally, 
and  declining  in  some  regions.  After  robust 
growth  from  2014  to  2016,  average  real  house 
price  growth  gradually  eased.  Real  house  prices 
have  been  essentially 
since  mid-2018 
(Graph 3.2.1) in the context of persistent economic 
uncertainty.  Indicators  of  housing  market  activity 

flat 

23 

-20-15-10-5051007Q208Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q2% yoy   
3.2. Financial sector 

The overall home ownership rate is flat, but this 
masks  continuing  structural  shifts  in  tenure. 
Housing transactions remain  well below pre-crisis 
levels,  but  after  being  on  a  downward  trend  over 
the  last  two  decades,  the  overall  rate  of  home 
ownership has been stable for the last 2 or 3 years. 
However,  this  masks  a  continuing  generational 
shift in property ownership. In 1995-1996, 65% of 
those aged 25-34 with incomes in the middle 20% 
for their age owned their home. By 2015-2016 the 
proportion  had  fallen  to  just  27%  (IFS,  2018a). 
The likelihood of young adults owning a house has 
also  become  much  more  dependent  on  their 
parents’  level  of  property  wealth,  with  negative 
implications 
(Resolution 
for  social  mobility 
Foundation, 2018). At the same time, in addition to 
their  high  rates  of  owner-occupancy  a  significant 
proportion  of  older  households  own  additional 
properties  from  which  they  receive  income  from 
(usually younger) private renters.  

While  mortgage  debt  remains  high,  there  are 
few  signs  of  risky  growth  in  lending.  Several 
years  of  significant  levels  of  high  loan-to-income 
mortgage  lending  linked  to  high  house  prices  has 
contributed  to  persistently  high  household  debt 
(see  Section  1).  Since  the  Bank  of  England  took 
some macroprudential steps to curb risky mortgage 
lending  (see  Section  1),  housing  market  activity 
has  cooled  in  the  context  of  high  economic 
uncertainty.  The  number  and  value  of  residential 
property  transactions  fell  slightly  in  the  year  to 
June  2019  and  is  well  below  the  pre-crisis  peak 
(ONS,  2019c).  The  proportion  of  houses  bought 
with  cash  (without  the  need  for  a  mortgage)  fell 
significantly  in  2018  and  2019.  Secured  credit  to 
households  is  still  growing  at  a  slow  but  steady 
pace (See Section 1). The average ‘loan to income 
ratio’ is no longer rising (UK Finance, 2020), and 
the  proportion  of  new  mortgages  with  a  ‘loan  to 
income  ratio’  of  4.5  or  above  is  flat  and  remains 
well below  the  FPC’s recommended limit of 15% 
(ibid.). Following a long, gradual decline, average 
interest  rates  on  new  and  existing  mortgages  are 
bottoming out at historically low levels. Consistent 
with this, and the high employment rate, mortgage 
arrears  and  repossessions  remain  low.  Less  than 
1%  of  homeowner  mortgages  are  currently  in 
significant arrears (UK Finance, 2019). 

Housing supply and constraints 

Housing  completions  have  increased  further, 
but  there  has  been  a  decline  in  the  number  of 
dwellings on which construction is starting. The 
number  of  net  additional  dwellings  in  England 
(c.85% of the  UK’s population) rose  by a healthy 
9%  to  241,130  in  2018-2019  (MHCLG,  2019a). 
The official level of annual demolitions is very low 
(less  than  one  in  3,000  dwellings),  which  has 
implications  for  the  pace  at  which  the  housing 
stock  modernises  and  becomes  more  energy 
efficient.  However, as shown in Graph 3.2.2, new 
housing  starts  have  declined  by  over  10%  since 
peaking  in  early  2017  (MHCLG,  2019a).  This  is 
likely at some point to feed into lower numbers of 
completions.  

There  has  been  a  spike  in  the  conversion  of 
other  building  types  into  dwellings  in  recent 
years.  12%  of  net  additional  dwellings  in  2018-
2019 came from change of use, including through 
permitted  development  rights,  mainly  office-to-
residential  conversions.  After  falling  by  a  third 
from  their  2016-2017  peak  in  2017-2018,  the 
number of these conversions has stabilised (ibid.). 
However,  concerns  have  been  raised  over  the 
quality  and  appropriateness  of  many  conversions 
through  permitted  development  rights  (LGA, 
the  nationally  described 
2018).  Since  2015, 
minimum  space  standard  for  residential  units  for 
one  person  in  the  UK  has  been  37m2,  but  these 
standards  do  not  apply  to  conversions  under 
permitted development rights. 

Grants of planning permission have levelled off, 
and  there  is  pressure  on  the  planning  system. 
From  2012  the  annual  number  of  units  granted 
residential planning permission grew rapidly. This 
progress  has  now  stalled,  consistent  with  the 
slowdown  in  the  number  of  houses  on  which 
building  has  started.  Planning  permission  for 
365,200  housing  units  was  granted  in  the  year  to 
September 2019 (MHCLG, 2019b), a 3% fall from 
the preceding year. About 80% of major and about 
75% of minor residential planning applications are 
granted. 

Urban  centres  and  growth  hubs  cannot  easily 
support economic growth or modernisation. As 
discussed  in  previous  country  reports,  the  process 
of  obtaining  planning  permission  is  complex  and 
costly. The ‘green belt’ policy was put in place to 

24 

3.2. Financial sector 

wealth.  This  inflates  the  role  of  land  prices  in  the 
economy  and  has  exacerbated  regional  gaps  in 
wealth (Centre for Cities, 2019). 

Housing  supply  might  keep  pace  with  national 
population  growth.  The  ONS  now  expects  the 
number  of  households  in  England  (about  85%  of 
the  UK  population)  to  increase  by  an  average  of 
159,000  a  year  over  the  next  25  years  (ONS, 
2018a).  While  this  is  significantly  less  than  the 
210,000  previously  projected,  and  projected 
population  growth  has  also  subsequently  been 
revised down slightly (ONS, 2019d), the ONS and 
the Ministry for Housing, Communities and Local 
Government  (MHCLG)  have  stressed  that  this 
does  not  mean  the  government’s  ambitions  for 
house building should be reduced (ONS, 2018b). If 
it stays at or above current levels, and demolitions 
remain  very  low,  residential  construction  could 
keep pace with national household formation.  

Demand  seems  set  to  keep  outstripping  supply 
in  areas  of  high  housing  pressure.  However, 
there  are  few  signs  that  construction  will  be  high 
enough  to  alleviate  the  pressure  in  the  areas  that 
currently have the most acute housing shortages. In 
the  majority  of  cities  in  England  and  Wales,  and 
particularly  those  with  high  house  prices,  floor 
space  per  resident  fell  between  2011  and  2018 
(Centre for Cities, 2019). High housing costs may 
also  have  suppressed  household  formation,  for 
example by forcing young adults to live at home or 
cohabit  as  renters  for  longer.  As  discussed  in 
Section 3.4.3, there are also signs of capacity and 
skills constraints in the construction industry. 

The government’s policy response 

land  available 

for  house  building; 

The  government  has  implemented  significant 
planning  policy  reforms.  Fixing  Our  Broken 
Housing  Market  (DCLG,  2017),  set  out  four 
housing policy objectives: (i) increasing the supply 
of 
(ii) 
accelerating  the  rate  of  house  completions;  (iii) 
the  building 
encouraging  more  diversity 
to 
support 
industry; 
homebuyers.  The 
been 
has 
progressively implementing and updating a revised 
National  Planning  Policy  Framework  (NPPF) 
(MHCLG, 2019d). In 2019, the government made 
further  changes  to  ‘permitted  development  rights’ 
that  allow  changes  and  extensions  to  existing 
buildings  without  the  need  to  go  through  a  full 

in 
providing 
government 

and 

(iv) 

contain  urban  sprawl  and  keep  broad  swathes  of 
land  around  existing  conurbations  permanently 
open.  After  growing  through  the  post-war  period, 
the  amount  of  land  designated  as  green  belt  has 
remained  broadly  fixed  in  recent  years  (MHCLG, 
2019c).  For  example,  London’s  green  belt  now 
covers  over  half  a  million  hectares,  and  is  about 
three times larger than  London itself. Demand  for 
labour in London has continued to grow. This has 
only  partially  been  met  by  densification,  due  in 
part  to  restrictions  on  the  redevelopment  and 
modernisation  of  existing  buildings 
(which 
increases  the  challenge  of  decarbonising  home 
heating,  as  discussed  in  Section  3.5).  As  well  as 
high house prices, there has been an increase in the 
volume  of  long  commutes  that  are  expensive, 
reduce  commuters’  quality  of  life  and  increase 
transport  congestion  and  emissions.  Current  rules 
give  limited  scope  for  targeted  differentiation  of 
the  level  of  protection,  where  there  may  for 
example  be  a  good  rationale  for  facilitating 
housing development close to railway stations. 

Graph 3.2.2:  Quarterly housing starts and completions 

Source: Ministry for Housing, Communities and Local 
Government 

The  cost  of  housing  is  linked  to  the  high  and 
volatile  price  of  land  with  residential  planning 
permission. On average, 70% of the price paid for 
a UK home is now linked to the value of the land 
(up from 50% in the mid-1990s) and only 30% to 
the  value  of  the  building  itself  (IPPR,  2018), 
though  this  average  masks  significant  spatial 
variation.  Housing  supply  is  not  responsive  to 
shifts in demand, with little link between increases 
in  dwellings  and  increases  in  housing  prices  and 

25 

   
3.2. Financial sector 

NAO concluded that a ‘Starter Homes’ policy that 
the government pursued from 2015 to 2018 did not 
have  effective  objectives  and 
implementation 
(NAO, 2019b). 

The ‘help to buy’ scheme has accelerated home 
ownership  for  some  households,  but  may  have 
slightly pushed up house prices. It is not yet clear 
how  much  impact  this  will  have  on  the  ground. 
Under  the  ‘help  to  buy’  equity  loan  scheme  the 
government provides a loan of up to 20% (or up to 
40% in London) of the purchase price of a house, 
with the government taking a commensurate equity 
stake  in  the  property.  The  number  of  house 
purchases  under  the  scheme  has  grown  gradually 
since its launch, to over 52,000 in the year to June 
2019 (MHCLG, 2019e). While this only represents 
about  5%  of  all  house  purchases,  two-fifths  of  all 
new-build  properties  have  been  bought  under  the 
scheme  since 
launch  (NAO,  2019c).  By 
reducing  the  level  of  deposit  that  purchasers  need 
and increasing the amount they can borrow, it may 
have contributed to more rapid price growth in the 
new-build properties to which its use is restricted. 
New builds  now typically cost 15-20%  more than 
comparable  second  hand  properties.  The  National 
Audit  Office  concluded  the  scheme  might  have 
increased  the  profit  margins  of  builders  (ibid.).  If 
house  prices  fell  in  future,  the  government  could 
lose money on its equity stake. 

its 

planning process (MHCLG, 2019e). This includes 
allowing 
types  of 
the  conversion  of  certain 
commercial  buildings  to  residential  or  office  use. 
In many places, empty retail premises coexist with 
a housing shortage. Such conversions have played 
a  larger  role  in  delivering  new  housing  supply  in 
recent  years,  especially  in  areas  with  high  house 
prices.  

and 

fees 

charges 

There  are  some  concerns  with  the  practical 
operation  of  the  planning  system.  There  have 
been  large  cuts  to  funding  for  spatial  planning 
services  at  both  the  national  and  local  levels, 
which has only partially been compensated for by 
increased 
for  planning 
applications and appeals (IFS, 2019c). At the same 
time,  the  post-crisis  period  has  seen  significant 
demand on these services, due both to the need to 
implement  significant  reforms  and  to  a  robust 
recovery  in  planning  applications.  The  NAO 
examined the operation of the planning system and 
concluded that overall it is  not  working  well.  The 
issues  highlighted  by  the  NAO  included  a  lack  of 
consistency  in  targets  for  new  homes,  insufficient 
capacity  in  local  planning  systems,  and  an  under-
performing  Planning  Inspectorate  (NAO,  2019a). 
The government planned to publish an accelerated 
planning  white  paper  in  late  2019,  although  this 
was  delayed  due  to  the  December  2019  general 
election.  The  stated  objectives  are  to  reduce  the 
number  of  planning  conditions  and  improve  the 
resources  and 
local  authority 
planning departments. This could potentially mean 
raising  the  fees  for  planning  applications  but 
requiring  these  to  be  refunded  if  a  decision  is  not 
made on time (HM Government, 2019a). 

incentives 

for 

The  public  sector  has  a  significant  impact  on 
both  housing 
supply  and  demand.  The 
government  is  increasingly  focusing  direct  public 
support  for  house  building  on  areas  with  the 
highest  housing  demand  and  prices.  This  includes 
the Affordable Homes Programme, which provides 
housing with different tenure types and rent levels, 
not  just  socially  rented  properties.  The  Housing 
Infrastructure  Fund  provides  £5.5  billion  (€6.3 
billion)  by  2022-2023  to  support  the  funding  and 
planning  of 
to  housing 
developments. Set against this, sales under ‘help to 
buy’ have reduced the stock of social housing over 
time,  contributing  to  long  waiting  lists  in  many 
areas.  The  government  has  relaxed  rules  on  local 
authority  borrowing  to  build  public  housing.  The 

infrastructure 

linked 

26 

3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

Robust  labour  market  performance  persists 
though  the  economy  has  slowed.  Employment 
reached  a  record  78.7%  in  2018,  well  above  the 
EU  average  (73.2%).  Despite  subdued  GDP 
growth  (see  Section  1),  employment  continued  to 
rise  to  79.1%  in  Q3-2019,  0.5pps  higher  than  a 
year earlier. Improving the quality of employment 
and education would help to raise low and stagnant 
labour  productivity  (see  Section 3.4),  as  would 
reducing skills mismatch. Both skills shortages and 
last 
over-qualification  have 
decade, to above the EU average (Vandeplas et al, 
2019). 

increased 

the 

in 

in 

High employment rates are partly explained by 
increases 
less  secure  jobs.  The  biggest 
employment increases occurred in households with 
children and among those on lower incomes (Bell 
et  al.,  2019).  Although  at  a  slower  rate  than  the 
overall growth in employment, the number of part-
time employees has been increasing steadily since 
2006.  Within  part-time  employment,  young 
people, old-aged workers, women, and low-skilled 
workers  are  over-represented (17).  The  proportion 
of  zero  hour  contracts  and  platform  work 
continued to increase in 2018.  

There  has  been  an  increase  of  zero  hour 
contracts  in  almost  all  regions  of  the  UK. 
According  to  a  report  by  the  Economic  Research 
Council, in the year from Q2-2018 to Q2-2019, the 
proportion  of  zero  hour  contracts  within  the  UK 
workforce continued to  grow, except  in the North 
East  and  North  West  of  England  (ERC,  2020) 
which  saw  a  marginal  decrease.  The  biggest 
increases were of 1% in the East Midlands and the 
South East. 

The  UK  has  a  higher  incidence  of  platform 
work  than  the  EU  average.  The  recent  surge  of 
digital  labour  platforms  has  led  to  new  forms  of 
work  organisation  and  task  distribution  across  the 
workforce. The proportion of adult residents in the 
labour  services  via 
UK  who  have  provided 
platforms at least once in their lives was estimated 
at  12.8%  in  2018.  About  3.6%  of  the  adult 

(17)  Calculations based on Labour Force Survey (LFS) data 

workforce  in  the  UK  received  their  main  income 
through  platforms  in  2018,  compared  to  an  EU 
average  of  2.3%.  This  represents  a  slight  increase 
from the previous year for the UK (3.2% in 2017) 
(Pesole  et  al,  2018).  The  analysis  of  two  online 
surveys  by  the  University  of  Hertfordshire  yields 
similar results (UH, 2019). Between July 2016 and 
July  2019,  the  share  of  the  adult  population 
working for online platforms at least once a week 
doubled  from  4.7%  to  9.6%.  For  a  substantial 
minority  (9.4%  of  platform  workers),  it  is  their 
only  or  main  source  of  income,  while  just  under 
30%  report  that  platform  work  provides  at  least 
half of their income. Precarious and insecure work 
offers  substantially  lower  social  and  employment 
protection  for  the  individual  worker  and  it  might 
also  contribute  to  lower  productivity  rates  at  the 
macroeconomic  level,  given  that  firms  tend  to 
invest less in skills and training in relation to short-
term employment. 

in 

increased  slightly 

Despite high and increasing employment levels, 
labour  market  activity 
some  groups 
remained  relatively  low.  The  share  of  young 
people neither in employment nor in education and 
training  (NEET) 
in  2018, 
leading to the indicator being marked as ‘to watch’ 
in  the  Social  Scoreboard,  and  is  now  in  line  with 
the  EU  average  (after  having  been  consistently 
below  since  2014). The  youth  unemployment  rate 
(11.7% in Q3-2019) is three times higher than the 
overall  unemployment  rate.  As  discussed  below, 
the gender employment gap is still close to 10pps. 

The labour market is becoming more polarised. 
Due  to  technological  changes,  employment  that 
relies on non-routine cognitive (high-skill) tasks is 
on  the  rise  while  the  share  of  jobs  with  routine 
tasks (medium-skilled) is falling and is very low in 
comparison  to  EU  Member  States.  Like  many 
other advanced economies, the UK is experiencing 
simultaneous growth in high and low-skilled tasks, 
while  middle-skilled  tasks  have  declined.  Job 
polarisation  has  been  accompanied  by  increasing 
macroeconomic 
despite 
improving  general  economic  conditions  and 
increasing  activity  rates  of  the  low  skilled.  Over-
qualification  is  a  matter  of  concern  in  the  UK,  as 
one quarter of  workers  with tertiary education are 
employed  in  occupations  that  do  not  require 
tertiary education. 

skills  mismatches, 

27 

 
                                                           
3.3. Labour market, education and social policies 

Box 3.3,1: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the EU. It sets out 20 essential principles and rights in the areas of 
equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social  protection  and 
inclusion. 

The UK performs relatively well on a number of indicators on the Social Scoreboard that supports the 
European  Pillar  of  Social  Rights,  but  some  challenges  remain.  The  labour  market  shows  strong 
performance  in  terms  of  employment  creation  and  unemployment.  However,  slower  growth  in  labour 
productivity, employment polarisation, a high incidence of atypical types of contract and a persistent gender 
employment  gap  remain  important  challenges.  There  has  been  a  rise  in  the  prevalence  of  zero-hour 
contracts, which are characterised by lower levels of social protection, skills progression and productivity. 
Female  labour  market  inactivity  due  to 
caring  responsibilities  is  higher  than  the 
EU  average.  This  is  partly  due  to  high 
childcare costs, especially for low-income 
earners.  

increased 

considerably 

The  risk  of  poverty  or  social  exclusion 
has 
and 
surpassed  the  EU  average,  going  from 
22%  to  23.6%  between  2017  and  2018. 
This  translates  into  1.1  million  more 
people  at  risk  of  poverty  or  social 
exclusion.  More  people  have  turned  to 
food  banks  in  the  UK  over  the  last  year. 
Market  income  inequality  is  high,  but 
social  transfers  have  a  strong  impact  on 
poverty  reduction.  In-work  poverty  and 
and 
child  poverty 
predicted  to  rise  further.  The  extent  of 
homelessness shows no signs of abating. 

remained  high 

The  UK  has  recently  introduced  pay 
transparency to help reduce the gender 
pay  gap.  The  gender  pay  gap  remained 
stable  in  2017,  with  women  earning  on 
average  20.8%  less  than  men.  The  pay 
transparency  reform  introduced  in  2017 
has  led  to  mandatory  pay  transparency 
reporting for companies with 250 or more 
employees  in  the  private  and  voluntary 
sectors  in  England,  Scotland  and  Wales. 
In  2018  and  2019,  this  highlighted  that 
almost 80% of companies pay their male 
staff  more  per  hour  than  their  female 
colleagues.  The  data  also  reveal  that  the 
highest gender pay gaps among the firms 
covered  by  the  gender  pay  gap  reporting 
are in the sectors of construction, finance, 
mining  and  communications.  As  a  result 
of  the  findings,  as  of  June  2019,  52%  of 
in-scope  employers  had  published  an 
action  plan  to  tackle  the  gender  pay  gap 
in their company.  

28 

years.  The 

apprenticeship 

Implementing  the  apprenticeship  reform 
is 
proving a challenge, with registrations down on 
previous 
levy 
introduced  in  2017  provides  an  opportunity  for 
employers  and  training  providers  to  improve  the 
technical  education  of  young  people,  yet  the  way 
this 
is  proving 
controversial.  According  to  a  recent  report,  the 
funding  has  increasingly  been  used  to  train  more 
senior staff, not only in  the private sector but also 
in  academia,  while  entry-level  apprenticeships 
have fallen (Richmond, 2019). 

funding  has  been  used 

The  proportion  of  workless  households  and 
children  living  in  them  has  slightly  decreased. 
In  January  to  March  2019,  the  percentage  of  all 
households with dependent children where no one 
worked  was  8.2%  (663 000),  down  0.5pps  on  the 
same  period  a  year  ago.  Compared  to  some  EU 
Member States, the concentration of joblessness at 
the  household  level  does  not  pose  a  main  labour 
market challenge for the UK. However, the quality 
of  employment  and  underemployment,  which  is 
strongly correlated with in-work poverty, remain a 
cause for concern, delaying progress towards SDG 
8 (Decent work and economic growth). 

the 

rate  of  women 

The  gender  employment  gap  remains  a 
in 
challenge.  While 
employment (74.4% in Q3-2019) is the highest in 
recent  decades,  the  gender  employment  gap  is 
close  to  10pps  (74.4%  vs.  84.2%). This  is  driven, 
among  other  factors,  by  inadequate  provision  of 
affordable  childcare  and  social  services.  In  2018, 
37.6% of women reported inactivity due to family 
and caring responsibilities, which is well above the 
EU  average  of  31.8%.  These  figures  are  more 
striking for the 25-49 age group, where up to 61% 
of  economically  inactive  women  attribute  their 
inactivity  to  family  responsibilities.  In  addition, 
42%  of  women  worked  part-time  in  2018  due  to 
caring responsibilities. These rates are amongst the 
highest in the EU.  

Childcare provision has been extended but it is 
limited by capacity constraints and remains out 
of  reach  for  many  due  to  high  costs.  The 
government maintained its investment in childcare 
after  the  financial  crisis.  In  2019  it  extended  the 
30-hour  entitlement  to  free  childcare  for  children 
aged  0-3.  However,  the  rollout  of  free,  full-time 
early education and care provided for 30 hours per 
week  is  facing  constraints  and  delays  due  to 

insufficient  funding  and  lack  of  capacity  among 
providers.  The  Childcare  Survey  2019  found  that 
only  just  over  half  of  local  areas  had  enough 
childcare capacity to support all full-time working 
parents.  Average  childcare  costs  are  not  only 
higher  in  the  UK  than  in  EU  Member  States,  but 
the  difference  between 
the  relative  cost  of 
childcare  among  income  groups  is  also  greater. 
Low-income 
families  pay  much  higher  net 
childcare  costs as a percentage of their disposable 
income (45% on average) than medium- and high-
income families in the UK (see Graph 3.3.1). 

Graph 3.3.1:  Net childcare-related costs and benefits as a 

percentage of disposable income, by three 
earning levels 

Source: ESDE 2019 

due 

closing 

Childcare  providers  in  more  disadvantaged 
to 
areas 
financial 
risk 
unsustainability.  A 
funding  gap  between 
government  financial  provision  for  free  childcare 
(30  hours  per  week  childcare  allowance)  and  the 
running costs  for providers,  may lead  nurseries to 
be less financially viable. Many providers consider 
that they will be forced to limit places, raise fees or 
to  remain 
introduce  extra  charges 
financially 
learning 
Alliance,  2017).  The  funding  gap  has  been 
estimated  at  £660 million  (€752.4 million)  and 
around 17% of childcare providers surveyed in the 
most  deprived  areas  of  the  country  anticipate 
closure in the next 12 months (BBC, 2019a). 

in  order 
(Pre-school 

sustainable 

A  recent  regulatory  reform  introduces  more 
transparency  into  the  debate  on  gender  pay 
gap.  Mandatory  gender  pay  gap  reporting  came 

29 

0%5%10%15%20%25%30%35%40%45%50%ITATHRPTCYEESECZHUDEESELBGLUSIFRDKBELVLTPLNLFISKIEUKlow-income familymoderate-income familyhigh-income family 
 
3.3. Labour market, education and social policies 

into  force  on  6  April  2017.  It  requires  all  private 
and  voluntary  sector  employers 
in  England, 
Scotland and Wales with more than 250 employees 
to  publish  information  about  gender  pay  gaps  or 
face  a  fine  for  non-compliance.  The  gender  pay 
gap  reporting  from  March  2019  and  April  2019 
show that almost 8 in 10 companies (78%) still pay 
their  male  employees  more  than  their  female 
employees  based  on  median  hourly  pay.  The 
legislation  does  not  require  employers  to  do 
anything  to  address  their  pay  gap,  which  reduces 
the pressure for employers to take any actions. 

England  (Hutchinson  et  al.,  2019).  The  gap  in 
reading,  writing  and  mathematics  (combined) 
between pupils at the end of primary school whose 
first language  is not English  and those  who speak 
it  as  their  first  language  has  almost  disappeared. 
However,  the  gap  between  males  and  females 
widened  from  8  to  10pps  (70%  females,  60% 
males),  in  reading  in  particular  (DfE,  2019a).  A 
recent  analysis  reveals  that  in  England  in  2018, 
18%  of  people  aged  18  left  education  without 
substantive  qualifications,  a  higher  rate  than  in 
2015 (CCO, 2019).  

3.3.2.  EDUCATION & SKILLS 

skills  has 

(2015-2018) 

level  of  basic 

improved 
and 

improved 
The 
somewhat,  except 
in  science.  UK  pupils’ 
performance  in  reading,  mathematics  and  science 
has  been  usually  ranked  above  the  EU  average  in 
successive  PISA  surveys.  Results  of  the  PISA 
2018  survey  (OECD,  2019a)  indicate  a  broadly 
stable  long-term  (2006-2018)  trend,  and  in  the 
mean 
short-term 
stable 
in  mathematics, 
performance 
performance  in  reading  and  science.  PISA  2018 
also shows that the proportion of students aged 15 
who  underachieve  in  reading,  mathematics  and 
science  remained  stable.  There  are  differences  in 
PISA  performance  between  the  UK  nations,  but 
these  are  not  significant.  Disparities  in  reading 
performance  between  students  with  different 
socio-economic  background  are  small,  as  are 
differences  between  migrant  and  non-migrant 
pupils.  Both 
2018. 
Disadvantaged  pupils  are  less  likely  to  complete 
tertiary education. Data from the PISA tests carried 
out  between  2003  and  2015  indicate  that  the 
academic level of parents, especially  mothers, has 
a  significant  influence  on  student  results,  with 
average  differences in the  mathematics test scores 
of  76  points  over  an  average  total  of  446  points 
(Volante et al., 2019). 

narrowed 

further 

in 

The  school attainment gap in England remains 
a matter of concern. The attainment gap between 
disadvantaged pupils and their peers has narrowed 
by  13%  since  2011.  A  report  from  the  Education 
Policy  Institute  shows,  however,  that  the  gap  for 
pupils  aged  16  stopped  narrowing  between  2017 
and 2018. Disadvantaged 16 year olds are now an 
average  of  18  months  behind 
their  non-
disadvantaged  peers,  with  large  variation  across 

In  contrast, 

continued  with 

Ongoing  reforms  and  measures  have  been 
undertaken in secondary education. In England, 
the  government  encourages  schools  to  join  Multi-
Academy Trusts (MATs). MATs are viewed by the 
government  as 
the  best  way  of  driving  up 
standards  and  giving  schools  independence  from 
local  authority  control.  However,  not  all  MATs 
have  been  successful.  In  some  cases,  public 
funding  of  MATs  was 
terminated  following 
ongoing  concerns  about  educational  performance 
(BBC,  2017)  and  some  MATs  closed  (The 
the  Scottish 
Guardian,  2017). 
government 
a  process  of 
empowering  schools  and  parents  and  children 
through  a  mechanism  very  different  to  the  one  in 
England  –  close  involvement  of  local  authorities 
rather  than  moving  schools  away  from  local 
authority control.  In September 2019, the  Scottish 
government set out its work programme for 2019-
for 
funding 
2020, 
participation  in  early  childhood  education  and 
care, investment in new or refurbished schools, the 
attainment  challenge  and  equity  fund,  and  a 
teacher  innovation  fund  for  teacher  training.  The 
Welsh  government  plans  a  curricular  reform 
including  provision  of  education  in  the  Welsh 
language  and  potential  changes 
to  religious 
education.  For  Northern  Ireland,  the  continuing 
lack  of  a  functioning  government  has  led  to  little 
policy development. 

provisions 

including 

to 

teach 

teaching, 

Teachers consider themselves well prepared for 
information  and  communication  technology 
(ICT) 
in  multicultural 
settings or to train students in transversal skills. 
According  to  the  2018  OECD  Teaching  and 
lower 
Learning  survey 
secondary school teachers in  England  feel  well or 
very  well  prepared  to  use  ICT  for  teaching  when 
they finished their studies (increasing to 63.7% for 

(TALIS),  50.7%  of 

30 

3.3. Labour market, education and social policies 

ICT  specialists  report  difficulties  finding  people 
with  the  right  skills.  Despite  strong  growth  in 
demand  for  these  skills,  domestic  supply  is  not 
ICT 
responding 
specialist  jobs  now  account  for  5.1%  of  total 
employment  (though  for  only  1.8%  of  women  in 
work),  the  proportion  of  graduates  in  ICT  (3.8%) 
remains relatively low.  

Indeed,  while 

sufficiently. 

In  order  for  the  UK  to  achieve  its  goal  of 
becoming a technological leader, investments in 
digital technologies need to be accompanied by 
improved  digital  skills.  The  UK  economy  is 
already  a  relatively  highly  digitised  economy 
(European  Commission,  2019e). 
the 
ambition  to  be  a  digital  leader,  and  is  investing 
significantly  in  digitising  its  economy  further. 
However, these investments will only produce the 
desired  effects  for  growth  and  competitiveness  if 
they  go  hand-in-hand  with  investments  to  support 
their  adoption  and  use  through  improving  the 
digital skills of the public and the labour force. 

It  has 

and 

curricula 

introducing 

In recent years, the UK has introduced a broad 
set  of  measures  to  increase  the  digital  skills  of 
the UK population. However, these will take time 
to achieve their full effect. These measures include 
reforming 
new 
qualifications (in schools, for adult learning and in 
vocational  education  and  training),  providing  new 
funds and creating a digital skills partnership with 
the  private  sector.  More  recently,  the  government 
has  also  introduced  specific  measures  to  support 
the development of advanced digital skills, such as 
a programme to create 1,000 new PhDs in artificial 
intelligence  over  the  next  5  years,  as  part  of  its 
Artificial Intelligence Sector Deal. 

3.3.3.  SOCIAL POLICY 

The  risk  of  poverty  or  social  exclusion 
significantly 
increased  from  2017  to  2018. 
Overall, relative poverty,  measured by the at-risk-
of-poverty  or  social  exclusion  rate  (AROPE), 
increased  by  1.6pps  to  23.6%  in  2018  (exceeding 
the  EU  average  of  21.9%).  This  increase  can  be 
explained by a rise both in relative poverty and in 
material  deprivation.  The  at-risk-of-poverty  rate 
increased  from  17%  to  18.9%  (exceeding  the  EU 
average  of  17.1%),  while  the  severe  material 
deprivation  rate  increased  from  4.1%  in  2017  to 
4.6% in 2018. Due to  major reforms of the  social 

teachers  who  completed 
their  formal  teacher 
education  and  training  in  the  last  five  years) 
(OECD, 2019b). Only 5.3% of teachers reported a 
high level of need for professional development in 
ICT  skills  for  teaching.  TALIS  2018  also  reports 
that  the  proportion  of  teachers  who  feel  well  or 
very  well  prepared  to  teach  in  a  multicultural 
the  EU 
and/or  multilingual  setting 
average  (42.7%,  EU  23.8%).  The  proportion  who 
report  a  high 
level  of  need  for  continuing 
professional  development  in  this  area  (4.9%)  is 
lower than the EU average of 13.4%. With regard 
to teaching transversal competences (for example, 
creativity,  critical  thinking  and  problem  solving), 
47.3% feel well or very well prepared; the number 
is  even  higher  (61.5%)  for  newly  qualified 
teachers. 

is  above 

leaving 

the  profession  continues 

Teacher  retention  is  a  concern.  The  number  of 
teachers 
to 
increase. In 2018, 8.3% of teachers who left state-
funded  schools  in  England  for  reasons  other  than 
retirement (DfE, 2019b). In the 2018 TALIS, only 
77.5%  of  teachers  in  England  reported  that  they 
were  satisfied  with  their  job,  well  below  the  EU 
average  of  89.5% 
(OECD,  2019b).  The 
government  has  flagged  teacher  recruitment  and 
retention in England as a priority. Authorities aim 
particularly  to  reduce  departures  during  teachers’ 
early  careers,  since  ‘over  20%  of  new  teachers 
leave  the  profession  within  their  first  2  years  of 
teaching, and 32% leave within their first 5 years’ 
(DfE, 2019a). 

Digital skills  

The  UK  performs  relatively  well  in  relation  to 
the  basic  digital  skills  of  its  population  but 
remains behind the leading countries in the EU. 
The  proportion  of  the  UK  population  aged  16-74 
who  have  at  least  basic  digital  skills  (74%)  is 
higher than the EU average (59%), as indicated by 
the Social Scoreboard. However, after years of the 
UK 
lagging  behind  other  digitally  advanced 
economies  in  this  regard  the  UK  is  now  catching 
up with the leaders. 

The UK also suffers from a structural deficit of 
ICT  specialist  skills,  as  the  supply  of  new 
graduates  falls  short  of  the  demand  for  these 
skills  in  the  labour  market.  A  large  number  of 
companies  in  the  UK  report  difficulty  in  filling 
ICT  posts  —  50%  of  companies  trying  to  recruit 

31 

3.3. Labour market, education and social policies 

security  system,  the  poverty  reducing  effect  of 
social  transfers  decreased  from  41.8%  in  2017  to 
35.9%  in  2018,  bringing  it  closer  to  the  EU 
average  of  33.2%.  As  a  result,  income  inequality 
after  transfers,  measured  by  the  income  quintile 
share ratio increased from 5.4% in 2017 to 5.95% 
in 2018. With these poverty outcomes, the UK has 
moved  away  from  reaching  SDG  10  (reducing 
inequalities) in the past five years.  

More  people  than  ever  have  turned  to  food 
banks in the UK over the last year. The Trussell 
Trust,  which  runs  two  thirds  of  the  UK’s  food 
banks,  reports  that  it  distributed  a  record  823,145 
food  parcels  between  April  and  September  2019, 
including 301,653 that went to children. This was a 
23%  increase  on  the  same  period  the  previous 
year, representing the steepest rise  the charity has 
witnessed  since  its  network  of  food  banks  was 
fully established. 

progress  towards  SDG 1  (No  Poverty).  Single 
parent households face the highest risk of poverty 
due to low rates of maintenance payments, gender 
inequality  in  employment  and  pay,  and  childcare 
costs.  Children  with  a  minority  background  are 
more  likely  to  be  in  relative  poverty,  with  45% 
currently  living  in  relative  poverty.  Regionally, 
London has the highest rate of child poverty in the 
country.  Children  in  large  families  are  at  a  far 
greater  risk  of  living  in  poverty  –  almost  half 
(43%)  of  children  living  in  families  with  three  or 
more  children  are  at  risk  of  poverty.  Given  the 
polarisation  in  terms  of  employment  quality  and 
the increasing rates of in-work poverty (from 8.9% 
in  2017  to  11.3%  in  2018  compared  to  an  EU 
average of 9.5%), work does not always provide a 
guaranteed  route  out  of  poverty  in  the  UK.  Of 
children growing up at risk of poverty, 70% live in 
a household where at least one person works. 

People  with  disabilities  are  at  a  higher  risk  of 
poverty  and  exclusion.  The  proportion  of  people 
with  disabilities  who  are  at  risk  of  poverty  or 
social exclusion in the UK is 32.2% (EU average: 
30.1%). The AROPE gap between people with and 
without  disabilities  is  wider  than  the  EU  average 
(14.6pps  vs  9.2pps).  The  UK  also  has  a  much 
wider  employment  rate  gap  between  people  with 
and  without  disabilities  than  the  EU  (33.5pps  vs 
the  EU  average  of  25.8pps).  The  Disability 
Employment  Strategy  targets  include  getting  a 
million  more  people  with  disabilities  in  work  by 
2027  and  providing  a  more  comprehensive 
offering  encompassing  welfare,  health, 
local 
authority  and  employer  initiatives.  Good  progress 
has  been  made  in  recent  years.  Between  Q3-2013 
and  Q3-2019,  the  number  of  working  age  people 
with  disabilities 
the  UK 
increased  by  1.3 million  to  4.2 million.  Over  the 
same  period,  the  employment  rate  of  people  with 
disabilities increased by 9.8pps to 53.2%, while the 
disability employment gap had fallen to28.6pps. 

in  employment 

in 

Child poverty is well above the EU average and 
the  number  of  poor  working  households  is 
increasing.  The  number  of  children  (aged  under 
18) at risk of poverty or social exclusion in the UK 
has further increased since 2017, to 4.1 million in 
2018.  This  is  equivalent  to  a  rate  of  29.9% 
(+2.5pps  from  the  previous  year,  the  highest 
the  EU),  far  exceeding  the  EU 
increase 
impeding 
declining  average  of  24.3%,  and 

in 

implemented  alongside 

Child  poverty  is  increasing  with  the  rollout  of 
Universal Credit. A number of sources (House of 
Commons,  2018,  p22),  including  the  Institute  for 
Fiscal  Studies  (IFS),  concur  that  the  main  drivers 
of  the  projected  increase  in  child  poverty  are 
linked  to  cuts  and  caps  to  public  expenditure  and 
associated  means-tested  family  support  that  have 
been 
rollout  of 
Universal  Credit.  Under-investment  by  central 
government in children’s social care services over 
the 
to  considerable 
overspending  by  local  councils  in  this  area. 
According  to  the  Local  Government  Association 
(LGA),  132  out  of  153  local  councils  in  England 
(88%) overspent in 2017-2018, with the number of 
children in care at a ten year high. 

last  decade  has 

led 

the 

The  implementation  of  Universal  Credit  is  still 
ongoing. While the introduction of the fully digital 
service  of  Universal  Credit  to  all  areas  of  the 
country  was  completed  on  12  December  2018  for 
new  claims,  the  rollout  of  Universal  Credit  to 
existing  claimants  will 
longer.  Recent 
calculations  of  the  Resolution  Foundation  show 
that Universal Credit will be less generous than the 
system  it  is  replacing  (Resolution  Foundation, 
2019). 

take 

The  UK  has  experienced  a  sharp  increase  in 
homelessness  and  rough  sleeping.  In  England, 
the number of homeless people increased by 162% 
between  2010  and  2018.  Most  rough  sleepers  are 
men aged over 25. A substantial minority are non-

32 

3.3. Labour market, education and social policies 

invests the most in the EU in disease prevention as 
a proportion of the overall health expenditure: 5% 
in  2017  compared  to  an  EU  average  of  3% 
(OECD/European  Observatory  on  Health  Systems 
and Policies, 2019; European Commission, 2019f).  

The situation in relation to the health workforce 
remains  challenging.  There  are  shortages  of 
various  staff  groups  including  nurses,  general 
practitioners, clinical oncologists and psychiatrists. 
The  number  of  vacancies  is  increasing  and  the 
estimated  shortfall  is  expected  to  grow  further  in 
the  coming  years  (European  Commission,  2019f; 
The  Royal  College  of  Radiologists,  2019;  IFS  & 
The  Health  Foundation,  2018).  Without  reducing 
the level of workforce shortages, it will be difficult 
to  increase  the  offer  of  health  services  and  meet 
performance  targets,  even  if  extra  funding  is 
poured  into  the  health  system  (OECD/European 
Observatory  on  Health  Systems  and  Policies, 
2019).  The  announced  increase  in  undergraduate 
places  for  doctors  and  nurses  is  insufficient  to 
address the problem in the coming years. The NHS 
acknowledges 
international 
recruitment of nurses in the short to medium term, 
together  with  improved  retention  of  the  existing 
workforce  and  support  for  nurses  to  return  to  the 
health sector, are essential measures in order to fill 
40,000 nursing vacancies by 2024 (NHS, 2019).  

that  a 

rise 

in 

Social care lacks the resources to meet the levels 
of  demand,  adding  pressure  on  the  health 
system  (European  Commission,  2019f  and  NHS 
England, 2020). In a move to ease the burden, the 
Queen’s  Speech  in  December  2019  allocated  an 
extra  £1  billion  (€1.14  billion)  for  social  care  in 
England in every year of the current Parliament. It 
also  allowed  local  authorities  to  potentially  raise 
£500 million (€570 million) more for social care in 
2020-2021 through council tax. 

UK  nationals,  although  the  proportion  of  these  is 
decreasing. Rough sleeping has been concentrated 
in London but has been spreading across the south 
of  England  over  the  past  years.  Across  the  UK, 
large proportions of statutory homeless households 
have serious support needs.  

UK agencies provide various services for people 
who  are  homeless  or  at  risk  of  homelessness. 
The  right  to  housing  provided  through  the  UK’s 
homelessness legislation and right to prevention of 
homelessness  in  England  and  Wales  rely  on  the 
availability of private rented or social housing and 
housing  benefits.  The  Homeless  Reduction  Act, 
which  came  into  force  in  April  2018,  provides  a 
new  legislative  framework  for  local  authorities  to 
refocus  their  work  on  preventing  homelessness. 
The  government  has  committed  to  maintaining 
housing  benefit  for  all  supported  housing,  to 
halving rough sleeping by 2022, and to eliminating 
the  phenomenon  by  2027,  in  line  with  the  Rough 
Sleeping Strategy. To what extent these  and other 
measures  will  alleviate  the  problem  of  increasing 
homelessness remains to be seen. 

Health care 

Limited  financial  and  human  resources  affect 
the  access,  performance  and  sustainability  of 
the health system. The health system in the UK is 
efficient  but 
the  growing  demand  outstrips 
available  resources.  As  a  result,  waiting  lists 
increase,  performance  targets  are  missed  and 
health service providers experience budget deficits. 
Policy responses across all four nations of the UK 
move  in  the  direction  of  changing  the  model  of 
care  in  order  to  better  manage  the  increase  in 
includes 
demand 
improving  integration  of  care  across  all  levels, 
with  a  stronger  role  for  primary  and  community 
care. It is a transformation process, which requires 
upfront  investments  and  time  to  complete  and 
bring  the  expected  results.  Currently,  the  UK 

services.  This 

for  health 

33 

 
 
3.4. COMPETITIVENESS, REFORMS AND INVESTMENT 

3.4.1.  PRODUCTIVITY AND INNOVATION 

Productivity 

in  Section  3.4.2, 

UK labour productivity remains comparatively 
low.  This  is  mainly  linked  to  low  within-sector 
productivity,  though  structural  composition  (e.g. 
small  manufacturing  share)  does  play  a  part.  As 
discussed 
the  UK  has 
exceptionally low level of private  investment as a 
proportion of GDP. There are also significant skills 
gaps,  particularly  for  basic  and  technical  skills. 
Regional  differences  also  matter,  with  most  UK 
nations and regions outside London having a lower 
output  per  hour  than  the  EU  average  (see  Section 
3.4.5). 

tend 

that, 

in  principle, 

In  some  respects,  the  UK’s  low  productivity  is 
surprising.  The  UK  economy  has  a  number  of 
characteristics 
to  be 
associated with high average productivity. The UK 
has  a  high  quality  of  government  (European 
Quality of Government Index, 2016) and generally 
free  and  efficient  markets  (with  the  exception  of 
the  land  market,  as  discussed  in  Section  3.2.2).  It 
ranks  eighth  among  190  countries  in  the  World 
Bank’s classification of the ease of doing business 
(World  Bank,  2019).  In 
the  2019  European 
Innovation  Scoreboard,  the  UK  is  considered  a 
‘strong innovator’ (European Commission, 2019g). 
The  UK  scores  particularly  well 
in  human 
resources occupied in research, research networks, 
linkages  with  SMEs,  venture  capital  expenditure 
(see  Section  3.2),  the  sales  impact  of  innovation 
activities  and  ICT  training  provided  by  firms, 
although  it  does  less  well  in  terms  of  R&D 
investment  including  in  firms.  The  UK  also  has  a 
relatively  high  churn  rate  of  firms  and  an  above-
average  proportion  of  workers  in  large  firms. 
Investment 
is 
substantial,  although as discussed in  Section 3.4.2 
it has slowed post-crisis. 

intangible  capital  assets 

in 

Recent  GDP  growth  has  been  driven  by  rising 
employment,  not  productivity.  There  is  a  sharp 
divide  between  the  pre-  and  post-crisis  drivers  of 
UK  GDP  growth  (WIIW,  2019).  In  the  pre-crisis 
years,  labour  productivity  grew  more  rapidly  than 
hours  worked.  In  the  post-crisis  period,  UK 
employment has risen strongly, driven by increases 
in  both  the  working  age  population  and  the 
employment  rate.  Hours  worked  have  tracked 
changes  in  real  GDP  increasingly  closely  since 

2009.  Both  female  and  male  employment  has 
risen,  while  average  hours  worked  have  been 
broadly  flat  (ONS,  2019e).  The  record-high 
employment  rate  is  positive  for  GDP  per  capita 
and for mitigating inequality and social exclusion. 
However,  by  adding  more 
low-productivity 
workers  to  the  labour  force,  it  is  likely  to  have 
dragged down average productivity slightly. Many 
countries  have  seen  a  slowdown  in  productivity 
growth. However, the UK is  still an outlier  in the 
extent  to  which  the  primary  driver  of  growth  has 
shifted  to  become  the  quantity  of  labour  (WIIW, 
2019). As a result, the labour productivity gap with 
other  G7  nations  has  grown.  Real  wages  are  still 
well  below  the  level  at  the  onset  of  the  financial 
crisis  (Graph  3.4.1),  despite  sustained  strong 
employment growth (see Sections 1 and 3.3). 

Graph 3.4.1:  Trends in UK labour productivity and real wage 

Source: European Commission 

Labour productivity growth has slowed sharply 
since the crisis. UK labour productivity recovered 
relatively  quickly  after  the  1973,  1984  and  1990 
recessions. However, following the financial crisis 
there appears to have been a structural break in UK 
productivity  (Graph  3.4.1),  which  is  now  19% 
lower  than  it  would  have  been  had  the  pre-crisis 
trend continued (IFS, 2019d). This is due to both a 
negative  shock  to  the  level  of  productivity  in  the 
financial  crisis  and  a  slower  rate  of  growth  in  its 
wake. The unprecedented nature of this slowdown 
is  highlighted  by  the  Royal  Statistical  Society 
choosing 
labour 
productivity  growth  rate  of  0.3%  as  the  ‘Statistic 
of the Decade’ in December 2019. 

the  UK’s  average  annual 

34 

7580859095100105110115120989900010203040506070809101112131415161718Index Q1-08 =100Real wagesOutput per hourPre-crisistrend of productivity growth  
           
3.4. Competitiveness, reforms and investment 

‘organisational capital’ are not directly reflected in 
productivity  analysis  (Bauer,  2019).  The  UK  has 
issues with relatively low R&D (see Section 3.4.2) 
to  effectively 
and  a  failure  by  many  firms 
implement  efficiency-enhancing  technologies  and 
processes that already exist. For example, the EIB 
Investment Survey (EIB, 2019) shows that the use 
of strategic monitoring in firm management in the 
UK is below the US and average EU levels. By the 
end of 2016, 24% of businesses surveyed were not 
yet  using  advanced  ICT  systems  to  improve  the 
management  of  internal  processes  and  relations 
these  methods  can  raise 
with  clients.  Using 
productivity by 25% (ONS, 2018c). 

firm  with  high 

There is a positive correlation between firm size 
and age, and labour productivity. The profile of 
a  UK 
labour  productivity 
performance  is  one  with  between  500  and  1,000 
workers, foreign owned, created over 21 years ago 
and  operating  in  utilities,  petroleum,  extractive 
industries or pharma. For more than a decade, the 
average  productivity  of  foreign-owned  firms  has 
remained  over  60%  higher  than  that  of  domestic 
firms.  Capital-intensive  sectors  lead  the  labour 
the 
productivity 
pharmaceuticals  sector 
intellectual 
property assets are very important. 

in  which 

including 

rankings, 

the  distribution  saw 

The  post-crisis  period  has  seen  growing 
dispersion of productivity at firm level. Firms in 
all  percentiles  of 
their 
productivity  fall  in  the  financial  crisis  (Schneider, 
2018a). In the post-crisis periods (both 2010-2015 
and 2015-2017) firms with high productivity levels 
also  had  higher  productivity  growth.  Without  the 
contribution  of  the  upper  10%  of  firms,  the  UK’s 
productivity would have still been below the 2008 
level  in  2017. The  relatively  high  volatility  in  the 
growth  of  productivity  in  highly  productive  firms 
suggests  that  the  ‘productivity  puzzle’  is  driven 
disproportionately  by  the  top  of  the  distribution 
rather than its larger lower end (Schneider, 2018b). 
Micro  firms  employing  1  to  9  people  are  more 
likely to have very low productivity (ONS, 2017), 
as  are  restaurants,  hotels  and  firms  operating  in 
distribution services. One puzzle in the UK is why 
so  many  poor  performers  remain  in  the  market  in 
an  economy  where  most  aspects  of  the  regulatory 
should  encourage 
and  market  environment 
competition  and  the  churn  of  firms  is  relatively 
high. 

tangible 

the  weakness 

in  Section  3.4.2, 

The  drivers  of  this  productivity  slowdown 
appear  to  be  broad-based.  The  contributions  to 
productivity  growth  from  capital  investment,  the 
quality of labour and multifactor productivity (the 
efficiency  with  which  capital  and  skills  are  used) 
all appear to have decreased (see Graph 3.4.2). As 
discussed 
in 
investment  since  the  financial  crisis  encompasses 
both 
investment  and  most  types  of 
intangibles.  The  low  levels  of  capital  deepening 
alongside  rising  employment  has  meant 
that 
through the post-crisis period the volume of capital 
available  per  unit  of  labour  has  not  been  growing 
and contributing to improved productivity (WIIW, 
2019).  Output  per  hour  picked  up  modestly  in 
2014  and  2015  in  the  context  of  a  recovery  in 
business  investment,  but  has  since  stalled.  Box 
3.4.1  discusses 
in 
productivity in more detail. 

renewed  weakness 

this 

Graph 3.4.2:  Contribution of production factors to labour 

productivity growth including intangible assets 

Source: KLEMS 2019 Analytical Section 

By  some  measures,  the  UK  economy  is  less 
efficient than before the financial crisis. As well 
as  shortcomings  in  capital  investment  and  skills, 
multifactor  productivity  has  still  not  recovered  to 
its 2008 level (ONS, 2019f). This could be due to a 
shift to a weaker trend (Melolinna and Toth 2019), 
though  it  is  difficult  to  fully  identify  why  that 
might  be,  given  the  residual  nature  of  the  metric. 
Some  significant intangible assets in  the  UK  such 
and 
innovation 
as 

financial 

products 

35 

-5-4-3-2-101234TFP, p.p.Intangible economic competences capital services, p.p.Intangible other innovative property capital services, p.p.Intangible R&D capital services, p.p.Intangible Software and databases capital services, p.p.Tangible non-ICT capital services, p.p.Labour composition change, p.p.Growth rate of value added per hour worked, %, log           
3.4. Competitiveness, reforms and investment 

Box 3.4.1: Key drivers of the recent weakness of UK productivity 

Despite  a  tight  labour  market,  UK  labour  productivity  has  stagnated  following  a  weak  post-crisis 
recovery. As discussed in Section 3.4.1, both employment and productivity fell during the financial crisis, 
The UK’s post-crisis recovery has been driven predominantly by growth in hours worked, not by improving 
productivity. Productivity growth stalled between 2012 and 2015, then briefly picked up. In the past 2 years 
productivity growth has again stalled, with output per hour essentially flat since early 2018 (see Graph 1a). 
This is despite consistently low unemployment through a mature phase of the economic cycle.  

Growth has fallen short of pre-referendum expectations in the last three years. UK business investment 
fell sharply in the financial crisis then recovered until 2015 as the economy and employment grew. In the 
last 3 years, private investment has stalled in the context of high Brexit-related uncertainty, despite the UK 
having been in the phase of the economic cycle where investment is usually strongest. As a result, the UK 
effectively  missed  a  global  cyclical  peak  of  growth  and  investment  in  2017  and  2018  (see  Graph  1b).  A 
number of bodies have estimated the extent to which the level of UK GDP has fallen short of what might 
have  been  expected  before  the  2016  EU  referendum.  For  example,  the  Centre  for  European  Reform 
calculates the lost growth to have totalled 2.9% by mid-2019 (CER, 2019). 

This  slowdown  in  UK  economic  growth  has  been  driven  by  stalling  productivity  and  investment,  as 
employment has continued to grow. The most striking element of the slowdown has been the weakness of 
private investment. The Bank of England estimate that increased economic uncertainty has reduced business 
investment by 11% over 3 years compared to the counterfactual (Bank of England, 2019c). The Bank also 
estimates that UK productivity was 2-5% lower than expected by mid-2019. As well as the impact of low 
investment,  firms  have  been  diverting  management  and  other  resources  to  contingency  planning  that  does 
not  have  an  immediate  return  (ibid).  In  contrast,  employment  has  remained  robust,  and  real  wages 
surprisingly  strong  through  the  last  year  in  the  absence  of  productivity  growth  (see  Sections  1  and  3.3). 
There is some evidence of firms choosing to add flexible labour rather than capital. The capital available per 
worker in the UK has recently been flat or falling (ONS, 2020c). This has resulted in an intensification of the 
post-crisis  trend  of  hours  worked  driving  GDP  growth,  rather  than  productivity,  which  implies  that  the 
recent robust real wage growth is not sustainable. 

To date, the main effect of the prolonged period of high uncertainty has been for firms to hold back on 
significant  investment  and  expansion  decisions.  According  to  the  2019  EIB  Investment  Survey  (EIB, 
2019), political uncertainty had a significant impact on economic  investment plans in 2019. 42% of  firms 
have  become  more  pessimistic  about  the  economic  climate  (up  from  18%  in  2018).  Repeated  episodes  of 
Brexit-related uncertainty have raised the risk premium of investing and increased the relative attractiveness 
of the ‘wait’ option for firms (Nabarro and Schulz, 2019). As a result, ‘firms have not prioritised the most 
profitable investments, but instead the most essential ones’ (ibid.). The Enterprise Research Centre (ERC), 
an  institute  formed  of  several  universities,  reported  that  the  number  of  high-growth  enterprises  —  those 

36 

-8-6-4-202407 Q408 Q208 Q409 Q209 Q410 Q210 Q411 Q211 Q412 Q212 Q413 Q213 Q414 Q214 Q415 Q215 Q416 Q216 Q417 Q217 Q418 Q218 Q419 Q2Graph 1a: Cumulative contributions to output per hour growth since Q4-2007Labour compositionCapital deepeningMFPGVA per hourSource: ONS%14161820222426Q2 05Q1 06Q4 06Q3 07Q2 08Q1 09Q4 09Q3 10Q2 11Q1 12Q4 12Q3 13Q2 14Q1 15Q4 15Q3 16Q2 17Q1 18Q4 18Q3 19% GDPGraph 1b: G7 investment shares(proportion of GDP), quarterlyJPCAFRUKITDEUSSource: OECD   
3.4. Competitiveness, reforms and investment 

increasing headcount by at least 20% each year for 3 years — dipped from 11,855 in 2012-2015 to 10,968 in 
2015-18, which it attributed to Brexit uncertainty. The proportion of high-growth businesses, which tend to 
have  above  average  productivity,  fell  from  7.5%  to  6.2%  of  all  companies  over  the  same  period  (Annual 
Scale  Up  Review  2018).  The  inflow  of  FDI  to  greenfield  projects  and  mergers  and  acquisitions  has  been 
falling since 2016 (see Section 1), though the number of jobs created by FDI was falling before then. 

recovery 

in  business 

Many  of  the  sectors  which  have  seen  the  weakest  output  or  productivity  growth  since  2016  are 
investment  until  2016  was  driven 
investment-intensive.  The  cyclical 
disproportionately by capital-intensive manufacturing. However, despite weaker sterling manufacturing has 
stalled since 2016. This is especially the case for vehicle production, where strong production growth from 
2012 to 2016 (ONS, 2019g) has been followed by a sharp downturn attributable to both global and domestic 
factors.  On  a  rolling  twelve-month  basis  UK  car  production  (80%  of  which  is  for  export)  has  fallen  by  a 
quarter from a peak of 1.75 million in the year to early 2017 to 1.3 million in the year to December 2019 
(SMMT,  2020).  Investment  in  vehicle  production  has  fallen  particularly  sharply  (SMMT,  2019).  While 
overall construction output grew robustly until 2017 before levelling off, output per hour in the construction 
sector has fallen since 2016 and was particularly weak in 2018 (ONS, 2019h).  

In  November  2019,  the  government  published  the  Business  Productivity  Review  (HM  Government, 
2019b). The publication followed a review process launched in 2018 ‘focused on improving the productivity 
of businesses with lower productivity, sometimes described as a “long tail”, that lag behind the leading firms 
and underperform relative to domestic and international benchmarks’ (BEIS, 2018, p.4). The review formed 
part of the broader Industrial Strategy (HM Government, 2017) and focused on management capabilities and 
technology  adoption  as  drivers  of  firm  level  productivity.  Its  main  conclusion  was  that  improving  firm 
productivity performance requires a four stage business change cycle: i) realisation that a change is needed; 
ii)  assessment  of  the  costs  of  change  and  associated  outcomes,  quality  and  value  of  change,  and  of  the 
business support available to help identify solutions; iii) navigation of the business support environment to 
find advice, or new services and products, to deliver the desired change; and iv) embedding the change in 
the business to realise the benefits, which may require strong leadership and staff training. More effective 
skills policies will also be key to improving UK productivity as, while the UK has significant gaps in basic 
and technical skills and skills mismatches have increased in recent years, the amount of training undertaken 
per worker has fallen and the apprenticeship levy introduced in 2017 has not been as effective as expected 
(see Section 3.3).  

Research, development and innovation 

majority  of  total  UK  research  and  innovation 
activity (ONS, 2019i).  

research 

the  UK 

is  considered  a 

‘Strong 
While 
Innovator’ 
investment 
(see  above),  R&D 
intensity  has  remained  flat,  and  below  the  EU 
average,  for  the  past  decade.  In  2018,  R&D 
expenditure  reached  £36.5 billion  (€41.3 billion). 
However, 
(total  R&D 
expenditure as a percentage of GDP) was still only 
1.71%,  below  the  EU  average  of  2.11%.  In  2018, 
although  the  business  sector  spent  £25.2 billion 
(€28.5 billion)  –  representing  69%  of  UK  total 
R&D expenditure –business research intensity was 
at 1.18% of GDP also significantly below the  EU 
average of 1.41% (Eurostat, 2019b).  

intensity 

the  UK 

investment 

R&D 
remains 
in 
concentrated in a limited number of companies 
and  regions.  400  firms  account  for  the  bulk  of 
business  R&D  investment.  The  South  East,  the 
East of England and London regions undertook the 

a 

research 

Although  UK  universities  are  regarded  as 
global 
science-business 
leaders, 
linkages  could  be  strengthened.  UK  universities 
are 
cited 
publications (18),  and  the  UK  has  improved  in 
international rankings of knowledge diffusion (19). 
Nevertheless there is scope for the business sector 
to capitalise more on the UK’s scientific strength.  

terms  of  highly 

leader 

in 

The approach to future R&D funding in the UK 
was  laid  out  in  the  December  2019  Queen’s 

(18)  In 2018, 14% of the total scientific publications in the UK 
top-10%  most  cited  publications 

the 

ranked  among 
worldwide. 

(19)  According  to  the  Global  Innovation  Index  by  Cornell 
university,  INSEAD  and  WIPO,  the  UK  has  improved  to 
12th place in terms of knowledge diffusion. 

37 

                                                           
3.4. Competitiveness, reforms and investment 

Graph 3.4.3:  Quarters needed to recover 2007 investment 

levels (in chained volume measures ref. 2016) 

Speech.  The  UK  plans  to  increase  public  R&D 
funding, with greater emphasis on high-risk, high-
payoff  research  in  emerging  fields,  a  fast-track 
immigration  scheme  and  reducing  bureaucracy  in 
research 
(HM  Government,  2019a). 
Delivering  on  these  ambitious  proposals  will  be  a 
challenge,  as  will  the  aim  to  increase  R&D 
investment intensity to 2.4% of GDP by 2027.  

funding 

3.4.2.  INVESTMENT  

underinvested 

The  UK  has  long  had  lower  capital  investment 
as  a  proportion  of  GDP  than  other  G7 
economies  (see  Graph  1b  in  Box  3.4.1).  The  UK 
has 
network 
in 
infrastructure  and  capital  equipment  for  decades. 
National  savings  are  also  very  low  in  the  UK, 
which  is  linked  to  the  persistence  of  a  sizeable 
current  account  deficit  despite  the  depreciation  of 
sterling in 2016 (see Section 1) and low domestic 
investment. 

housing, 

to 

Private sector investment  recovered slowly and 
unevenly  following  the  financial  crisis,  and  has 
recently  stalled.  Investment  by  non-financial 
corporations as a percentage of GDP fell sharply in 
the  financial  crisis  then  recovered,  particularly 
from  2012  to  2015.  Total  business  investment 
regained the peak level of Q4-2007 8 years later, in 
2015,  but  investment  in  some  sectors  remains 
below pre-crisis levels (Graph 3.4.3). As discussed 
in Box 3.4.1, overall private sector investment has 
flat  lined  since  2016.  While  business  investment 
stagnated,  private  sector  investment  in  dwellings 
continued 
grow  moderately.  Quarterly 
investment growth is volatile, but since early 2018 
to  be  particularly  weak  (see 
it  has 
Section 1).  On  a  sectoral  basis,  investment  in 
‘other buildings and structures’ has just returned to 
pre-crisis  levels.  Machinery  investment  has  not 
returned  to  pre-crisis  levels  and  is  now  falling 
again.  The  UK’s  low  investment  rate  is  mainly 
driven  by  the  service  sector,  due  to  its  size. 
Investment  has  weakened  in  subsectors  such  as 
financial services and insurance that drove growth 
in the past. Higher investment could drive progress 
on SDG 8, but as discussed in Box 3.4.1, there are 
currently  few  signs  of  a  private  sector  investment 
recovery. 

tended 

Source: ONS 

The  level  of  UK  investment  looks  better  if  all 
included. 
investment  assets  are 
intangible 
Intangible 
economic 
growing 
have 
assets 
importance,  especially  in  a  service-dominated 
economy  like  the  UK.  This  has  justified  an 
extension  of  the  capital  assets  considered  in 
accounting  beyond  physical  assets  (Adarov  and 
Stehrer,  2019,  and  ONS,  2019j).  In  addition  to 
research and development, software and databases, 
intangible assets include artistic originals,  mineral 
exploration, design financial innovations, branding 
organisational capital and firm-specific training. In 
the  UK,  the 
investment  in 
total  volume  of 
intangible  assets  is  estimated  to  match  that  in 
physical  capital.  Together,  they  account  for  about 
25% of market sector gross value added. 

Growth  in  investment  in  intangible  assets  has 
also  slowed  markedly  following  the  financial 
crisis  (Graph  3.4.4).  Organisational  capital  has, 
however,  been  growing  fast  and,  unlike  financial 
innovations,  the  investment  rate  in  this  has  not 
fallen.  An  additional  exception  is  the  continued 
growth  of  ‘intellectual  property  products’  as 
discussed  above.  The  increasing  proportion  of 
intellectual  property  products  and  software  in  the 
capital-labour ratio could be positive for the UK’s 
productivity  prospects,  though  as  discussed  in 
Section  3.4.1  R&D  intensity  is  still  quite  low. 
Spending  on  training  per  worker  has  also  fallen 
(DfE, 2018b).  

38 

02040608010012014016018020013579111315171921232527293133353739414345Business investmentTransport equipmentICT equipment and other machinery and equipmentOther buildings and structuresIntellectual property products        
In  addition  to  uncertainty,  structural  factors 
may  have  also  been  discouraging  firms  from 
investing  their  cash  reserves.  The  return  on 
capital  and  the  rate  of  return  on  equity  have 
remained  relatively  stable  over  time  and  do  not 
therefore  explain  subdued  investment.  In  the  UK, 
as in several advanced economies, low investment 
rates  have  resulted  in  cash  hoarding.  Since  2012, 
UK  corporates  have  been  increasing  dividend 
payments  but  still  dissaving  in  net  terms  despite 
robust  profitability  and  modest  investment  levels 
(Deutsche  Bank,  2019).  This  may  be  linked  to 
corporate culture and incentives in the tax system, 
as  discussed  in  Section  3.1.  These  factors  could 
continue 
investment  after  economic 
limit 
uncertainty reduces. 

to 

Graph 3.4.4:  Breakdown of intangible investment in the 
market sector (current prices) 

3.4. Competitiveness, reforms and investment 

authorities from the Public Works Loan Board, the 
government raised the interest rate on these loans. 

3.4.3.  INFRASTRUCTURE 

Major  investment  is  needed  to  modernise  and 
expand  infrastructure  networks  while  bringing 
down  project  costs,  greenhouse  gas  emissions 
and other environmental pressures. The UK has 
growing  capacity  pressures  in  road,  rail  and 
aviation  networks.  There  is  also  a  need  for  new 
and  greener  energy  generation  and  supply 
capacity, as well as broader investment to support 
decarbonisation  across  the  economy  (see  Section 
3.5).  The  UK  has  often  struggled  to  deliver 
infrastructure  in  a  timely  and  cost-effective  way. 
The  reasons  for  this  include  short  termism  and 
fragmented,  stop-start  decision  making  (NIC, 
2018),  the  structure  of  the  UK  construction 
industry  (PWC,  2016),  and  the  complex  and 
restrictive  spatial  planning  system  (see  Section 
3.2).  To  help  address 
the  National 
Infrastructure  Commission  (NIC)  was  created  in 
infrastructure 
2016 
planning. The Infrastructure and Projects Authority 
(IPA)  was  also  created  to  monitor  projects  and 
help to deliver them. 

to  carry  out 

long-term 

this, 

The  government  is  due  to  publish  a  delayed 
National  Infrastructure  Strategy.  In  July  2018, 
the  National  Infrastructure  Commission  published 
the  first  National  Infrastructure  Assessment  (NIC, 
2018),  a  wide-ranging  analysis  and  set  of 
recommendations on UK infrastructure investment 
needs  and  management  to  2050.  The  NIC  was 
asked  to  work  on  the  assumption  that  annual 
government  spending  on  economic  infrastructure 
would  be  1.0-1.2  %  of  GDP  between  2020  and 
2050, which is broadly in line with current levels. 
The  main  themes  of  its  recommendations  include 
tackling urban congestion, improving  the capacity 
of the UK's water supply and digital infrastructure, 
and  reducing  carbon  emissions.  The  government 
gave an interim response to the NIC’s assessment 
the  2018  Autumn  Budget.  A  full 
alongside 
government  response  in  the  form  of  a  National 
Infrastructure  Strategy  has  been  delayed,  and  is 
expected  to  be  published  alongside  the  March 
2020 Budget. 

Source: ONS 

Direct  public  investment  is  close  to  the  EU 
average  and  currently  growing  somewhat. 
Public sector investment rose temporarily to a peak 
in  2010  in  the  wake  of  the  financial  crisis,  then 
dropped  back.  Total  public  sector  net  investment 
was  up  by  6.1%  year-on-year  to  Q2-2019  and  is 
projected  to  average  somewhat  more  than  2%  of 
GDP over the next few  years. In recent  years, the 
government  has  increasingly  focused  investment 
on  network  infrastructure,  and  this  can  be  seen  in 
the rise in new public infrastructure projects shown 
in Graph 3.4.5. Local authority capital expenditure, 
which  is  slightly  below  1%  of  GDP,  has  been 
broadly  stable  in  recent  years  after  temporarily 
rising  in  the  wake  of  the  financial  crisis.  In 
response  to  a  recent  surge  in  borrowing  by  local 

39 

0204060801001201401992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016Own-account Organisational CapitalPurchased Organisational CapitalOwn-account DesignPurchased DesignFinancial Product InnovationBrandingTrainingArtistic OriginalsMineral ExplorationResearch and DevelopmentOwn-account SoftwarePurchased SoftwareTotalUncapitalised TotalCapitalised Total  
3.4. Competitiveness, reforms and investment 

projects  fell  by  15.9%.  As  a  result,  2018  was  the 
first  year  since  1996  that  public  projects  made  up 
the majority of new infrastructure work. 

The  government  envisages  a  bigger  private 
sector  role  in  future  infrastructure  investment, 
on  a  scale  which  could  prove  challenging.  The 
Infrastructure  and 
November  2018  National 
Construction  Pipeline  (IPA,  2018)  set  out  over 
£600 billion  (€684 billion)  of  public  and  private 
sector  investment  projects  that  are  planned  across 
the economy over the next decade. Around half of 
the  value  of  the  pipeline  requires  private  sector 
funding, including in privatised utilities subject to 
economic regulation. However, new infrastructure 
orders  fell  sharply  in  2018,  partly  due  to  base 
effects from a high level of orders for the HS2 rail 
scheme  in  2017,  before  recovering  somewhat  in 
2019  (ONS,  2020d).  UK  projects  will  not  have 
access 
to  European  Investment  Bank  (EIB) 
funding  in  future.  The  EIB  has  had  an  important 
role in funding UK projects in the past, particularly 
in  infrastructure  and  in  funding  projects  based 
around less established technologies. It is likely to 
be  challenging  to  secure  the  amount  of  external 
funding  required  to  meet  the  needs  set  out  in  the 
pipeline. The government is expected to soon issue 
a  response  to  its  Infrastructure  Finance  Review 
consultation  (HM  Treasury  &  IPA,  2019),  one 
aspect of which is how best to replace funding that 
used to come from the EIB. 

Transport and telecommunications 

Rail system performance recovered in 2019, but 
passenger  satisfaction  and  reliability  remain 
issues.  Usage  of  the  UK  passenger  rail  network 
has  nearly  doubled  over  the  last  20  years  and 
almost two-thirds of all rail journeys start or end in 
London (DfT, 2019a). Rail performance indicators 
recovered  in  2019,  after  deteriorating  in  2018 
when  a  number  of  train  operating  companies 
experienced extensive delays and cancellations. In 
the  2019  Global  Competitiveness  Report  (WEF, 
2019)  UK 
low 
perception  score  for  rail  efficiency  (55.5,  down 
from  60.1 
the  overall  rail 
infrastructure score fell to 77.4 (EU average 70.8). 
Passenger  trust  in  the  sector  is  low,  with  a 
competence,  motivation, 
perceived 
leadership  and  communication  in  the  sector  (DfT, 
2019b).  Fare  payers  are  less  satisfied  with  the 

travellers  gave  a 

in  2018),  while 

relatively 

lack  of 

Graph 3.4.5:  Trends in new infrastructure and housing work 

Source: ONS 

in 

real 

in  construction  sector  activity 

Growth 
is 
subdued  and  there  are  signs  of  capacity 
constraints  in  the  sector.  As  Graph  3.4.5  shows, 
the  amount  of  new  construction  work  levelled  off 
in 2018 after growing strongly from 2013 to 2017 
(ONS,  2019h).  While  new  public  sector  projects 
grew  by  more  than  10%  in  2018,  new  private 
sector  projects 
terms. 
fell  slightly 
Construction  employment  increased  by  2.8%  in 
2018  (ONS,  2019h),  though  productivity  in  the 
sector  fell  and  is  no  higher  now  than  before  the 
financial  crisis.  The  construction  sector  lost  much 
of its skills base in the bust following the financial 
crisis. The presence of skills shortages is shown by 
the 
in 
construction,  which  grew  by  5.5%  in  nominal 
the  weakness  of 
terms 
relatively  high 
productivity.  This 
construction  price  inflation  (ibid.).  Throughout 
2019,  survey  indicators  such  as  the  construction 
PMI  indicated  falling  activity,  a  reduction  in  new 
orders  and  employment  in  the  construction  sector 
although  when  compared  to  2018,  construction 
output increased by 2.5% in 2019 (ONS, 2020d). 

strong  growth  of 

in  2018,  despite 

average  wages 

into 

fed 

The  balance  of  infrastructure  investment  has 
recently shifted towards the public sector. After 
decades  of  public  sector  under-investment,  the 
the 
government 
infrastructure 
sector 
deficit.  New 
infrastructure  work grew by  45.7% in 2018 and it 
is now much higher than a decade ago. In contrast, 
the  value  of  new  private  sector  infrastructure 

to  deal  with 

starting 

public 

is 

40 

 - 20,000 40,000 60,000 80,000 100,000 120,00020082009201020112012201320142015201620172018Private housingPrivate commercialPrivate industrialPrivate infrastructurePublic housingPublic infrastructurePublic other£ millions  
3.4. Competitiveness, reforms and investment 

Competitiveness  Report  (WEF,  2019),  the  2019 
perception scores  for road quality (64.4) and road 
infrastructure overall (81.1) remain relatively low, 
despite  the  latter  having  risen  by  6.1  points  since 
2018. 

stakeholder  consultation  was 

A 
launched 
regarding  the  Heathrow  airport  third  runway 
project, 
for  a 
in  advance  of  applying 
development  consent  order  in  2020.  The  plans 
for  expansion  continue  to  face  strong  opposition 
from politicians, local residents and environmental 
groups, and the project’s future is uncertain. 

rolled-out 

The  deployment  of  full  fibre  networks  has 
increased  rapidly  (Ofcom,  2019).  This  follows 
the  publication  of  the  2018  Future  Telecoms 
Infrastructure  Review,  setting  out  the  strategy  for 
digital infrastructure. Despite the currently modest 
level  of 
fibre  networks,  network 
competition  in  the  full  fibre  market  is  growing, 
with  a  range  of  larger  and  smaller  full  fibre 
providers  rolling  out  networks  in  various  parts  of 
the  country  (Ofcom,  2019).  Both  the  incumbent 
and  local  and  national  alternative  providers  have 
made  a  number  of 
investment 
announcements.  

significant 

in 

The  UK  is  significantly  increasing  its  public 
support 
rollout.  On 
fibre  network 
30 September 2019,  the  Government  announced 
that  it  secured  £5 billion  (€5.7 billion)  of  funding 
for  subsidising  the  market  to  deliver  coverage  to 
the  least  commercial  20%  of  UK  premises,  at  the 
same  time  as  incentivising  the  market  to  build  to 
the more commercial 80%.  

As  of  October  2019,  all  four  mobile  network 
operators  have  launched  active  5G  services  in 
cities across the UK. Auction of 5G pioneer bands 
700 MHz and 3.6-3.8 GHz is scheduled for spring 
2020. 

Energy infrastructure 

Half  of  the  UK’s  current  nuclear  generating 
capacity  of  8.8 GWe  is  currently  expected  to 
shut  down  by  2025,  and  investment  in  new 
nuclear  capacity 
is  on  hold.  Construction 
continues  on  the  3.2 GWe  Hinkley  Point  project, 
while  the  final  investment  decision  has  yet  to  be 
taken in respect of the 3.2 GWe Sizewell C project 
or  the  1 GWe  Bradwell  project.  In  July  2019,  the 

value for money of rail services than other aspects 
of the rail system (Transport Focus, 2019). 

After  some  signs  of  improvement  in  delivery, 
major  rail  schemes  have  recently  fallen  behind 
schedule  and  over  budget.  The  new  ‘Crossrail’ 
underground  link  between  east  and  west  London 
and  the  surrounding  area,  was  further  delayed  in 
2019.  The  first  services  are  now  not  expected 
before  2021  (BBC,  2019b),  with  fears  of  the 
budget  rising  to  £18.25 billion  (€20.8 billion), 
more 
the 
than  £2 billion  (€2.3 billion)  above 
original  budget  (NAO, 2019d).  The  Department 
for  Transport  commissioned 
‘Williams 
Review’,  a  comprehensive  review  of  the  structure 
and operation of the railway system, in the wake of 
network  problems  in  2018.  The  review  has  taken 
longer than initially envisaged but its final report is 
expected  to  be  published  soon.  The  government 
plans  to  publish  a  White  Paper  informed  by  the 
recommendations  of  the  Williams  Review  in  the 
course of 2020 (HM Government, 2019a). 

the 

underestimated 

The  new  ‘High  Speed  2’  rail  service  will  go 
ahead  following  a  review,  but  the  cost  is  set  to 
rise  further.  There  has  been  progress  on  the 
preparation work for the first phase of High Speed 
2  between  London  and  Birmingham,  though  the 
start  of  construction  has  been  delayed.  This 
complex  project  has  been  beset  by  delays,  cost 
increases  and  contracting  problems,  and 
the 
National  Audit  Office  recently  concluded  that  the 
challenges 
government 
involved  (NAO,  2020).  A  review  of  the  project’s 
scope  and  costs  noted  a  number  of  issues  with 
High  Speed  2  but  recommended  that  on  balance, 
the government should go ahead with construction 
the 
(Oakervee  2020). 
government  announced  that  High  Speed  2  should 
go 
and 
potentially  with 
modifications.  However,  the  cost  of  the  whole 
project looks set to rise further from the  currently 
estimated  £88 billion  (€100 billion)  (FT,  2020). 
Parliamentary approval of the second phase, to run 
up to Manchester and Leeds, has been postponed. 

In  February  2020, 

ahead, 

delays 

the 

Road congestion levels are higher  than in  most 
parts of the EU. According to estimates from the 
Commission’s  Joint  Research  Centre  (European 
Commission, 2018c) car users in the UK spent on 
average  45.7  hours  in  road  congestion  in  2017. 
This is among the highest in the EU. According to 
Forum’s  Global 
the  World 

Economic 

41 

3.4. Competitiveness, reforms and investment 

Netherlands  (34%),  but  more  than  in  France 
(12%).  

In  October  2019,  the  European  Commission 
reapproved  under  EU  State  aid  rules  the 
capacity  market  scheme  introduced  in  2014. 
The  scheme  aims  to  ensure  security  of  electricity 
supplies  in  view  of  the  projected  increases  in 
electricity  demand  and  the  upcoming  closure  of  a 
significant  share  of  generation  capacity.  Three 
auctions are scheduled for early 2020 to secure the 
majority of the UK’s capacity needs to 2023-2024. 

retail 

electricity  market 

The 
remains 
competitive, despite a number of challenges. For 
a  mature  market  (the  UK  electricity  market  was 
liberalised  in  1999),  supplier  switching  rates  are 
high,  standing  at  19%  per  year  in  2018  (Ofgem, 
2019). Retail market concentration has fallen since 
2011,  suggesting  fluid  competition.  Nevertheless, 
for  disengaged 
rising  prices 
concerns  over 
consumers led to the introduction of a price cap on 
‘default’ energy tariffs on 1 January 2019. The cap 
was  lowered  in  October  2019.  Affecting  around 
11 million  energy  customers,  the  price  cap  is 
intended  to  be  a  temporary  measure  until  longer-
term  reforms,  including  smart  metering,  can  be 
implemented.  The  rollout  of  smart  meters  is 
underway  and  aims  to  have  around  53 million 
smart  gas  and  electricity  meters  fitted  in  over 
30 million premises (households and businesses) in 
Great Britain. 

3.4.4.  REGIONAL DISPARITIES 

Inter-regional variations in GDP per capita are 
significant and continue to grow. London and its 
surrounding  areas  are  economically  successful, 
supporting large numbers of high productivity and 
well paid jobs. However, some other regions of the 
UK  are  relatively  poor  (Graph  3.4.7)  and  lack 
physical  and  human  capital,  by  developed  world 
standards.  Between  2011  and  2017,  32  of  the  41 
UK  NUTS  2  regions  recorded  GDP  per  capita 
growth  below  the  EU  average  (Graph  3.4.6).  The 
four areas with no or negative growth (Tees Valley 
and  Durham,  Merseyside,  East  Yorkshire  and 
Northern  Lincolnshire)  are  all  relatively  poor. 
More  recently,  in  the  year  to  Q1-2019,  the  two 
fastest  growing  regions  were  the  two  richest, 
London and South East England (ONS, 2019k).  

government launched a consultation (BEIS, 2019a) 
on  the  regulated  asset  base  (RAB)  model  for 
funding  large  projects,  including  nuclear.  The 
government  has  not  yet  published  its  response  to 
the consultation, and potential projects are on hold. 
The NIC published information on the costs of UK 
nuclear  projects,  which  found  the  median  cost 
overrun to be at least 50% (NIC, 2019a).  

The  prospects  for  further  investment  in  the 
renewable  electricity  sector  are  encouraging. 
The  third  round  of  Contracts  for  Difference 
auctions,  which  took  place  in  September  2019 
resulted  in  further  cost  reductions  in  offshore 
deployment: 12 projects were allocated 5.8 GW of 
new capacity to be deployed from 2023 to 2025 at 
a  price  range  of  £39.65-41.61  (€45.2-47.44)  per 
MWh.  These  results  are  below  current  market 
prices  and  30%  lower  than  the  prices  achieved  in 
the second Contracts for Difference round in 2017. 
The  UK  authorities  have  committed  to  delivering 
up  to  40GW  of  offshore  wind  capacity  by  2030. 
The previous feed-in tariff scheme for small-scale 
renewables  was  phased  out  in  2019,  and  a  new 
requirement was created for most suppliers to offer 
at  least  one  tariff  for  the  purchase  of  exported 
electricity  (at  a  rate  of  their  choice)  to  small 
generators. 

The  UK  currently  has  an  interconnection  level 
of  about  6%  of  installed  electricity  generating 
capacity.  Two  interconnectors  between  the  UK 
that  are  still  under  construction 
and  France 
(Electlink;  IFA2)  are  expected  to  increase  the 
UK’s interconnection level in 2020, but it will still 
remain  below  the  target  of  10%.  Ten  further  new 
interconnectors  were 
‘Projects  of 
Common  Interest’  on  31  October  2019  and  are 
currently  at  various  stages  of  planning  or 
development. The government’s projections for the 
future  see  interconnections  playing  an  important 
role in maintaining energy security.  

labelled 

The  UK’s  wholesale  electricity  market 
is 
relatively liquid due to its early work on energy 
market liberalisation. However, wholesale prices 
are  above  the  EU  average  (average  day-ahead 
price  of  €64.89  (£56.92)  per  MWh  in  2018) 
(ACER, 2019) due to the energy mix of electricity 
level  of 
generation  and 
interconnection. This constitutes a wholesale price 
increase  of  25%  compared  to  2017,  less  than  in 
neighbouring  countries  Ireland  (32%)  and  the 

relatively 

low 

the 

42 

3.4. Competitiveness, reforms and investment 

2019g) – accounted for half or more of public and 
private sector R&D expenditure in 2017. Per capita 
government expenditure on R&D ranges from £67 
(€76.4)  in  South  East  England  to  less  than  £10 
(€11.4)  in  Northern  Ireland  and  Wales  (ONS, 
2019i).  The  new  UK  government  has  stated  an 
ambition  to  “level  up”  poorer  regions  of  the  UK, 
including by allocating  more  public investment to 
these areas (HM Government, 2019a).  

Graph 3.4.7:  GDP per head (PPS) in UK, NUTS 2 regions 

(2017), EU=100 

to  derive  relatively 

The  UK  seems 
few 
agglomeration  benefits  in  conurbations  outside 
London.  In  general,  larger  cities  tend  to  have 
higher  productivity  levels.  Despite  the  strong 
degree of urbanisation in the UK and the presence 
of several sizeable metropolitan areas only the city 
regions  of  London,  Edinburgh,  Aberdeen  and  the 
West of England conurbation (Bristol), had above 
average productivity levels in 2017 (ONS, 2019l). 
The  OECD  Spatial  Analytics  Centre  characterises 
economies  into  two  types:  i)  a  leading  city  drives 
the economy, and other areas do not follow; and ii) 
multiple centres. It considers the UK to be a clear 
example  of  type  i).  The  constriction  of  growth 
poles has economic and social costs in and around 
UK conurbations (see Section 3.2). An NIC study 
is  poor 
concluded 
connectivity  and  that  there  are  complementarities 
between  the  need  to  better  connect  places  to  each 
other (which is more trade-related) and the need to 
improve connectivity within places (often linked to 
commuting) (NIC, 2019b). 

that  part  of 

issue 

the 

Graph 3.4.6:  GDP per capita (2017) and GDP per capita 

growth (2011-2017) 

(1) The size of the bubbles represents population size. 
Source: Eurostat 

Public sector investment has been concentrated 
in  London  and  South  East  England.  A  large 
proportion  of  total  public  investment  in  physical 
infrastructure in the UK is invested in and around 
London. Spatial transport and digital infrastructure 
strategies could help to address some of the drivers 
of  regional  economic  weakness.  As  discussed  in 
Section  3.4.1, 
there  are  significant  regional 
imbalances  in  R&D  funding  which  correlate  with 
disparities  in  innovation  performance.  The  three 
innovation  leaders  –  London,  the  South  East  and 
the  East  of  England  (European  Commission, 

Source: Eurostat 

Poorer regions struggle to produce, attract and 
retain  highly  skilled  workers.  The  proportion  of 
the  population  aged  25-64  with  high  educational 
attainment  is  highest  in  London  (57%),  followed 
by  Scotland  and  South  East  England  (47%).  The 
proportion is below the national average (43%) in 
all other regions. It is lowest in the West Midlands 
(36%)  and  North  East  England  (34%).  School 
results show a similar pattern. Poorer regions also 
struggle 
retain  higher-skilled 
workers. This is exacerbated by the fact that highly 
skilled  individuals  are  increasingly  part  of  dual-
income  couples  who  are  both  highly  skilled  and 
need  access  to  a  diverse  labour  market  from  the 
same  place  of  residence.  Conurbations  outside 
London  often  do  not  provide  this,  due  in  part  to 
poor  connectivity,  so  highly  skilled  couples 
continue to  work in or around London, despite its 
high living costs (CEBR, 2019). 

to  attract  and 

43 

-1.5-1.0-0.50.00.51.01.52.02.53.05060708090100110120130140150Annual real GDP per head growth 2010-2017GDP (PPS) per head in 2017 (EU=100)Other NUTS2 regionsNational averageEU28           
 
3.4. Competitiveness, reforms and investment 

Box 3.4.2: Investment challenges and reforms in the UK 

Macroeconomic perspective 

Total  physical  investment  in  the  UK  fell  significantly  during  the  crisis,  with  a  sharp  fall  in  private  sector 
investment  only  partially  offset  by  a  temporary  increase  in  public  sector  investment.  Public  sector 
investment is close to the EU average, and it has been reoriented towards economic infrastructure, but there 
are shortcomings in transport connectivity (see Section 3.4). Private sector investment is significantly below 
the  EU  average,  and  has  stalled  in  the  last  three  years  following  a  recovery  from  a  post-crisis  trough. 
Equipment  investment  is  particularly  low.  Relatively  low  levels  of  housebuilding  have  contributed  to  the 
UK’s housing shortage (see Section 3.2). Heightened uncertainty has continued to weigh on investment (see 
Section 1 and Box 3.4.1). 

Assessment of barriers to investment and ongoing reforms 

Overall, barriers to private investment in the UK are moderate, as reflected in the European Commission’s 
assessment.  Relevant  reforms  have  been  adopted  on  spatial  planning  and  technical  skills,  but  structural 
problems remain. 

Main barriers to investment and priority actions underway 

1. Spatial planning regulations: Regulation of the land market, particularly of residential construction, is 
strict  and  complex  (see  Section 3.2).  The  process  of  obtaining  planning  permission  is  often  lengthy, 
complex, uncertain and costly. Limits on the scope for development, particularly around poles of economic 
growth, have led to an undersupply of housing and very high prices for non-agricultural land. Land prices 
and  the  complex  planning  system  contribute  to  the  tendency  for  infrastructure  projects  to  take  longer  and 
cost more than in other European countries (see Section 3.4). Planning restrictions can also hinder the use of 
modern,  efficient  commercial  buildings  and  equipment.  Substantial  reforms  to  the  planning  system  have 
gone some way to facilitating increased development, but may not prove sufficient. 

2.  Technical  skills:  While  the  UK  has  a  strong  higher  education  system,  there  are  weaknesses  in  both 
technical and basic skills (see Section 3.3) which contribute to its weak productivity. The UK suffers from a 
structural deficit of ICT specialist skills, as the supply of new graduates falls short of the demand for these 
skills. The government has introduced a broad set of measures to increase digital skills, but these will take 
time  to  achieve  their  full  effect.  Recent  measures  include  reforming  school  curricula  and  introducing  new 
qualifications, providing new funds and establishing a digital skills partnership with the private sector. More 
recently, the UK government announced a programme to create 1 000 new Artificial Intelligence PhDs over 
the next 5 years, as part of its Artificial Intelligence Sector Deal.  

44 

Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionCSRWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning CSREnergyCSRLegend:TransportCSRNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
3.5.  ENVIRONMENTAL SUSTAINABILITY 

Scheme 

(ETS).  According 

The  UK  has  made  good  progress  to  date  in 
decarbonising its economy,  but it  now needs to 
step up its efforts to continue the transition to a 
climate  neutral  economy  and  make  further 
progress on SDG 13. The UK is on track to meet 
its  Europe  2020 
target  for  greenhouse  gas 
emissions  not  covered  by  the  EU  Emissions 
to 
Trading 
approximated  data,  UK  greenhouse  gas  emissions 
were 21% lower in 2018 than in 2005. Projections 
based on existing measures indicate that emissions 
from  non-ETS  sectors  will  be  27%  below  2005 
levels  by  2020,  exceeding  the  16%  target  under 
Europe  2020.  However,  without  additional 
measures the UK may miss its 2030 target of 37% 
by 5pps. In its annual report to the UK Parliament 
the 
on  progress 
Committee  on  Climate  Change  (CCC)  concluded 
that UK action to curb greenhouse gas emissions is 
lagging  behind  what  is  needed  to  meet  legally 
binding  emissions  targets  (CCC,  2019a).  It  noted 
that  between  June  2018  and  the  July  2019 
publication  date,  the  government  has  delivered 
only  1  of  25  critical  policies  needed  to  get 
emissions reductions back on track.  

in  reducing  UK  emissions, 

The  UK  has  relatively  high  domestic  resource 
efficiency  but 
it  also  has  significant  net 
imported  emissions.  In  large  part,  the  UK’s 
resource  efficiency  reflects  the  relatively  high 
share of the services sector in the economy. Most 
waste  indicators  are  also  better  than  the  EU 
average.  However,  as  the  physical  waste  intensity 
is  above  the  EU  average,  there  seems  scope  to 
improve  the  efficiency  of  using  materials  in 
production. The UK also has a large deficit in trade 
in goods, the production and shipping of  which is 
the  UK  has 
carbon-intensive.  As  a 
substantial  net  imported  emissions.  The  CCC 
estimated that in 2015 UK emissions measured on 
a  consumption  basis  were  13tCO2e  per  person 
compared to 8tCO2e on a production basis (CCC, 
2018). 

result, 

While  the  UK  is  currently  above  its  indicative 
trajectory  towards  its  Europe  2020  renewables 
target,  there  is  a  need  to  step  up  efforts  to 
bridge  the  gap  of  around  4pps  to  the  15% 
target.  This  can  be  done  either  through  national 
the 
renewables  deployment  or  by  using 
cooperation  mechanisms  provided  for  under  the 
Renewables  Directive.  It 
the 
measures in place are sufficient to reach the overall 

is  uncertain 

if 

2020 renewables target, particularly in view of the 
slower  progress  in  the  heating  and  cooling  and 
transport sectors. 

to  meet 
targets, 

The  UK  is  currently  on  track  to  fulfil  its 
required  end-use  energy  savings  obligation  for 
the first obligation period 2014 – 2020. It is also 
its  national  2020  energy 
track 
on 
efficiency 
energy 
primary 
consumption.  However,  the  UK  needs  to  increase 
efforts  to  reduce  final  energy  consumption.  The 
transport sector requires further attention, since its 
final energy consumption is increasing faster than 
the EU average. 

for 

Graph 3.5.1:  Indicative rates of decarbonisation required to 

achieve 80% and 100% reductions by 2050 

Source: Department for Business, Energy & Industrial 
Strategy; own calculations 

In  2019,  the  UK  committed  to  a  2050  net  zero 
emissions target. The UK legislated in June 2019 
to  reach  net  zero  greenhouse  gas  emissions  by 
2050. This was a step-up from a previous target of 
an 80% reduction in 1990 baseline emissions (see 
Graph 3.5.1). The CCC anticipates the annual cost 
of  meeting  the  new  target  could  be  1-2%  of  UK 
GDP  in  2050 (CCC,  2019b). The  CCC  noted  that 
this is comparable with the original estimates made 
for  the  cost  of  meeting  the  previous  80%  target, 
and that it is a conservative  estimate  as the actual 
net economic impact could be lower and may even 
be  positive.  The  UK  government 
is  now 
undertaking  a  range  of  work  to  better  understand 
the  implications  of  the  net  zero  commitment.  In 
November 2019, HM Treasury published the terms 
of reference for a review into funding the transition 
to a net zero economy (HM Treasury, 2019b). The 
review  will consider the  full  range of government 
levers,  including  tax,  and  is  due  to  report  in 
autumn  2020.  The  2050  net  zero  emissions  target 

45 

0100200300400500600700800900199019931996199920022005200820112014201720202023202620292032203520382041204420472050Outturn80% targetzero 
 
3.5. Environmental sustainability 

in 

and changes in the relative price of different goods 
and  services.  For  example,  the  CCC  estimate  the 
tax  of  £78/tCO2e 
UK  may  need  a  carbon 
£220/tCO2e 
and 
2030 
(€89/tCO2e) 
(€251/tCO2e)  in  2050  to  meet  the  net  zero  2050 
target  (CCC,  2019d).  This  is  significantly  higher 
level than current price  of carbon in the  EU ETS. 
The  terms  of  reference  for  the  UK  Treasury’s  
review  into  funding  the  green  transition  are 
focused on analysing the range of choices for how 
households,  businesses  and  the  taxpayer  could 
contribute 
the 
transition  to  net  zero  (HM  Treasury,  2019b). 
Raising the costs of utilities and basic services can 
be  regressive,  and  there  will  be  inevitable  trade-
offs  between  cost,  competitiveness,  effects  on 
consumers and impacts on the taxpayer. 

towards  different  elements  of 

action  will 

Climate 
also  have  uneven 
consequences  across  the  population.  The  most 
profound effect on the economy of the transition to 
a carbon-neutral economy will be a reallocation of 
capital  and  to  a  lesser  extent  labour.  Some 
occupations and regions in the UK could face more 
challenges  as  a  result  of  this  process  than  others. 
There may be a net positive impact on employment 
of the Paris Agreement and the transition to energy 
sustainability  in  general  (ILO,  2018).  However, 
climate  action  is  also  likely  to  exacerbate  the 
existing  polarisation  of  jobs  in  the  UK  by  skill 
level  (see  Section  3.3.1)  as  the  job  creation  it 
supports  will  be  largely  low  skilled  (European 
Commission  2019h).  To  make  sure  that  the 
transition 
additional 
investment  in  reskilling  and  upskilling  will  be 
necessary  in  the  most-affected  areas,  particularly 
where  they  are  already  lagging  behind  and  have 
past 
been 
deindustrialisation. 

negatively 

inclusive, 

affected 

socially 

by 

is 

Given  that  energy-related  emissions  represent 
the  majority  of  the  UK’s  total  greenhouse  gas 
emissions, achieving further emission reduction 
will  be  key.  In  2017,  the  largest  share  of  energy-
related  emissions  originated  from  the  transport 
sector  (34%),  power  and  heat  generation  (25%) 
and  the  residential  sector  (18%)  (IEA,  2019).  As 
discussed  above,  there  has  been  encouraging 
progress  on 
renewables  and 
significant  emission  reduction  has  been  achieved 
in  the  power  sector.  In  2018,  the  share  of  energy 
from  renewable  sources  for  electricity  was  at  a 
record high level of 31%, up from 27.4% in 2017. 

investment 

in 

will  make  sure  that  the  UK  delivers  on  the  Paris 
Agreement (CCC, 2019b). 

the 

The  UK’s  overdue  National  Energy  and 
Climate Plan20 will set out the UK’s energy and 
climate-related  investment  needs  until  2030.  A 
draft plan, published in January 2019, provided an 
overview  of  the  investment  challenges  and  policy 
responses. The final plan was due to be submitted 
to 
by 
31 December 2019  in  line  with  the  Regulation  on 
the  Governance of the Energy Union and Climate 
Action.  However,  its  publication  was  delayed  by 
the  December  2019  general  election.  This  plan  is 
particularly important since inaction in the face of 
climate  change  carries  significant  economic  and 
social costs (European Commission, 2019h). 

Commission 

European 

The  goal  of  net  zero  will  require  large-scale 
investment  across  the  economy.  The  UK’s 
progress  in  decarbonisation  to  date  has  largely 
been driven by a few sectors, including electricity 
and  manufacturing.  Moving  towards  net  zero  will 
pose increasing challenges across the whole of the 
economy.  In  some  sectors  (for  example  home 
heating,  discussed  below)  there  are  particular 
challenges to decarbonising in the UK. The CCC’s 
technical report on net zero (CCC, 2019c) assesses 
the options for decarbonisation by sector. It divides 
them  up  into  ‘core  options’  that  are  low  cost  and 
would  have  likely  been  required  to  meet  the  80% 
target,  ‘further  ambition’  options  that  are  more 
challenging  and  currently  more  expensive,  and 
‘speculative  options’  that  may  or  may  not  ever 
become feasible. As discussed in Section 3.4.3, the 
government  is  taking  a  range  of  action  to  give 
more  stability  and  certainty  in  infrastructure-
related  policy  and  financing.  An  NIC  study 
concluded  that  the  UK’s  regulatory  system  must 
adapt to secure the strategic investment needed in 
the  energy,  water  and  telecoms  sectors  to  reduce 
emissions,  improve  digital  connectivity  and  build 
resilience to floods and drought (NIC, 2019c). 

There  are  challenges  in  determining  how  and 
where the costs should fall. While the net cost of 
decarbonisation may be limited or even negative, it 
will  entail  a  substantial  reallocation  of  resources 

20    The  Commission  will  assess,  in  the  course  of  2020,  the 
final  National  Energy  and  Climate  Plan.  The  UK  has  not 
yet submitted its final Plan. 

46 

                                                           
this 

sector 

to  decarbonise 

In 2018, 7.5% of energy in the heating sector came 
from  renewable  sources,  so  significant  potential 
remains 
further 
(Eurostat,  2019c).  As  set  out  in  Section  3.4.3,  the 
investment  needed  to  decarbonise  the  energy 
system was one of the key themes of the National 
Infrastructure  Commission’s 
first  National 
Infrastructure  Assessment  (NIC,  2018).  The  NIC 
concluded that the main energy services consumers 
use  (electricity,  heating  hot  water  and  transport) 
could  be  delivered  at  the  same  cost  in  2050  by  a 
low  carbon  system  as  their  price  today.  A  recent 
report  on  electricity 
National  Audit  Office 
networks  concluded  that  strong  pressure  will  be 
needed 
to 
support  the  transition  to  a  low-carbon  energy 
system,  which  may  not  otherwise  be  in  their 
economic interests (NAO, 2020). 

incentivise  network  companies 

to 

The  building  sector  will  be  key  to  meeting 
future  energy  efficiency  and  climate  targets. 
The  UK  housing  stock  will  need  to  become  more 
energy-efficient  and  fossil  fuel  heating  systems 
such  as  gas  boilers  will  need  to  be  replaced  by 
cleaner  alternatives.  In  the  short  term,  this  entails 
the effective implementation of the revised Energy 
Performance 
of  Buildings  Directive.  The 
government  has  recently  consulted  on  a  new 
‘Future  Homes  Standard’  which  would  reduce 
energy  consumption  in  new  homes  and  require 
them  to  be  fitted  with  clean  heating  technologies 
(such  as  air  source  heat  pumps)  rather  than  fossil 
fuel heating systems from 2025 (MHCLG, 2019g). 
The government’s stated intention is to cut carbon 
emissions  from  new  homes  by  up  to  80%  under 
this new standard. 

Reducing  the  amount  of  energy  used  for  home 
heating is complicated by the age of the housing 
stock.  A  higher proportion of housing in England 
is  over  a  hundred  years  old  (21%)  than  was  built 
after  1990  (17%)  (MHCLG,  2019h).  Most  of  the 
housing stock expected to exist in 2050 has already 
been  built  (European  Commission,  2018d).  The 
funding  and  disruption  required  to  retrofit  this 
housing stock will be a challenge, especially in the 
case of the 35% of privately rented housing which 
is  more  than  a  hundred  years  old.  As  set  out  in 
Section  3.2,  there  are  regulatory  and  cost  barriers 
to the more rapid modernisation of the UK housing 
stock. 

3.5. Environmental sustainability 

The UK has an ambition to be at the forefront 
of  zero  emission  vehicles  but  most  of  the  rail 
network  is  not  yet  electrified.  The  government 
has set up an Office for Low Emission Vehicles to 
support  the  low  carbon  transition  in  transport  and 
has set an objective for all new cars and vans to be 
effectively  zero  emission  by  2040.  In  October 
2019 the government announced the first Transport 
Decarbonisation Plan, which is due to be complete 
in  the  course  of  2020  and  will  set  out  what  is 
needed  to  decarbonise  transport  by  2050.  The 
number  of  electric  charging  points  in  the  UK  has 
increased significantly between 2013 and 2019, to 
more than 37.5 per 100,000 inhabitants, serving on 
average  10  plugin  electric  vehicles  per  point.  The 
market  share  of  new  alternative-fuelled  passenger 
cars  rose  to  over  2.5%  in  2018.  (European 
Alternative Fuels Observatory, 2019). In 2018, the 
UK was slightly less than two thirds (6.5%) of the 
way  to  meeting  the  2020  objective  of  10%  of 
renewable  energy  in  transport  (Eurostat,  2019c). 
The  UK  has  seen  strong  growth  in  passenger  rail 
traffic  (see  Section  3.4.3)  but  despite  recent 
progress in extending electrification, at 38% of the 
network  it  remains  well  below  the  EU  average 
(DfT,  2019a).  Congestion  and  the  prevalence  of 
long  commutes  in  the  UK  (see  Sections  3.2  and 
3.4.3) will be a challenge in reducing UK transport 
sector emissions.  

The  Climate  Change  Act  2008  provides  a  good 
basis for the UK's adaptation to climate change. 
The Act requires certain organisations to report on 
climate  risks  and  mitigation  measures  taken.  The 
Act  also  requires  a  National  Adaptation  Plan 
(NAP) to be drawn up and updated regularly. The 
second NAP was published in July 2018 (DEFRA, 
2018),  and  sets  out  how  the  Government  will 
address  the  risks  highlighted  in  the  2017  Climate 
Change Risk Assessment. 

in  particular 

The UK is vulnerable to the impacts of climate 
change, 
inland  and  coastal 
flooding,  water  supply  shortages,  and  risks  to 
health  due  to  high  temperatures.  Reported 
economic  losses  due  to  climate-related  natural 
disasters for the 1980-2017 period in the UK were 
€51 billion  (£58 billion)  (EEA,  2019).  70%  of 
these losses were insured, the highest proportion of 
insured losses in the EU. Recent evidence suggests 
that  climate  change  has  increased  ten-fold  the 
likelihood  of  recording  temperatures  as  high  as 
those experienced in the summer 2018 in the UK. 

47 

3.5. Environmental sustainability 

Access  to  finance  will  be  a  key  enabler  for  the 
sustainability  transition  in  both  the  public  and 
private  sectors.  The  UK  is  rich  in  scientific 
research  and  technical  expertise  and  access  to 
finance  can  facilitate  research  and  development 
relating to energy efficiency, such as demand-side 
management,  hydrogen  and  heat  pumps.  Through 
the 
Industrial  Strategy  Challenge  Fund, 
its 
government  is  funding  research  and  development 
related  to  eight  ‘challenges’  to  support  clean 
growth.  The  UK  is  also  channelling  £505 million 
(€576 million) between 2015 and 2021 through the 
Energy  Innovation  Programme.  This  includes  a 
series of competitions to provide the private sector 
with access to finance to research and develop low 
carbon technologies. 

launched 

following  a  consultation 

The financial sector regulators and government 
are  advancing  with  consultations  and  policies 
on  green  finance.  In  October  2019,  the  Financial 
Conduct  Authority  set  out  its  priorities  and  key 
planned  actions  relating  to  climate  change  (FCA, 
2019) 
in 
October  2018.  They  aim  to  ensure  that  financial 
regulators  and  market  players  are  adequately 
prepared for the risks that climate change poses. In 
particular,  issuers  need  to  provide  information  on 
their  exposure  to  climate  change  risks,  regulated 
financial  services  firms  need  to  integrate  climate 
change  risks  into  their  business  decisions  and 
consumers  need  to  have  access  to  green  finance 
products  and  services.  In  April  2019,  the  Bank  of 
England  published  its  supervisory  statement  on 
‘enhancing  banks’  and  insurers’  approaches  to 
managing the financial risks from climate change’, 
setting  out  expectations  for  practices  across 
governance,  risk  management,  scenario  analysis, 
and  disclosure  (BoE/PRA,  2019).  The  Bank  of 
England also asked insurers to consider the impact 
of different physical and transition risks  scenarios 
as part of a UK market-wide insurance stress test. 
(HM Government, 2019c). In July 2019, the Bank 
of  England  announced  plans  to  test  the  financial 
system’s  resilience  to  climate-related  risks  as  part 
of the Biennial Exploratory  Scenario (BES)  stress 
test  in  2021  (BoE/FPC,  2019).  In  parallel,  the 
government  issued  its  Green  Finance  Strategy  in 
July  2019 
(HM  Government,  2019c).  The 
strategy’s  overall  aim  is  to  align  private  sector 
investment  flows  with  clean,  environmentally 
sustainable and resilient growth. 

48 

ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (21) 

2019 country-specific recommendations (CSRs) 

CSR 1: 

Ensure  that  the  nominal  growth  rate  of  net  primary 
government  expenditure  does  not  exceed  1.9%  in 
2020-2021,  corresponding  to  an  annual  structural 
adjustment of 0.6% of GDP. 

CSR 2: 

innovation,  housing, 

investment-related  economic  policy  on 
Focus 
training  and 
research  and 
improving  skills,  sustainable 
low 
carbon  and  energy  transition,  taking  into  account 
regional diversity. 

transport  and 

The compliance assessment  with the Stability 
and  Growth  Pact  will  be  included  when  final 
data for 2019-2020 will be available. 

The  UK  has  made  some  progress 
addressing CSR 2: 

in 

remain  global 

Some progress on research and innovation. 
UK  universities 
research 
leaders.  However,  UK  R&D  intensity  is  flat 
and  below  the  EU  average  and  knowledge 
diffusion  is  uneven.  Delivering  on  the  recent 
ambitious  proposals  for  future  research  and 
innovation support will be a challenge. 

Some progress on boosting housing supply. 
Annual  net  housing  supply  has  continued  to 
rise  but  grants  of  planning  permission  have 
levelled off and there are signs of a slowdown 
in  new  housing  starts.  House  building  looks 
set  to  stabilise  at  a  level  below  that  which 
to  meet  estimated 
would  be  necessary 
demand,  due  in  part  to  capacity  constraints. 
Real house prices are no longer rising, though 

(21)  The following categories are used to assess progress in implementing the 2019 country-specific recommendations (CSRs): 
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number of typical situations, to be interpreted on a case-by-case basis taking into account country-specific conditions. They include 
the following: 
no legal, administrative, or budgetary measures have been announced; 
in the national reform programme; 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission;  
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative body;  
the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has not 
proposed any clearly-specified measure(s) to address the CSR. 
Limited progress: The Member State has: 
announced certain measures but these address the CSR only to a limited extent; and/or 
presented  legislative  acts  in  the  governing  or  legislative  body  but  these  have  not  been  adopted  yet  and  substantial  further,  non-
legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 
Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures have been 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision, but no 
implementing decisions are in place. 
Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 
have been implemented. 
Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

49 

 
                                                           
A. Overview Table 

the  cost  of  housing  remains  high  in  many 
places.  The  government  has  extended  and 
revised  a  number  of  housing  policies, 
including  tweaks  to  the  planning  system,  but 
major new initiatives have been limited.  

progress 

on 
skills.  While 

training 
and 
Limited 
labour  market 
improving 
participation  by 
low-skilled  people  has 
improved,  the  polarisation  of  job  growth 
towards high and low-skilled roles (and away 
from  roles  requiring  medium  levels  of  skills) 
has  been  accompanied  by  increased  skills 
mismatches. 
reformed 
apprenticeship  system  is  proving  a  challenge, 
with registrations down compared to previous 
the 
years.  There 
apprenticeship  levy,  introduced  in  2017,  has 
seen  funding  increasingly  used  to  train  more 
senior  staff  at  the  expense  of  entry-level 
apprenticeships. 

Implementing 

evidence 

that 

the 

is 

to  high 

Some  progress  on  sustainable  transport. 
The  UK  has  made  some  progress 
in 
sustainable  transport.  Use  of  the  UK’s  road, 
rail and aviation networks is reaching capacity 
and 
levels  of 
this  contributes 
congestion,  rail  reliability 
issues  and  air 
pollution.  Public  investment  in  transport  has 
increased but the effects of decades of under-
investment  in  infrastructure  will  take  time  to 
address.  After  some  signs  of  improvement  in 
delivery,  major  rail  schemes  have  recently 
fallen  behind  schedule  and  over  budget.  The 
UK is taking action to meet its ambition to be 
at  the  forefront  of  zero  emission  vehicles, 
though  it  currently  lags  in  the  proportion  of 
renewable energy used in the transport sector. 

Some  progress  on  the  low  carbon  and 
energy transition. With the new commitment 
to  net  zero  carbon  emissions  by  2050  the 
government's  ambitions  are  clear,  and  the 
preparatory  work  for  allocating  the  increased 
investment  is  advanced.  In  the  electricity 
sector,  the  UK  continues  to  make  progress  in 
attracting  investment  in  large  scale  cost-
competitive  renewables,  particularly  offshore. 
Progress  is  slower  in  the  heating  and  cooling 
sector and the UK is not on course to meet its 
overall  2020  renewables  target.  The  scale  of 
the  decarbonisation  challenge  will  require  a 

50 

A. Overview Table 

strategy 

more  detailed 
and 
investment 
sustained  commitment.  The  Industrial  Energy 
Transformation  Fund  (IETF),  announced  in 
summer  2019,  will  provide  £315  million 
(€359.1  million)  to  businesses  to  reduce  the 
impact of emissions from the industrial sector. 

78.7%  of  the  population  aged  20-64  was 
employed in 2018. 

R&D  intensity  rose  marginally  to  1.71%  in 
2018. Public sector R&D intensity was 0.49% 
and business R&D intensity 1.18%. 

The UK is below the EU average of 2.11% for 
R&D  intensity.  EU  average  public  sector 
R&D intensity was 0.69% and business R&D 
intensity 1.41%. 

Europe 2020 (national targets and progress) 

Employment rate target: None 

R&D target: None 

National greenhouse gas (GHG) emissions target: 

2020 target: -16% 

-16%  in  2020  compared  to  2005  (in  sectors  not 
included in the EU emissions trading scheme) 

2020 renewable energy target: 15% 

2020 Share of renewables in transport: 

2020 Energy Efficiency Target: 

129.2 million tonnes of oil equivalent (Mtoe) for final 
energy consumption corresponding to 177.6 Mtoe for 
primary energy consumption. 

51 

According  to  the  latest  national  projections 
and taking into account existing measures, the 
target  is  expected  to  be  achieved:  -27%  in 
2020  compared  to  2005  (with  a  margin  of 
11pps). 

Non-ETS 2018 target: -14% 

to  preliminary  estimates, 

According 
the 
change  in  non-ETS greenhouse gas emissions 
between  2005  and  2018  was  -21%,  therefore 
the target is expected to be achieved. 

At  a  level  of  11%  in  2018,  the  UK  is  still 
some  distance  away  from  its  2020  target  of 
15%,  even  though  it  is  in  line  with  its 
indicative national trajectory. 

With  a  6.5%  share  of  renewable  energy 
sources  used  in  transport  in  2018,  the  UK  is 
more  than  halfway  towards  the  binding  10% 
target in transport to be achieved by 2020.  

The  UK  has  already  met  its  2020  primary 
energy  consumption  target  but  remains  4pps 
above  its  2020  final  energy  consumption 
target. The UK has to increase its effort to cut 
final  energy  consumption  by  the  required 

 
 
A. Overview Table 

Early school leaving target: None 

Tertiary education target: None 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion: None 

levels. 

The  rate  of  early  school  leavers  remained 
stable at 10.7% in 2018, marginally above the 
EU average. 

The tertiary attainment rate of 30-34 year olds 
reached  48.8%  in  2018,  increasing  by  0.6pps 
from 2017. This is significantly above the EU 
average of 40.7%. 

The  ‘at  risk  of  poverty  or  social  exclusion 
rate’ stood at 23.6% in 2018, a sharp increase 
from the 2017 figure of 22%. 

52 

ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

53 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio85.985.284.784.283.883.382.782.281.680.880.079.378.6Changes in the ratio (-1+2+3)-0.4-0.7-0.6-0.5-0.4-0.5-0.6-0.6-0.6-0.7-0.8-0.7-0.6of which(1) Primary balance (1.1+1.2+1.3)0.20.0-0.2-0.1-0.2-0.4-0.5-0.6-0.7-0.6-0.6-0.7-0.9(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)-0.2-0.2-0.3-0.2-0.2-0.4-0.5-0.6-0.7-0.6-0.6-0.7-0.9(1.1.1) Structural primary balance (bef. CoA)-0.2-0.2-0.3-0.2-0.2-0.2-0.2-0.2-0.2-0.2-0.2-0.2-0.2(1.1.2) Cost of ageing0.10.30.40.50.60.60.60.70.9(1.1.3) Others (taxes and property incomes)0.00.00.10.10.10.10.20.20.2(1.2) Cyclical component0.30.20.10.00.00.00.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-0.3-0.5-0.7-0.6-0.6-0.8-1.1-1.2-1.2-1.3-1.4-1.4-1.5(2.1) Interest expenditure2.42.22.22.12.01.91.81.71.61.51.51.41.4(2.2) Growth effect-1.2-1.1-1.2-1.2-1.0-1.1-1.2-1.2-1.3-1.3-1.3-1.3-1.3(2.3) Inflation effect-1.6-1.6-1.8-1.5-1.6-1.6-1.6-1.6-1.6-1.6-1.6-1.6-1.6(3) Stock-flow adjustments0.1-0.10.00.00.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. b. For the medium term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps of GDP. The DSA results are used to further qualify the long term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.UK - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 606570758085909510020172018201920202021202220232024202520262027202820292030Debt as % of GDP -UKBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario6070809010020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -UKp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline606570758085909510020172018201920202021202220232024202520262027202820292030Debt as % of GDP -UKBaselineHistorical SPB scenarioSGP scenario606570758085909510020172018201920202021202220232024202520262027202820292030Debt as % of GDP -UKBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryMEDIUMHIGHMEDIUMMEDIUMMEDIUMLOWDebt level (2030)78.691.682.882.978.7Debt peak year20192030201920192019Percentile rank61.0%80.0%Probability debt higher36.8%Dif. between percentiles18.5HIGHLong termMEDIUM(S2 = 4.3)S1S2Short termLOW(S0 = 0.4)DSAHIGHDebt sustainability analysis (detail)Medium termHIGHMEDIUM(S1 = 1.9) 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 

Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

54 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)389.5354.3365.1380.6373.5378.0Share of assets of the five largest banks (% of total assets)38.937.035.536.931.8-Foreign ownership of banking system (% of total assets)(2)37.137.238.837.736.236.6Financial soundness indicators:(2)              - non-performing loans (% of total loans)3.3-1.91.51.21.2              - capital adequacy ratio (%)-19.520.820.521.421.1              - return on equity (%)(3)3.83.22.14.35.56.9Bank loans to the private sector (year-on-year % change)(1)1.97.6-9.11.54.24.6Lending for house purchase (year-on-year % change)(1)9.79.6-10.80.62.63.7Loan-to-deposit ratio(2)90.8105.989.886.393.795.2Central bank liquidity as % of liabilities(1)------Private debt (% of GDP)163.6161.7166.4167.7163.3-Gross external debt (% of GDP)(2) - public26.027.429.430.029.729.5  - private124.3100.996.2102.7100.799.7Long-term interest rate spread versus Bund (basis points)*97.7129.8113.186.3101.2114.0Credit default swap spreads for sovereign securities (5-year)*21.818.432.720.617.922.6 
 
 
  
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard Indicators 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation and/or living in households with zero or very low work intensity.       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft 2019 joint employment report.       
(4) Reduction in percentage of the risk-of-poverty rate, due to social transfers (calculated comparing at-risk-of-poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).      
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.      
Source: Eurostat 

55 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)11.810.811.210.610.7:Gender employment gap (pps)11.311.211.010.29.99.4Income inequality, measured as quintile share ratio (S80/S20)5.15.25.15.46.0:At-risk-of-poverty or social exclusion rate(1) (AROPE)24.123.522.222.023.6:Young people neither in employment nor in education and training (% of population aged 15-24)11.911.110.910.310.4:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)76.276.877.578.278.779.1Unemployment rate(2) (15-74 years)6.15.34.84.34.03.8Long-term unemployment rate (as % of active population)2.21.61.31.11.11.0Gross disposable income of households in real terms per capita(3) (Index 2008=100) 100.8104.8104.3104.3106.5:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)282552877029177:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.620.290.93:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)42.943.343.441.835.9:Children aged less than 3 years in formal childcare28.930.428.433.238.7:Self-reported unmet need for medical care2.12.81.03.34.5:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):67.069.071.0:: 
 
  
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.       
Source: Eurostat, OECD 

56 

Labour market indicators201420152016201720182019 5Activity rate (15-64)76.776.977.377.677.978.1Employment in current job by durationFrom 0 to 11 months14.615.314.915.014.6:From 12 to 23 months10.311.011.611.411.4:From 24 to 59 months18.118.219.519.920.4:60 months or over56.154.753.252.952.8:Employment growth* (% change from previous year)2.41.71.51.01.21.1Employment rate of women(% of female population aged 20-64)70.671.372.173.173.874.5Employment rate of men (% of male population aged 20-64)81.982.583.183.383.783.9Employment rate of older workers* (% of population aged 55-64)61.062.263.464.165.366.1Part-time employment* (% of total employment, aged 15-64)25.325.225.224.924.624.7Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)6.36.15.95.65.55.1Transition rate from temporary to permanent employment(3-year average)57.758.657.154.9::Youth unemployment rate (% active population aged 15-24)17.014.613.012.111.311.2Gender gap in part-time employment30.229.929.729.529.029.0Gender pay gap(2) (in undadjusted form)20.921.020.720.8::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)16.315.714.414.314.6:Underachievement in education(3):21.9::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)47.747.848.148.248.8:Variation in performance explained by students' socio-economic status(4):10.5:::: 
 
  
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator       
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.       
Source: Eurostat, OECD 

57 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare8.78.58.98.38.5:Disability1.61.61.71.71.7:Old age and survivors11.811.611.510.811.3:Family/children2.82.82.72.52.5:Unemployment0.60.40.40.40.3:Housing1.41.41.31.21.2:Social exclusion n.e.c.0.70.70.60.60.6:Total27.727.027.125.626.1:of which: means-tested benefits5.45.04.84.54.3:General government expenditure by function (% of GDP)Social protection16.616.216.115.815.2:Health7.47.57.57.67.4:Education5.25.25.04.84.6:Out-of-pocket expenditure on healthcare15.015.015.115.516.0:Children at risk of poverty or social exclusion (% of people aged 0-17)*32.631.230.327.227.429.9At-risk-of-poverty  rate(1) (% of total population)15.916.816.615.917.018.9In-work at-risk-of-poverty rate (% of persons employed)8.48.78.18.68.911.3Severe material deprivation rate(2)  (% of total population)8.37.46.15.24.1:Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan1.21.10.50.60.31.1Tenant, rent at market price5.04.54.85.21.43.8Proportion of people living in low work intensity households(4) (% of people aged 0-59)13.212.311.911.310.18.6Poverty thresholds, expressed in national currency at constant prices*792080548127830487638610Healthy life yearsFemales10.710.610.411.111.1:Males10.69.710.210.410.5:Aggregate replacement ratio for pensions(5)0.50.50.50.50.50.6Connectivity dimension of the Digital Economy and Society Index (DESI)(6):65.769.372.174.2:GINI coefficient before taxes and transfers*54.353.655.353.6::GINI coefficient after taxes and transfers*30.231.632.431.5:: 
 
  
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

58 

 
 
  
 
C. Standard Tables 

Table C.6:  Green Growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)    
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)    
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)    
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)    
          Waste intensity: waste (in kg) divided by GDP (in EUR)    
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.     
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.    
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).    
Real unit energy cost: real energy costs as % of total value added for the economy.    
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).    
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.    
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.    
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.    
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.    
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.    
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.    
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.    
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).    
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).    
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.    
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk.    
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification.    
* European Commission and European Environment Agency - 2018 provisional data.    
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

59 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.100.090.090.090.09-Carbon intensity kg / €0.290.260.250.230.22-Resource intensity (reciprocal of resource productivity)kg / €0.290.290.280.270.260.26Waste intensity kg / €-0.13-0.13--Energy balance of trade % GDP-1.1-0.8-0.6-0.5-0.6-0.7Weighting of energy in HICP%8.808.007.606.706.476.37Difference between energy price change and inflation p.p.4.62.9-3.3-3.71.14.3Real unit of energy cost% of value added13.111.111.411.6--Ratio of environmental taxes to labour taxesratio0.190.200.190.200.20-Environmental taxes% GDP2.42.42.42.42.42.4Sectoral Industry energy intensity kgoe / € 0.070.070.060.06--Real unit energy cost for manufacturing industry excl. refining% of value added16.714.114.715.4--Share of energy-intensive industries in the economy% GDP5.725.615.625.48--Electricity prices for medium-sized industrial users€ / kWh0.120.130.150.130.130.14Gas prices for medium-sized industrial users€ / kWh0.040.040.040.030.020.03Public R&D for energy % GDP0.010.010.010.020.020.01Public R&D for environmental protection% GDP0.020.010.010.010.010.01Municipal waste recycling rate%43.243.443.344.043.8-Share of GHG emissions covered by ETS*%39.937.935.030.629.228.1Transport energy intensitykgoe / €0.700.690.690.71--Transport carbon intensitykg / €1.081.091.111.14--Security of energy supplyEnergy import dependency%47.846.837.535.735.3-Aggregated supplier concentration indexHHI6.06.33.81.42.0-Diversification of energy mixHHI27.027.227.230.030.3- 
  
 
ANNEX D: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of the United Kingdom’s short-term progress towards the SDGs (22) 

Table D.1 shows the data for the United Kingdom and the EU-28 for the indicators included in the EU 
SDG indicator set used by Eurostat for monitoring progress towards the SDGs in an EU context (23). As 
the short-term trend at EU-level is assessed over a 5-year period, both the value at the beginning of the 
period  and  the  latest  available  value  is  presented.  The  indicators  are  regularly  updated  on  the  SDI 
dedicated section of the Eurostat website. 

Table D.1: 

Indicators measuring the United Kingdom’s progress towards the SDGs 

 (22) Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(23)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

60 

 
 
                                                           
 
  
 
D. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

61 

 
 
 
   
 
D. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

62 

 
 
 
   
 
D. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

63 

 
 
 
   
 
D. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

Source: Eurostat 

64 

 
   
 
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ONS  —  Office  for  National  Statistics  (2019b),  Housing  affordability  in  England  and  Wales:  2018,  28 
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UK  Finance  (2019),  UK  Finance:  Mortgage  Arrears  and  Possessions  Update  Quarter  3  2019,  14 
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3.3 Labour market, education and social policies 

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Resolution Foundation (2019), The shifting shape of social security, November. 

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The Royal College of Radiologists (2019), Clinical Oncology — UK workforce census 2018 report. 

UH – University of Hertfordshire (2019), Platform Work in the UK 2016-2019, 26 June. 

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Adarov, A. and Stehrer, R. (2019), Tangible and Intangible Assets in the Productivity Performance of the 
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Bank of England (2019c), The impact of Brexit on UK firms, Staff Working Paper No. 818, August. 

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BEIS  —  Department  for  Business,  Energy  and  Industrial  Strategy  (2019a),  RAB  model  for  nuclear: 
Consultation on a RAB model for new nuclear projects, October.Bernick, S., Davies R., Valero A. (2017), 
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EIB  —  European  Investment  Bank  (2019),  EIB  Investment  Report  2019/2020:  Accelerating  Europe’s 
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ONS  —  Office  for  National  Statistics  (2020c),  Productivity  economic  commentary:  July  to  September 
2019, January. 

ONS — Office for National Statistics (2020d), Construction output in Great Britain: December 2019 and 
new orders October to December 2019, February.  

ONS — Office for National Statistics (2019e), Analysis of compositional changes in hours worked in the 
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insurers’  approaches  to  managing  the  financial  risks  from  climate  change:  Policy  Statement  PS11/19, 
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CCC  —  Committee  on  Climate  Change  (2018),  Reducing  UK  emissions:  2018  Progress  Report  to 
Parliament, June. 

DEFRA  —  Department  for  Environment,  Food  &  Rural  Affairs  (2018),  The  National  Adaptation 
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European  Alternative  Fuels  Observatory  (2019),  Summary  —  All  Fuels  —  2019  —  United  Kingdom 
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European  Commission  (2018d),  A  Clean  Planet  for  all:  A  European  strategic  long-term  vision  for  a 
prosperous, modern, competitive and climate neutral economy, COM(2018) 773 final, November. 

Eurostat (2019c), Share of energy from renewable sources. 

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72 

 
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HM  Treasury  (2019b),  HM  Treasury’s  review  into  funding  the  transition  to  a  net  zero  greenhouse  gas 
economy: terms of reference, November. 

IEA  –  International  Energy  Agency  (2019),  Energy  Policies  of  IEA  Countries:  United  Kingdom  2019 
Review, June. 

ILO – International Labour Organization, (2018), The employment impact of climate change adaptation, 
August. 

MHCLG  —  Ministry  of  Housing,  Communities  &  Local  Government  (2019g),  The  Future  Homes 
Standard  2019:  Consultation  on  changes  to  Part  L  (conservation  of  fuel  and  power)  and  Part  F 
(ventilation) of the Building Regulations for new dwellings, October. 

MHCLG — Ministry of Housing, Communities & Local Government (2019h), English Housing Survey: 
Stock profile and condition, 2017, July. 

NAO – National Audit Office (2020), Electricity networks, January. 

NIC  —  National  Infrastructure  Commission  (2019c),  Strategic  investment  and  public  confidence, 
October. 

The Climate Change Act 2008 (2050 Target Amendment) Order 2019. 

73