Economic Sustainability
#8Key Findings
The UK performs well in international comparison (rank 8) in the category of economic sustainability.
The state has committed to following EU circular economy principles, but implementation challenges are proving tricky. The National Protective Security Authority and National Cyber Security Centre oversee critical infrastructure. The government has targeted net-zero emissions by 2050, but recent policy changes have slowed progress.
The country’s labor market is flexible, with high employment rates. Economic inactivity has increased since the pandemic. Employers report skills gaps. Anti-discrimination are robust, and the government’s “leveling up” agenda has sought to address regional inequalities. Active labor market policies help job seekers find work.
Progressive income taxes make up the largest revenue source, followed by national insurance and VAT. Fuel, tobacco, and alcohol duties aim to internalize negative externalities. Fiscal rules are intended to curb overspending, but have been frequently modified. Debt levels are high, at around 100% of GDP. R&D policies are strong overall.
The state has committed to following EU circular economy principles, but implementation challenges are proving tricky. The National Protective Security Authority and National Cyber Security Centre oversee critical infrastructure. The government has targeted net-zero emissions by 2050, but recent policy changes have slowed progress.
The country’s labor market is flexible, with high employment rates. Economic inactivity has increased since the pandemic. Employers report skills gaps. Anti-discrimination are robust, and the government’s “leveling up” agenda has sought to address regional inequalities. Active labor market policies help job seekers find work.
Progressive income taxes make up the largest revenue source, followed by national insurance and VAT. Fuel, tobacco, and alcohol duties aim to internalize negative externalities. Fiscal rules are intended to curb overspending, but have been frequently modified. Debt levels are high, at around 100% of GDP. R&D policies are strong overall.
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How committed is the government to driving the transition toward a circular economy?
10
9
9
The government is clearly committed to transitioning to a circular economy.
8
7
6
7
6
The government is largely committed to transitioning to a circular economy.
5
4
3
4
3
The government is somewhat committed to transitioning to a circular economy.
2
1
1
The government is not at all committed to transitioning to a circular economy.
In July 2020, the UK government and the devolved administrations of Northern Ireland, Scotland, and Wales issued a joint statement affirming their commitment to the principles of the EU Circular Economy Package. The statement emphasized that leaving the EU had not diminished the UK’s environmental ambitions, and that there was no intention to weaken current environmental protections after the end of the Transition Period. It explained that the measures proposed in the Circular Economy Package would be transposed into UK law, citing specific initiatives such as Scotland’s “Making Things Last” strategy and Wales’s target of zero waste by 2050.
The UK’s approach to the circular economy is covered in various specific strategies. In England, the “Environmental Improvement Plan 2023,” published on February 7, 2023, updates the 2018 25-year environment plan. The plan acknowledges that the pandemic had slowed progress towards environmental goals but outlines revised plans for moving towards a truly circular and sustainable economy.
There have been several actions taken or planned to implement these policies. For example, England banned single-use plastic plates, bowls, trays, containers, cutlery, and balloon sticks starting on October 1, 2023. A deposit return scheme for single-use drinks containers is scheduled to be introduced by 2025. This scheme was initially planned for Scotland in the summer of 2023 but was postponed due to objections from some companies and disagreements between Edinburgh and Westminster over including glass containers. Additionally, the implementation of Extended Producer Responsibility, a scheme to shift the costs of managing packaging waste to producers, has been delayed by 12 months. An October 2023 report by Zero Waste Scotland cites examples of businesses adapting well but also notes that “businesses still face significant challenges and cannot drive the transition to a circular economy alone.”
Overall, commitments to a circular economy are firm, and there are sector-specific strategies to achieve the goal, but implementation challenges are proving tricky.
Citations:
https://www.gov.uk/government/publications/circular-economy-package-policy-statement/circular-economy-package-policy-statement
https://www.gov.uk/government/publications/environmental-improvement-plan/environmental-improvement-plan-2023-executive-summary
https://cdn.zerowastescotland.org.uk/managed-downloads/mf-omrmmdte-1698850972d
The UK’s approach to the circular economy is covered in various specific strategies. In England, the “Environmental Improvement Plan 2023,” published on February 7, 2023, updates the 2018 25-year environment plan. The plan acknowledges that the pandemic had slowed progress towards environmental goals but outlines revised plans for moving towards a truly circular and sustainable economy.
There have been several actions taken or planned to implement these policies. For example, England banned single-use plastic plates, bowls, trays, containers, cutlery, and balloon sticks starting on October 1, 2023. A deposit return scheme for single-use drinks containers is scheduled to be introduced by 2025. This scheme was initially planned for Scotland in the summer of 2023 but was postponed due to objections from some companies and disagreements between Edinburgh and Westminster over including glass containers. Additionally, the implementation of Extended Producer Responsibility, a scheme to shift the costs of managing packaging waste to producers, has been delayed by 12 months. An October 2023 report by Zero Waste Scotland cites examples of businesses adapting well but also notes that “businesses still face significant challenges and cannot drive the transition to a circular economy alone.”
Overall, commitments to a circular economy are firm, and there are sector-specific strategies to achieve the goal, but implementation challenges are proving tricky.
Citations:
https://www.gov.uk/government/publications/circular-economy-package-policy-statement/circular-economy-package-policy-statement
https://www.gov.uk/government/publications/environmental-improvement-plan/environmental-improvement-plan-2023-executive-summary
https://cdn.zerowastescotland.org.uk/managed-downloads/mf-omrmmdte-1698850972d
Graph View
How committed is the government to updating and protecting critical infrastructure?
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9
9
The government is clearly committed to updating basic technical infrastructure.
8
7
6
7
6
The government is largely committed to updating basic technical infrastructure.
5
4
3
4
3
The government is somewhat committed to updating basic technical infrastructure.
2
1
1
The government is not at all committed to updating basic technical infrastructure.
The National Protective Security Authority (NPSA), an arm of the security services restructured in 2023, is responsible for “building resilience to national security threats,” according to its mission statement. A key focus is on forestalling threats to critical infrastructure, though its mandate extends beyond this. Complementing the NPSA is the National Cyber Security Centre, which provides support for the digital economy. The UK ranks a close second behind the United States in the Global Cybersecurity Index for the strength of its cyber protections.
Despite the valuable support provided by these agencies, the UK has long faced shortcomings in the quality and capacity of its infrastructure. The protracted development of the HS2 train line northward from London exemplifies these issues, as does the ongoing debate about expanding airport runway capacity in the London area. In October 2023, a decision was announced to halt HS2 construction beyond Birmingham, following a previous decision to cut a planned route connecting to the main east coastline. The prime minister attributed these cuts to escalating costs, described as out of control, but persistent issues with the land use planning system, which empowers NIMBY (not in my backyard) objectors, also inhibit infrastructure development.
To address these challenges, the Infrastructure and Projects Authority was created in 2016. It aims to work with government and industry to deliver projects and improve performance over time. Reporting to the Cabinet Office and the Treasury, it monitors the pipeline of projects and published a strategic plan in 2021 for the decade up to 2030.
Incentives for privatized utilities have also been problematic, particularly in the water industry (in England and Wales), which has faced regular criticism for inadequate investment to prevent sewage spills. Despite issuing fines, the government has struggled to change this pattern.
Despite the valuable support provided by these agencies, the UK has long faced shortcomings in the quality and capacity of its infrastructure. The protracted development of the HS2 train line northward from London exemplifies these issues, as does the ongoing debate about expanding airport runway capacity in the London area. In October 2023, a decision was announced to halt HS2 construction beyond Birmingham, following a previous decision to cut a planned route connecting to the main east coastline. The prime minister attributed these cuts to escalating costs, described as out of control, but persistent issues with the land use planning system, which empowers NIMBY (not in my backyard) objectors, also inhibit infrastructure development.
To address these challenges, the Infrastructure and Projects Authority was created in 2016. It aims to work with government and industry to deliver projects and improve performance over time. Reporting to the Cabinet Office and the Treasury, it monitors the pipeline of projects and published a strategic plan in 2021 for the decade up to 2030.
Incentives for privatized utilities have also been problematic, particularly in the water industry (in England and Wales), which has faced regular criticism for inadequate investment to prevent sewage spills. Despite issuing fines, the government has struggled to change this pattern.
Graph View
How committed is the government to fully decarbonizing the energy system by 2050?
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9
9
The government is clearly committed to transitioning to a decarbonized energy system.
8
7
6
7
6
The government is largely committed to transitioning to a decarbonized energy system.
5
4
3
4
3
The government is somewhat committed to transitioning to a decarbonized energy system.
2
1
1
The government is not at all committed to transitioning to a decarbonized energy system.
The UK government has a strong, legally entrenched commitment to achieving net zero emissions, based on the 2008 Climate Change Act, which established “carbon budgets” for five-year intervals. During Boris Johnson’s tenure, a ten-point plan issued in late 2020 outlined a roadmap for a wide-ranging transition towards net zero, including ending the sales of petrol and diesel cars and vans by 2030. As the host of the 2021 COP26 in Glasgow, the UK was keen to demonstrate leadership in relevant policies.
Recently, some policy adjustments have been made to mitigate the pace of change for certain sources of carbon emissions. Prime Minister Rishi Sunak emphasized that these changes affect the pace of transition in specific sectors without compromising the overall target. In a speech in September 2023, Sunak announced a delay in the target for electric vehicles (EVs) to 2035, citing the slow rollout of charging infrastructure and associated costs. He noted that 80% of new vehicles were still expected to be electric by 2030.
Additionally, the government announced a slower phase-out of gas boilers in favor of heat pumps to ease the burden on households and businesses. However, some policy changes, such as accelerating industrial decarbonization, are expected to offset these less immediate targets. The government also controversially approved a new coalmine in Cumbria, arguing that its output, needed for manufacturing processes, would otherwise be imported at a higher carbon cost. New licenses for oil and gas exploration in UK territorial waters were also issued, motivated by the need for secure gas sources during the transition.
These policy changes faced sharp criticism both domestically and internationally. The independent Climate Change Committee (CCC), established by the 2008 Act to advise the UK and devolved governments on emissions targets and report to Parliament on progress, argued that the changes would make it harder to achieve net zero by 2050. The CCC warned that the uncertainty and potential perception of a weakened government commitment could be damaging. In its June 2023 annual progress report to Parliament, the committee identified risks to meeting the UK’s emissions targets, policy gaps, and significant delivery risks. Internationally, the German-based Climate Change Performance Index, which had previously ranked the UK highly, downgraded the UK by nine places to 20th in its 2024 assessment.
One implication of the revised approach is a potential loss of international credibility. Nevertheless, the UK is on track to achieve a 50% reduction in carbon emissions since 1990, the greatest decline among G20 countries. The share of renewables in electricity generation has been increasing rapidly, with offshore wind as the largest component, accounting for a record of just under 50% of electricity generation in the first quarter of 2023. Despite the political challenges, the UK’s commitment to net zero remains firm.
Citations:
https://www.theccc.org.uk/2023/10/12/ccc-assessment-of-recent-announcements-and-developments-on-net-zero/
https://ccpi.org/wp-content/uploads/CCPI-2024-Results.pdf
Recently, some policy adjustments have been made to mitigate the pace of change for certain sources of carbon emissions. Prime Minister Rishi Sunak emphasized that these changes affect the pace of transition in specific sectors without compromising the overall target. In a speech in September 2023, Sunak announced a delay in the target for electric vehicles (EVs) to 2035, citing the slow rollout of charging infrastructure and associated costs. He noted that 80% of new vehicles were still expected to be electric by 2030.
Additionally, the government announced a slower phase-out of gas boilers in favor of heat pumps to ease the burden on households and businesses. However, some policy changes, such as accelerating industrial decarbonization, are expected to offset these less immediate targets. The government also controversially approved a new coalmine in Cumbria, arguing that its output, needed for manufacturing processes, would otherwise be imported at a higher carbon cost. New licenses for oil and gas exploration in UK territorial waters were also issued, motivated by the need for secure gas sources during the transition.
These policy changes faced sharp criticism both domestically and internationally. The independent Climate Change Committee (CCC), established by the 2008 Act to advise the UK and devolved governments on emissions targets and report to Parliament on progress, argued that the changes would make it harder to achieve net zero by 2050. The CCC warned that the uncertainty and potential perception of a weakened government commitment could be damaging. In its June 2023 annual progress report to Parliament, the committee identified risks to meeting the UK’s emissions targets, policy gaps, and significant delivery risks. Internationally, the German-based Climate Change Performance Index, which had previously ranked the UK highly, downgraded the UK by nine places to 20th in its 2024 assessment.
One implication of the revised approach is a potential loss of international credibility. Nevertheless, the UK is on track to achieve a 50% reduction in carbon emissions since 1990, the greatest decline among G20 countries. The share of renewables in electricity generation has been increasing rapidly, with offshore wind as the largest component, accounting for a record of just under 50% of electricity generation in the first quarter of 2023. Despite the political challenges, the UK’s commitment to net zero remains firm.
Citations:
https://www.theccc.org.uk/2023/10/12/ccc-assessment-of-recent-announcements-and-developments-on-net-zero/
https://ccpi.org/wp-content/uploads/CCPI-2024-Results.pdf
Graph View
To what extent do existing labor market institutions support or hinder the transition to an adaptive labor market?
10
9
9
Labor market institutions are fully aligned with the goal of an adaptable labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an adaptable labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an adaptable labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an adaptable labor market.
Although the UK is known for having a flexible labor market, high employment rates, and low unemployment rates, a new challenge since the pandemic has been the rise in economic inactivity, reversing the trend of the previous decade. The most recent estimates from the Office for National Statistics show the inactivity rate is around 21%, with a markedly higher rate of 27% for the 50-64-year-old cohort. One of the main causes of the recent increase is a significant rise in long-term sickness, up by 474,000 since 2020.
The long-standing problem in the UK labor market is skills shortages. Despite numerous initiatives over the decades, UK employers continue to face skills gaps. The explanations are complex, but a report by the Institute for Fiscal Studies (IFS) finds that public funding for skills has fallen by 31% since its peak 30 years ago. The IFS also highlights the lack of coherent and consistent policies on skills, noting that “few areas of public policy have experienced as much turbulence and churn over the past two decades. Any future reforms must be weighed against the risk of adding to the policy instability and inconsistency which have plagued the sector.”
Following EU enlargement in 2004, the number of mobile workers from Poland, Lithuania, and other Central and Eastern European countries greatly exceeded projections. This flow reversed somewhat due to Brexit and the pandemic, although immigration from Commonwealth countries and, more recently, from Hong Kong and Ukraine has led to a higher net migration rate. The overall impact on the labor market has been mixed, as inward migration was often driven by humanitarian needs rather than economic factors.
A furlough scheme implemented early in the pandemic succeeded in stabilizing employment, which soon bounced back. However, vacancies reached record highs, exceeding unemployment rates from mid-2022 before falling somewhat in 2023.
The national minimum wage, now called the “living wage,” has been rising faster than average earnings or inflation since its introduction by the New Labour government in 1999. It is credited with reducing in-work poverty for the lowest-paid workers, although challenges remain, particularly in areas with high housing and transport costs. The most recent rise, announced in November 2023 for 2024, ensures that those on the living wage will again see relative gains compared to average earnings. An analysis of 20 years of the minimum wage by the Low Pay Commission, the statutory body responsible for recommending the minimum wage to the government, mentions several positive outcomes and states that it has not “found any strong evidence of negative effects.”
Citations:
https://assets.publishing.service.gov.uk/media/5c9e0e72e5274a527faae38a/20_years_of_the_National_Minimum_Wage_-_a_history_of_the_UK_minimum_wage_and_its_effects.pdf
https://ifs.org.uk/news/adult-skills-spending-down-third-early-2000s-its-about-much-more-funding-levels
The long-standing problem in the UK labor market is skills shortages. Despite numerous initiatives over the decades, UK employers continue to face skills gaps. The explanations are complex, but a report by the Institute for Fiscal Studies (IFS) finds that public funding for skills has fallen by 31% since its peak 30 years ago. The IFS also highlights the lack of coherent and consistent policies on skills, noting that “few areas of public policy have experienced as much turbulence and churn over the past two decades. Any future reforms must be weighed against the risk of adding to the policy instability and inconsistency which have plagued the sector.”
Following EU enlargement in 2004, the number of mobile workers from Poland, Lithuania, and other Central and Eastern European countries greatly exceeded projections. This flow reversed somewhat due to Brexit and the pandemic, although immigration from Commonwealth countries and, more recently, from Hong Kong and Ukraine has led to a higher net migration rate. The overall impact on the labor market has been mixed, as inward migration was often driven by humanitarian needs rather than economic factors.
A furlough scheme implemented early in the pandemic succeeded in stabilizing employment, which soon bounced back. However, vacancies reached record highs, exceeding unemployment rates from mid-2022 before falling somewhat in 2023.
The national minimum wage, now called the “living wage,” has been rising faster than average earnings or inflation since its introduction by the New Labour government in 1999. It is credited with reducing in-work poverty for the lowest-paid workers, although challenges remain, particularly in areas with high housing and transport costs. The most recent rise, announced in November 2023 for 2024, ensures that those on the living wage will again see relative gains compared to average earnings. An analysis of 20 years of the minimum wage by the Low Pay Commission, the statutory body responsible for recommending the minimum wage to the government, mentions several positive outcomes and states that it has not “found any strong evidence of negative effects.”
Citations:
https://assets.publishing.service.gov.uk/media/5c9e0e72e5274a527faae38a/20_years_of_the_National_Minimum_Wage_-_a_history_of_the_UK_minimum_wage_and_its_effects.pdf
https://ifs.org.uk/news/adult-skills-spending-down-third-early-2000s-its-about-much-more-funding-levels
To what extent do existing labor market institutions support or hinder the transition to an inclusive labor market?
10
9
9
Labor market institutions are fully aligned with the goal of an inclusive labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an inclusive labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an inclusive labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an inclusive labor market.
Following a review by the Commission on Race and Ethnic Disparities, published in 2021, the government launched its “Inclusive Britain” strategy, which outlines three priorities:
“To ensure that prejudice and discrimination have no place in our society,” with the added emphasis, “No exceptions. No excuses.”
To encourage equality of opportunity and ensure aspiration from all groups.
“Actively foster a sense of inclusion and belonging to the UK and our country’s rich and complex history.”
This rhetoric indicates the UK’s commitment to promoting the inclusion of marginalized groups and ethnic minorities. Policy initiatives across several governments have contributed to a social climate where discrimination, whether in the workplace or elsewhere, is increasingly seen as unacceptable. Most employers now adopt and regularly update diversity and inclusion strategies. There are also equivalent statements on fostering gender equality. However, ethnicity and gender pay gaps persist. Additionally, since the pandemic, the proportion of NEETs (people aged 15-24 neither in education nor employment or training) has edged upward.
A promise to “level up” disadvantaged parts of the United Kingdom was a cornerstone of the Conservative manifesto in 2019. A white paper in 2022 noted that while “talent is spread equally across our country, opportunity is not.” This was followed by an act of Parliament at the end of 2023. Proposals include actions and funding to boost skills, a reduction in the taper rate for Universal Credit from 63% to 55% (improving the incentive to work more, though it remains steep), and a “Lifetime Skills Guarantee” for England, given devolved competences. The act also proposes extending city deals to devolve power and provide substantial funding for Scotland, Wales, and Northern Ireland, although it is unclear how much of this funding is “new” money.
Critics, such as the Institute for Government, fear that the leveling-up agenda is too broad and lacks prioritization, while the National Audit Office doubts that projects will be completed on time.
Citations:
https://www.gov.uk/government/publications/inclusive-britain-action-plan-government-response-to-the-commission-on-race-and-ethnic-disparities/inclusive-britain-government-response-to-the-commission-on-race-and-ethnic-disparities
https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/ethnicitypaygapsingreatbritain/2012to2022
“To ensure that prejudice and discrimination have no place in our society,” with the added emphasis, “No exceptions. No excuses.”
To encourage equality of opportunity and ensure aspiration from all groups.
“Actively foster a sense of inclusion and belonging to the UK and our country’s rich and complex history.”
This rhetoric indicates the UK’s commitment to promoting the inclusion of marginalized groups and ethnic minorities. Policy initiatives across several governments have contributed to a social climate where discrimination, whether in the workplace or elsewhere, is increasingly seen as unacceptable. Most employers now adopt and regularly update diversity and inclusion strategies. There are also equivalent statements on fostering gender equality. However, ethnicity and gender pay gaps persist. Additionally, since the pandemic, the proportion of NEETs (people aged 15-24 neither in education nor employment or training) has edged upward.
A promise to “level up” disadvantaged parts of the United Kingdom was a cornerstone of the Conservative manifesto in 2019. A white paper in 2022 noted that while “talent is spread equally across our country, opportunity is not.” This was followed by an act of Parliament at the end of 2023. Proposals include actions and funding to boost skills, a reduction in the taper rate for Universal Credit from 63% to 55% (improving the incentive to work more, though it remains steep), and a “Lifetime Skills Guarantee” for England, given devolved competences. The act also proposes extending city deals to devolve power and provide substantial funding for Scotland, Wales, and Northern Ireland, although it is unclear how much of this funding is “new” money.
Critics, such as the Institute for Government, fear that the leveling-up agenda is too broad and lacks prioritization, while the National Audit Office doubts that projects will be completed on time.
Citations:
https://www.gov.uk/government/publications/inclusive-britain-action-plan-government-response-to-the-commission-on-race-and-ethnic-disparities/inclusive-britain-government-response-to-the-commission-on-race-and-ethnic-disparities
https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/ethnicitypaygapsingreatbritain/2012to2022
To what extent do existing labor market institutions support or hinder the mitigation of labor market risks?
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9
9
Labor market institutions are fully aligned with the goal of protecting individuals against labor market risks.
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6
7
6
Labor market institutions are largely aligned with the goal of protecting individuals against labor market risks.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of protecting individuals against labor market risks.
2
1
1
Labor market institutions are not at all aligned with the goal of protecting individuals against labor market risks.
The shift to Universal Credit (UC) as a single mechanism integrating previously fragmented benefits marked a significant change in the UK’s approach to social welfare. This transition provoked considerable controversy and encountered several initial difficulties. The transition to UC as the main benefit is now nearly complete, although some individuals can still claim Job Seeker’s Allowance or Employment Support Allowance, depending largely on their contribution record. UC includes benefits for the low-paid, those not in employment, and has additional provisions for disabled people and the self-employed. The Scottish government now has increased responsibility for social security concerning disability and has committed to providing more assistance in claiming benefits.
Since the start of the New Labour government in 1997, the UK has adopted an active labor market policy where the employment agency, now called Job Centre Plus (JCP), works with claimants to help them find jobs. JCP offers various forms of support for accessing jobs and requires claimants to attend meetings and agree to a program with a designated work coach. Benefits can be withdrawn if claimants do not adhere to the terms. The JCP provides support tailored to different categories of claimants and has transitioned to online job advertising through the “Find a Job” system. There is no direct union involvement in this process.
From September 2020 to March 2022, the pandemic-related Kickstart scheme provided employment subsidies to create new jobs for 16 to 24-year-olds on Universal Credit who were at risk of long-term unemployment. The scheme subsidized jobs for six months for up to 25 hours per week. An evaluation of the scheme found that it broadly achieved its aims but faced initial problems and was least successful in supporting the least qualified participants and certain ethnic groups.
Citations:
https://www.jobcentreguide.co.uk/
https://www.gov.uk/government/publications/kickstart-scheme-process-evaluation/kickstart-scheme-process-evaluation#reflections-and-recommendations
https://www.gov.scot/publications/our-vision-for-social-security/
Since the start of the New Labour government in 1997, the UK has adopted an active labor market policy where the employment agency, now called Job Centre Plus (JCP), works with claimants to help them find jobs. JCP offers various forms of support for accessing jobs and requires claimants to attend meetings and agree to a program with a designated work coach. Benefits can be withdrawn if claimants do not adhere to the terms. The JCP provides support tailored to different categories of claimants and has transitioned to online job advertising through the “Find a Job” system. There is no direct union involvement in this process.
From September 2020 to March 2022, the pandemic-related Kickstart scheme provided employment subsidies to create new jobs for 16 to 24-year-olds on Universal Credit who were at risk of long-term unemployment. The scheme subsidized jobs for six months for up to 25 hours per week. An evaluation of the scheme found that it broadly achieved its aims but faced initial problems and was least successful in supporting the least qualified participants and certain ethnic groups.
Citations:
https://www.jobcentreguide.co.uk/
https://www.gov.uk/government/publications/kickstart-scheme-process-evaluation/kickstart-scheme-process-evaluation#reflections-and-recommendations
https://www.gov.scot/publications/our-vision-for-social-security/
Graph View
To what extent do existing tax institutions and procedures support or hinder adequate tax revenue flows?
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9
9
The tax system is fully aligned with the goals of ensuring adequate tax revenues.
8
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6
7
6
The tax system is largely aligned with the goals of ensuring adequate tax revenues.
5
4
3
4
3
The tax system is only somewhat aligned with the goals of ensuring adequate tax revenues.
2
1
1
The tax system is not at all aligned with the goals of ensuring adequate tax revenues.
Taxes in the UK have been increasing, with the tax take as a proportion of GDP reaching a recent high in 2023. However, it remains relatively low compared to other European countries. In 2022, the Institute for Fiscal Studies described the UK’s tax burden as “at its highest sustained level since the 1950s,” in the context of a recent failed attempt by the Truss government to introduce major tax cuts (Adam et al. 2022). The UK tax system balances income and expenditure taxes and includes a variety of specific taxes within a complex tax code. Tax decisions are primarily made during the chancellor of the exchequer’s twice-yearly “fiscal events.” The most recent event, in November 2023, included headline announcements on cutting payroll taxes (national insurance) and increasing investment allowances for companies. However, the failure to uprate tax bands effectively resulted in “stealth” taxes, pushing more people into paying income tax or into higher tax rate bands.
Overall, tax collection functions adequately, although His Majesty’s Revenue and Customs (HMRC) faced sharp criticism in December 2023 from the chair of the House of Commons Treasury Committee for reducing telephone support. Additionally, a January 2023 report by the public accounts committee criticized HMRC for poor service to taxpayers and an increase in uncollected tax. Staff cuts at HMRC have contributed to these issues.
There are some variations in taxation among the UK’s nations. The Scotland Acts of 2012 and 2016 granted the Scottish government new taxation and borrowing powers, which it has used sparingly until recently. Proposals for 2024 include a new tax rate for moderately affluent citizens that is more onerous than in the rest of the UK. The National Assembly of Wales has far less fiscal discretion, while the ongoing suspension of the Northern Ireland Executive inhibits changes, resulting in de facto direct rule from London.
Citations:
Https://committees.parliament.uk/publications/33390/documents/182713/default/
Adam, S., Delestre, I., Emmerson, C., Johnson, P., Joyce, R., Stockton, I.
Waters, T., Xu, X., and Zaranko, B. 2022. “Mini-budget response.” Institute.
for Fiscal Studies. 2023. “Mini Budget Response.” https://ifs.org.uk/articles/mini-budget-respo
nse
Overall, tax collection functions adequately, although His Majesty’s Revenue and Customs (HMRC) faced sharp criticism in December 2023 from the chair of the House of Commons Treasury Committee for reducing telephone support. Additionally, a January 2023 report by the public accounts committee criticized HMRC for poor service to taxpayers and an increase in uncollected tax. Staff cuts at HMRC have contributed to these issues.
There are some variations in taxation among the UK’s nations. The Scotland Acts of 2012 and 2016 granted the Scottish government new taxation and borrowing powers, which it has used sparingly until recently. Proposals for 2024 include a new tax rate for moderately affluent citizens that is more onerous than in the rest of the UK. The National Assembly of Wales has far less fiscal discretion, while the ongoing suspension of the Northern Ireland Executive inhibits changes, resulting in de facto direct rule from London.
Citations:
Https://committees.parliament.uk/publications/33390/documents/182713/default/
Adam, S., Delestre, I., Emmerson, C., Johnson, P., Joyce, R., Stockton, I.
Waters, T., Xu, X., and Zaranko, B. 2022. “Mini-budget response.” Institute.
for Fiscal Studies. 2023. “Mini Budget Response.” https://ifs.org.uk/articles/mini-budget-respo
nse
To what extent do existing tax institutions and procedures consider equity aspects?
10
9
9
The tax system is fully aligned with the goal of ensuring equity.
8
7
6
7
6
The tax system is largely aligned with the goal of ensuring equity.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of ensuring equity.
2
1
1
The tax system is not at all aligned with the goal of ensuring equity.
Income tax is the largest component of UK tax revenue, accounting for just under a quarter in the tax year 2022/23, followed by national insurance (a payroll tax) at close to 18%, and VAT at 16%. Corporation and capital taxes raise a further 13%, with a variety of other taxes, levies, and duties making up the balance. The income tax system is progressive, with bands of 20%, 40%, and 45%, providing reasonable vertical equity. However, this exists in a context where the UK Gini coefficient was around 0.25 in 1980 and 0.4 in 2018 (Institute for Fiscal Studies 2022). An anomaly in the system arises from the “personal allowance” – the amount any income taxpayer can earn before entering the lower rate band. Once taxable income (including from savings and investments) reaches £100,000, the personal allowance is reduced by £1 for every additional £2 of income, creating a de facto 60% tax band for those earning between £100,000 and £125,000.
Recent decisions have maintained various thresholds in cash terms, rather than adjusting for inflation, effectively bringing more taxpayers into the income tax net and pushing more into higher bands – a phenomenon known as “fiscal drag.” An attempt by the short-lived Truss administration to abolish the 45% rate for higher earners drew widespread criticism and was quickly abandoned. In his November 2023 autumn statement, the Chancellor of the Exchequer highlighted a reduction in national insurance, but the fiscal drag effect meant the median taxpayer still paid more.
Evidence summarized in a House of Commons briefing shows that the top percentile contributes 29% of income tax revenue, with a further 31% from those in the 90-99 percentiles. The briefing also reveals that VAT and other indirect taxes disproportionately affect the poorest households as a proportion of disposable income. While this is clearly regressive, the relatively low share of indirect taxes in total tax revenue mitigates the horizontal inequity.
With a high proportion of income tax and national insurance assessed through the PAYE system, where payments are made directly from employers, horizontal equity is largely maintained. However, tax avoidance remains a constant battle between high earners and tax authorities. Over the years, some of the more egregious loopholes have been closed, but the very wealthy often still find ways to limit their tax bills, sometimes by directing income to tax havens. One such avoidance option is through “non-domiciled” status, where people with substantial earnings outside the UK can avoid tax by registering in a lower tax jurisdiction. Although there are relatively few non-doms, they can benefit significantly, albeit with a charge from the UK tax authorities. The issue gained prominence when Rishi Sunak’s wife was found to have non-dom status, prompting her to change her status in response to public criticism. Whether to abolish non-dom status is currently a dividing line between the two main political parties.
Citations:
https://www.bbc.co.uk/news/business-32216346
https://commonslibrary.parliament.uk/research-briefings/cbp-8513/
Institute for Fiscal Studies. 2022. “IFS Incomes, Poverty, and Inequality.”
tab ‘Inequality’), https://ifs.org.uk/living-standards-poverty-and-inequality-uk
Recent decisions have maintained various thresholds in cash terms, rather than adjusting for inflation, effectively bringing more taxpayers into the income tax net and pushing more into higher bands – a phenomenon known as “fiscal drag.” An attempt by the short-lived Truss administration to abolish the 45% rate for higher earners drew widespread criticism and was quickly abandoned. In his November 2023 autumn statement, the Chancellor of the Exchequer highlighted a reduction in national insurance, but the fiscal drag effect meant the median taxpayer still paid more.
Evidence summarized in a House of Commons briefing shows that the top percentile contributes 29% of income tax revenue, with a further 31% from those in the 90-99 percentiles. The briefing also reveals that VAT and other indirect taxes disproportionately affect the poorest households as a proportion of disposable income. While this is clearly regressive, the relatively low share of indirect taxes in total tax revenue mitigates the horizontal inequity.
With a high proportion of income tax and national insurance assessed through the PAYE system, where payments are made directly from employers, horizontal equity is largely maintained. However, tax avoidance remains a constant battle between high earners and tax authorities. Over the years, some of the more egregious loopholes have been closed, but the very wealthy often still find ways to limit their tax bills, sometimes by directing income to tax havens. One such avoidance option is through “non-domiciled” status, where people with substantial earnings outside the UK can avoid tax by registering in a lower tax jurisdiction. Although there are relatively few non-doms, they can benefit significantly, albeit with a charge from the UK tax authorities. The issue gained prominence when Rishi Sunak’s wife was found to have non-dom status, prompting her to change her status in response to public criticism. Whether to abolish non-dom status is currently a dividing line between the two main political parties.
Citations:
https://www.bbc.co.uk/news/business-32216346
https://commonslibrary.parliament.uk/research-briefings/cbp-8513/
Institute for Fiscal Studies. 2022. “IFS Incomes, Poverty, and Inequality.”
tab ‘Inequality’), https://ifs.org.uk/living-standards-poverty-and-inequality-uk
To what extent do existing tax institutions and procedures minimize compliance and collection costs?
10
9
9
The tax system is fully aligned with the goal of minimizing compliance and collection costs.
8
7
6
7
6
The tax system is largely aligned with the goal of minimizing compliance and collection costs.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of minimizing compliance and collection costs.
2
1
1
The tax system is not at all aligned with the goal of minimizing compliance and collection costs.
Although the UK tax system is complex, the arrangements for collecting the three largest revenue-generating taxes – income tax, national insurance, and VAT – are relatively straightforward. The PAYE system efficiently captures the majority of individual taxpayers, and VAT is well-established.
For those required to submit full returns due to additional earnings, His Majesty’s Revenue and Customs (HMRC) is increasingly pushing for online submissions, which most taxpayers now use. While HMRC provides extensive downloadable guidance, it has faced criticism for insufficient support for individuals with queries not directly covered by the guidance or those in unusual circumstances.
Unsurprisingly, wealthier taxpayers are more likely to employ tax accountants, accepting the trade-off of paying for services to avoid handling their own returns and to take advantage of avoidance opportunities.
For those required to submit full returns due to additional earnings, His Majesty’s Revenue and Customs (HMRC) is increasingly pushing for online submissions, which most taxpayers now use. While HMRC provides extensive downloadable guidance, it has faced criticism for insufficient support for individuals with queries not directly covered by the guidance or those in unusual circumstances.
Unsurprisingly, wealthier taxpayers are more likely to employ tax accountants, accepting the trade-off of paying for services to avoid handling their own returns and to take advantage of avoidance opportunities.
To what extent do existing tax institutions and procedures internalize negative and positive externalities?
10
9
9
The tax system is fully aligned with the goal of internalizing externalities.
8
7
6
7
6
The tax system is largely aligned with the goal of internalizing externalities.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of internalizing externalities.
2
1
1
The tax system is not at all aligned with the goal of internalizing externalities.
Fuel, tobacco, and alcohol duties, which together account for around 5% of total tax revenue, aim to internalize negative externalities. The fuel tax escalator (later renamed “stabilizer”), introduced in 1993, was intended to rise faster than inflation to deter fuel use. However, successive chancellors have often chosen not to apply it during periods of rising oil prices or wider cost-of-living pressures. Fuel duties were cut as a temporary measure in the 2022 budget and maintained for another year in the 2023 budget.
For businesses, various tax incentives stimulate investment and research, internalizing positive externalities. These incentives were reinforced in the November 2023 fall statement.
For businesses, various tax incentives stimulate investment and research, internalizing positive externalities. These incentives were reinforced in the November 2023 fall statement.
Graph View
To what extent do existing budgetary institutions and procedures support or hinder sustainable budgeting?
10
9
9
Budgetary institutions and policies are fully aligned with the goals of sustainable budgeting.
8
7
6
7
6
Budgetary institutions and policies are largely aligned with the goals of sustainable budgeting.
5
4
3
4
3
Budgetary institutions and policies are only somewhat aligned with the goals of sustainable budgeting.
2
1
1
Budgetary institutions and policies are not at all aligned with the goals of sustainable budgeting.
Fiscal rules have been in place for 25 years, and the fiscal framework includes the well-regarded Office for Budget Responsibility (OBR), which functions as an independent fiscal council. Following the suspension of fiscal rules during the global financial crisis, there have been frequent revisions. Since 2011, these rules have been embodied in the Charter for Fiscal Responsibility, which has changed eight times since its introduction, according to the Institute for Government.
Currently, a primary fiscal rule mandates that net public debt must fall by the fifth year of the rolling forecast. A complementary rule aims to reduce the annual fiscal deficit within the same timeframe. These rules rely on two forecasts: the government’s projections for public finances and the OBR’s economic forecasts. Because these forecasts look five years ahead, they do not significantly bind the government in the short term. In the 2023 Autumn Statement, the Chancellor of the Exchequer stated that the government was on track to meet the fiscal rules with greater headroom compared to spring 2023.
The frequent changes to fiscal rules indicate that they are not strongly binding, as the Treasury can modify them. According to legislation, changes must be explained, presented to the House of Commons, and approved (though not as new law) before implementation. Between 2011 and 2019, before the pandemic, the debt ratio rose from 70.8% of GDP to 84.8% and is now around 100%, not projected to fall below three figures for another two years. Additionally, there is a target to contain welfare expenditure within a predetermined cap set by the Treasury.
While UK public finances are sustainable, higher interest rates to control inflation are increasing debt servicing costs, crowding out other public expenditures. The existing budgetary institutions support sustainability, aided by system transparency. However, there is no explicit provision for reducing debt during prosperous times, no formal prioritization of investment (except through tax allowances), or forward-looking plans beyond the five-year rules. The Sustainable Development Goals (SDGs) are not easily identifiable in the system.
Citations:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1131729/Charter_for_Budget_Responsibility_-_AS22_-_FINAL_as_published_in_draft.pdf
Currently, a primary fiscal rule mandates that net public debt must fall by the fifth year of the rolling forecast. A complementary rule aims to reduce the annual fiscal deficit within the same timeframe. These rules rely on two forecasts: the government’s projections for public finances and the OBR’s economic forecasts. Because these forecasts look five years ahead, they do not significantly bind the government in the short term. In the 2023 Autumn Statement, the Chancellor of the Exchequer stated that the government was on track to meet the fiscal rules with greater headroom compared to spring 2023.
The frequent changes to fiscal rules indicate that they are not strongly binding, as the Treasury can modify them. According to legislation, changes must be explained, presented to the House of Commons, and approved (though not as new law) before implementation. Between 2011 and 2019, before the pandemic, the debt ratio rose from 70.8% of GDP to 84.8% and is now around 100%, not projected to fall below three figures for another two years. Additionally, there is a target to contain welfare expenditure within a predetermined cap set by the Treasury.
While UK public finances are sustainable, higher interest rates to control inflation are increasing debt servicing costs, crowding out other public expenditures. The existing budgetary institutions support sustainability, aided by system transparency. However, there is no explicit provision for reducing debt during prosperous times, no formal prioritization of investment (except through tax allowances), or forward-looking plans beyond the five-year rules. The Sustainable Development Goals (SDGs) are not easily identifiable in the system.
Citations:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1131729/Charter_for_Budget_Responsibility_-_AS22_-_FINAL_as_published_in_draft.pdf
Graph View
How committed is the government to utilizing research and innovation as drivers for the transition to a sustainable economy and society?
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9
9
The government is clearly committed to utilizing research and innovation as drivers for the transition to a sustainable economy and society.
8
7
6
7
6
The government is largely committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
5
4
3
4
3
The government is somewhat committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
2
1
1
The government is not at all committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
Innovation is at the heart of the Sunak government’s policy approach, building on a strategy launched in July 2021. This strategy aims to boost productivity growth, which has stagnated over the past decade, and to create a cohesive system where businesses, government, R&D organizations, finance providers, and other stakeholders collaborate to achieve innovation goals. Recently, the government published a white paper titled “A pro-innovation approach to AI regulation,” with Rishi Sunak aiming to position the UK as a global leader in AI regulation.
Recent government initiatives include extending tax credits for R&D and business investment, establishing regional technology and innovation centers, investing in digital infrastructure and new university research facilities, and setting up Innovate UK to promote economic growth through science and technology. Innovate UK supports business-led innovation across all sectors, technologies, and UK regions, focusing on developing and commercializing new products, processes, and services. Innovation is also supported by the National Endowment for Science, Technology and the Arts (NESTA), which now focuses on three innovation missions: promoting a fairer start, a healthy life, and a sustainable future.
The United Kingdom’s tradition of being an active player in research and innovation dates back to the Industrial Revolution. Its leading universities have long linked cutting-edge academic research with industries such as biotechnology and information and communications technology (ICT). Areas like the Cambridge-Oxford corridor north of London are recognized as innovation hubs, with recent successes including the rapid development of the AstraZeneca COVID vaccine.
Despite these strengths, overall R&D spending has been weaker, averaging around 1.75% of GDP in the years before the pandemic, falling short of the EU norm (no data yet for 2021 because of a revised measurement methodology). Additionally, converting innovation into sustainable, large-scale profitable production has been challenging. However, it’s important to note that manufacturing constitutes a smaller share of UK GDP than in most OECD countries, and other indicators, such as ICT spending – crucial for service industries – must be considered to understand innovation trends in the UK.
The revamped UK innovation strategy is comprehensive in its aims and scope, but its likelihood of success remains to be seen.
Citations:
https://www.gov.uk/government/publications/uk-innovation-strategy-leading-the-future-by-creating-it
Recent government initiatives include extending tax credits for R&D and business investment, establishing regional technology and innovation centers, investing in digital infrastructure and new university research facilities, and setting up Innovate UK to promote economic growth through science and technology. Innovate UK supports business-led innovation across all sectors, technologies, and UK regions, focusing on developing and commercializing new products, processes, and services. Innovation is also supported by the National Endowment for Science, Technology and the Arts (NESTA), which now focuses on three innovation missions: promoting a fairer start, a healthy life, and a sustainable future.
The United Kingdom’s tradition of being an active player in research and innovation dates back to the Industrial Revolution. Its leading universities have long linked cutting-edge academic research with industries such as biotechnology and information and communications technology (ICT). Areas like the Cambridge-Oxford corridor north of London are recognized as innovation hubs, with recent successes including the rapid development of the AstraZeneca COVID vaccine.
Despite these strengths, overall R&D spending has been weaker, averaging around 1.75% of GDP in the years before the pandemic, falling short of the EU norm (no data yet for 2021 because of a revised measurement methodology). Additionally, converting innovation into sustainable, large-scale profitable production has been challenging. However, it’s important to note that manufacturing constitutes a smaller share of UK GDP than in most OECD countries, and other indicators, such as ICT spending – crucial for service industries – must be considered to understand innovation trends in the UK.
The revamped UK innovation strategy is comprehensive in its aims and scope, but its likelihood of success remains to be seen.
Citations:
https://www.gov.uk/government/publications/uk-innovation-strategy-leading-the-future-by-creating-it
Graph View
How committed and credible is the government in its activities to guide the effective regulation and supervision of the international financial architecture?
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9
9
The government is clearly committed to ensuring the stability of the global financial system.
8
7
6
7
6
The government is largely committed to ensuring the stability of the global financial system.
5
4
3
4
3
The government is somewhat committed to ensuring the stability of the global financial system.
2
1
1
The government is not at all committed to ensuring the stability of the global financial system.
The Ccity of London is one of the world’s main financial hubs and a significant sector of the UK economy. Consequently, the government has a strong interest in global financial stability to safeguard financial and business services. As a result, UK governments have traditionally tried to protect the interests of the City of London against more intrusive regulations, whether national, European, or global. Prior to Brexit, the United Kingdom had substantial influence on EU financial reforms, both through government action and initiatives from the City of London. The expectation is that UK financial regulation will remain closely aligned with European Union and international standards.
At the international level, successive UK governments have played a prominent role in improving the international regulatory framework through bodies such as the Financial Stability Board (chaired by Mark Carney, then governor of the Bank of England from 2011-2018), the Bank for International Settlements, and the IMF, where the UK has a higher voting weight than warranted by the size of its economy.
One issue over which the United Kingdom is susceptible to accusations of double standards is the inflow of capital from questionable sources. While money laundering standards are applied with some rigor, there is a perception that the City of London is too lax on the super-rich and too slow to clamp down on “dirty money.” This has led to the pejorative term “London Laundromat,” used in a 2022 Financial Times video. Sanctions against Russian oligarchs and efforts to clamp down on political donations from dubious sources are steps to address these issues, although many tax havens are still associated with the city.
Citations:
https://www.ft.com/video/d3bafb94-9dbd-4c1e-8016-8cd8331960f1
At the international level, successive UK governments have played a prominent role in improving the international regulatory framework through bodies such as the Financial Stability Board (chaired by Mark Carney, then governor of the Bank of England from 2011-2018), the Bank for International Settlements, and the IMF, where the UK has a higher voting weight than warranted by the size of its economy.
One issue over which the United Kingdom is susceptible to accusations of double standards is the inflow of capital from questionable sources. While money laundering standards are applied with some rigor, there is a perception that the City of London is too lax on the super-rich and too slow to clamp down on “dirty money.” This has led to the pejorative term “London Laundromat,” used in a 2022 Financial Times video. Sanctions against Russian oligarchs and efforts to clamp down on political donations from dubious sources are steps to address these issues, although many tax havens are still associated with the city.
Citations:
https://www.ft.com/video/d3bafb94-9dbd-4c1e-8016-8cd8331960f1