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Structural policies to promote sustainable long-term growth.

While the immediate imperative is to tackle the financial crisis and to steer the economy through the current downturn, there are also a number of longer-term challenges that need to be addressed to foster a robust and sustainable recovery. In particular assistance for young and low skilled workers needs to be enhanced and the performance of the education sector also needs to be improved.


The economic performance of the United Kingdom was strong in the years before the financial crisis. GDP per capita increased at a strong pace, spurred by globalisation, and this improved the relative performance of the UK economy among OECD countries (OECD, 2007). Employment increased and labour productivity growth was strong, outpacing the euro area average and close to the US rate. However, performance was weaker in the years since the turn of the century (OECD, 2009). Despite the strong economic performance before the housing market began to weaken and the financial crisis hit, employment and labour productivity growth eased compared with the previous years, so the gap with the United States stopped closing and there remains a substantial gap with the best performing OECD countries in terms of both GDP per capita and labour productivity. That said, productivity growth tends to be procyclical, so an easing of its rate in the latter part of the economic cycle is to be expected. Although employment and participation have been relatively high overall, there have remained areas where labour market performance can be improved such as the outcomes for low-skilled workers and the re-engagement of disabled workers. Furthermore, some of the apparent progress in economic performance over recent years may have been unsustainable. Once the financial crisis is resolved, it will be important to set the economy on a sustainable and strong medium-term growth path to ensure that living standards are raised in the medium term.

Going for Growth (2009) identified a number of structural reform challenges that need to be tackled if the country is to resume its catch up with the leading OECD countries once the current downturn has ended. The priority areas include reforms to the disability benefit schemes, the school system, infrastructure, especially for transport, public sector services and land use planning:

* While the government has made a number of reforms to reduce numbers on disability benefits schemes, levels still remain high by OECD standards. The Pathways to Work programme was successfully trailed and is now being rolled out across the country. The reforms include a Work Capability Assessment, which focuses on the claimant's capacity to participate in the workforce and from 2010 will begin to be applied to existing disability benefits claimants, not just new claimants.

* Improving the educational attainment of young people is another important challenge if the United Kingdom is to improve living standards in the longer term, particularly in a globalised world with rapid technical change requiring an adaptable and well-educated workforce. Moreover, a more even performance across the student population will assist in addressing the trend of increasing inequality. International standardised tests show that the United Kingdom lags the better performing countries significantly, suggesting that considerably more needs to be done both in terms of overall performance and assisting the poorer performers. This issue is discussed in further detail below.

* The adequate provision of public infrastructure should be a priority, particularly in transport where road and airport congestion, and problems in the rail system impede business and constrain productivity. The government has already announced the bringing forward of planned public investment projects and has gone some way in adopting the recommendations of the Eddington Report on transport infrastructure. However, while the fiscal arrangements have lifted public investment, more will need to be done to meet the government's 2000 Ten Year Plan targets. The financial crisis poses a problem with the ongoing viability of Private Finance Initiative (PFI) funding of infrastructure projects. In March 2009 the government took steps to forestall these problems by offering to lend to PFI projects that were having difficulties accessing sufficient debt finance on acceptable terms.

* Like many OECD countries, the United Kingdom also faces the challenge of coping with an ageing population. Given the large role played by the government in the provision of health and other social services, ageing is a medium to long-term fiscal challenge. Part of the answer lies in improving the efficiency of the public sector, particularly the efficiency of the public provision of health services (Chapter 3).

Shortages of land for residential and commercial development have been one reason for the large price fluctuations seen in the house and commercial property market in the United Kingdom over the past few decades. The government has embarked on an ambitious programme of planning reform following publication of the planning White Paper in 2007 in response to the recommendations of the Barker Review of Land Use Planning (2006). The government has since passed the Planning Act 2008 which will set up a new Infrastructure Planning Commission, to be in place later this year, which will put in place a faster, more certain and transparent process for planning for major national infrastructure projects--the aim is to cut the time taken from application to decision to less than one year. In addition, the Planning Act will continue to introduce further reforms of the town and country planning system with the aim of making it more responsive and efficient. The government is also consulting on a new planning policy statement for economic development, with a view to making the planning system more responsive to market signals and demands in allocating land for development. The government also commissioned the Killian Pretty Review of Planning (2008) to investigate the opportunities for improving the planning application process for the benefit of all involved. The government's response to the review was published in March 2009. A responsive and effective planning system is essential to supporting the government's wider long-term goals of increasing housing supply and providing the infrastructure that supports it. The Barker Review also made numerous recommendations aimed at freeing up land for development. To this end the government has made some changes to the tax treatment of vacant and unused land, including the passage of the Rating (Empty Properties) Act 2007 which changes the relief from business rates in respect of empty property, but more radical measures could be considered including the introduction of a broader land-use tax and the freeing up of green belt land, much of which is of little ecological or recreational value, for housing and commercial development.(1)

Work prospects for the least skilled need to be enhanced

Coming into the current downturn, the unemployment rate in the United Kingdom was below the OECD average, and participation rates have continued to rise, particularly among older people and women. For the young, however, some more worrying indicators have begun to emerge. Whereas labour market improvements over the 1990s had brought the youth unemployment rate to below the OECD average by the start of the millennium, in recent years this trend has reversed and recent increases pushed the youth unemployment rate up to 14.4% in 2007, significantly above the OECD average and close to the euro area average (Figure 5.1, left panel). Relative to adult unemployment rates, youth unemployment rates have been trending up significantly, much more so than in other countries (right panel).


More positively, the incidence of long-term unemployment among youth has decreased by over 7 percentage points over the past decade. This decline has been assisted by the introduction of the New Deal for Young People (NDYP) scheme in 1998. It is a compulsory active labour market programme for youth, which allocates youth to employment or training options after 6 months into the unemployment spell. New Deal has limited the duration of unemployment for young people, which has considerable benefits. The total youth unemployment rate has, however, risen over the last few years, as has the number of young people who are neither in employment nor in education or training (NEET). In 2004 the government set a target of reducing the share of 16 to 18-year old youth who are NEET by 2 percentage points by 2010. There has been recent good progress against this target, with rates dropping from a peak of 10.6% in 2005 to 10.4% in 2006 and 9.4% in 2007. To meet the target rates need to hit 7.6% by end 2010. Clearly, the economic downturn poses challenges, but the government has articulated a NEET action plan and has funded additional places for 16-19-year olds in education and training. The government has also recently announced a new guarantee of 6 months of work or training for all 18-24-year olds unemployed for 12 months.

Within the youth cohort, it is low-skilled youth who have experienced the greatest labour market deterioration. A recent OECD study on Jobs for Youth in the United Kingdom (OECD, 2008a) used data from the British Household Panel Survey to obtain a measure of persistence of non-employment for youth aged 16-24 who have left education. This shows that the percentage of all 16 to 24-year olds not in education who were continuously non-employed has been roughly unchanged at around 6% since the first half of the 1990s. However, this stability masks divergent trends between skilled and low-skilled youth. Whereas youth with qualifications have experienced improved employment outcomes, low-skilled youth not in education have become even more likely to experience persistence in their non-employment status (Figure 5.2). Low-skilled youth are now more than five times more likely to be unemployed than their more skilled counterparts, a situation that has worsened over the past decade. The low-to-high-skilled youth unemployment ratio is now one of the highest in the OECD (OECD, 2008a).


Two potential explanations for the worsening labour market outcomes for low-skilled youth are the opening up of the labour market to migration from most of the new EU member countries and the introduction of the minimum wage.

Since 2004 there has been a considerable increase in inflows of work-related migrants, with free access to the UK labour market being granted to EU citizens from the A8 countries--most notably from Poland, Lithuania, the Slovak Republic, the Czech Republic and Hungary (in decreasing order of numbers). With the accession of Romania and Bulgaria (A2) to the European Union in January 2007, restrictions were placed on worker inflows from those countries which, as a result, have remained modest to date. Part of the motivation for putting these restrictions in place was a concern about possible negative impacts on the labour market. Indeed, while work-related immigration to the United Kingdom has undoubtedly brought benefits with foreign workers filling skill gaps, allowing closer matching of job vacancies and skills, and bringing in skills that complement those of native-born workers, there have been concerns that they have displaced native workers and may have reduced wages, particularly of young and low-skilled native workers. However research to date finds little evidence of any negative impact on the work prospects of young and low-skilled native workers (Blanchflower et al., 2007) despite A8 and A2 workers generally being young but on average better educated than natives of a similar age.

A minimum wage was reintroduced in 1999 and currently there are three rates: an adult rate, a development rate (for workers aged 18-21), and a rate for 16-17-year olds (introduced in 2004; younger than 18-year olds were exempt prior to 2004). The minimum wage is set annually on the recommendation of the Low Pay Commission (LPC). Currently the development and 16-17-year old rates are around 80% and 60% of the adult rate respectively, and the rates have increased at an average of around 5.1% per annum since being introduced. This is significantly higher than the rate of increase of average economy-wide earnings. Young inexperienced workers' chances in the labour market are particularly sensitive to wages, as implicitly acknowledged in providing a lower rate for younger workers. Setting the rate too high could damage work prospects (Neumark and Wascher, 2003; Neumark and Wascher, 2006). While some of the decline in income inequality and poverty in the United Kingdom in recent years may be attributable to the introduction of the minimum wage, a trade-off exists, particularly in terms of employment prospects for young and low-skilled workers. The minimum wage should be increased at or below the rate of increase in the median wage.

Better education achievement would help to narrow socio-economic gaps

Globalisation, together with skill-biased technical change, is changing the composition of jobs in advanced economies and raising the level of skills required to do them. Moreover, the current downturn is likely to accelerate the rate of structural change. This has increased the importance of educating a large proportion of the population to much higher standards than in the past. The government has acknowledged the importance of education for facilitating individual success in the labour market and has responded to this challenge by raising education spending, expanding the capacity of the education system in pre-primary education, encouraging young people to stay at school for longer, and developing new qualifications for 14 to 19-year olds.

Some successes have been achieved, such as an increase in the percentage of 16 and 17-year olds in full-time education. Nonetheless, the focus on raising the school leaving age and meeting performance targets in education may still be distracting attention from the more important goal of raising core literacy and numeracy achievement. Although education performance has been recorded as increasing on the basis of national examination results, there is some concern that these measures may have been biased by the presence of targets (Brook, 2008). Indeed, national examination results contrast with the results of international tests such as PISA and PIRLS, which suggest that the performance of young people in the United Kingdom remains close to the OECD average. For example, the PISA 2006 study suggested that 15-year olds in the United Kingdom perform significantly below the level of the best-performing countries, although they do perform above the OECD average in science (Figure 5.3, top panel). According to this study, almost 20% of young people performed at the lowest level of competence, versus only around 5% in Finland, the top performer (middle panel). Moreover, when compared with the PISA results from previous years, there may have been some deterioration over time.2 Dispersion in performance is also more marked than in all other OECD countries except the United States (bottom panel).

The performance of the UK's top students is good. Table 5.1, which compares the distribution of the UK's PISA scores with those of the top 7 countries, shows that UK pupils at the very top do relatively well (a gap relative to the top 7 countries of 1S to 18 points at the 95th and 90th percentiles), whereas the gap is wider further down the distribution (peaking at 35 points at the 10th percentile). The results illustrate that the UK education system is poor at ensuring good performance of pupils in the middle to bottom half of the education performance distribution. In order to achieve a higher overall performance students in the middle and bottom half of the distribution need to perform better.


Similar conclusions emerge from results of the PIRLS International 2006 survey of achievement in reading among children aged about 10-year olds. This study showed that England's performance had deteriorated relative to its performance in 2001. (3) Moreover, data on the distribution of the PIRLS results suggest that children in the middle and bottom half of the distribution are already falling behind those in the top performing countries even before they complete primary school. Consistent with the PISA results (shown in Table 5.1), Table 5.2 shows that reading performance among the most advanced English children was not much below that of the most advanced children in the top 7 countries (a gap of only 2 percentage points). Some positive reflection of policies to assist the poorest performers is evident in the fact that the biggest gap was not among the lowest performers. However, a much wider gap is evident among children in the middle and lower part of the distribution.

As long as the United Kingdom struggles to improve education achievement among the poorest performers, intergenerational social mobility is likely to remain lower than in many other OECD countries. A common measure of intergenerational income mobility is the fraction of relative income differences between fathers that are transmitted to their sons: the higher this elasticity, the lower is intergenerational income mobility. While this elasticity measure suggests relatively high social mobility in the Nordic countries, Australia and Canada, it shows the lowest degree of mobility for the United Kingdom (Figure 5.4).

In recognition of these issues, the government has introduced a number of policies to lessen poverty, and improve equality of opportunity. These policies have included the introduction of a minimum wage, the working and child tax credits, and pension credit. Some progress is reflected in the fact that compared with the year 2000, there is now a smaller proportion of households that are very poor, and poverty rates have fallen for vulnerable groups including children and pensioners. But at the same time, there has been a further shift in the spatial segregation of the population, with increasing geographical income polarisation in recent years (Dorling et al., 2007). An important channel for improving intergenerational social mobility will be raising the proportion of students from low socio-economic backgrounds who obtain a sufficiently high-quality compulsory education to continue to university study. (4) Given the large variance in educational outcomes in United Kingdom, continuing to improve access to pre-primary education, which has been shown to increase future education attainments particular for children from disadvantage backgrounds, would be helpful (d'Addio, 2007).


A number of recommendations for raising education achievement and breaking the cycle of inequality were outlined in the previous Survey. In particular, it was concluded that policy makers should consider reducing the current focus on tests and targets and introduce changes to the way funds are allocated to schools, in order to raise the relative performance of pupils in the middle and lower half of the distribution. Progress in implementing these, as well as other reforms suggested in the previous Survey, is summarised in Table 5.A1.
Box 5.1. Recommendations to address longer-term structural issues

* Progress toward reducing numbers on disability benefits should
continue, including the extension the Pathways to Work programme to
the stock of recipients.

* Improvements in public infrastructure are required to boost
productivity, particularly in transport. More will need to be done,
particularly to meet the government's 2000 Ten Year Plan target.

* The improvement in the land use planning procedures should be
continued to ensure that future demand for land is met, especially
for housing purposes.

* Raising training and education levels remains a priority to lift
productivity, assist the low-skilled, help to narrow socio-economic
gaps and promote social mobility. Given the large variance in
educational outcomes, continuing to improve access to pre-primary
education, which has been shown to increase future education
attainments particularly for children from disadvantage
backgrounds, would be helpful.

Progress in structural reform

This annex reviews actions taken on recommendations from previous
Surveys. Recommendations that are new in this Survey are listed in
the relevant chapter.

Recommendations                     Action taken since the previous
                                    Survey (September 2007)

Continue to promote a focus on      Basic functional skill
the acquisition of core skills      requirements to be imposed
for pupils at all age levels and    from 2010.
ensure that this focus is not
compromised by the goal of
expanding the average number of
years of schooling.

Design all education targets in     Through the achievement and
a way that limits the potential     attainment tables and Ofsted
for gaming, by ensuring an          reports, many aspects of schools'
interactive performance             performance are already made
management system that captures     public. The government is
the complexity of the education     consulting on proposals for a
process.                            new school report card that will
                                    strengthen accountability to
                                    parents and local communities by
                                    making broader information about
                                    schools' performance and
                                    achievements more readily
                                    available to parents in a
                                    simpler, easily understood format.

Encourage the highest quality       All eligible schools can offer
teachers to move to the most        benefits to teachers taking up
disadvantaged schools.              posts from September 2009: A
                                    golden handcuff of 10 000
                                    [pounds sterling]in return for
                                    staying in the school far three
                                    years for newly recruited
                                    teachers; Access to a
                                    government-funded network of
                                    teachers which will offer
                                    experience sharing, discussion
                                    groups and subject specific

Promote the transition to a         The Department for Children,
better allocation of funds by       Schools and Families (DCSF) is
taking deprivation-targeted         conducting a review of the
funding out of the formula used     formula for distributing the
to determine the Minimum Funding    main school grant-the Dedicated
Guarantee. Permit smoothed          Schools Grant (DSG). It will
transitions to the improved         consult on options for changing
formulas.                           the formula in the summer of
                                    2009 with the intention of
                                    bringing in changes from the next
                                    Spending Review period. Transition
                                    arrangements form an important
                                    work stream in the review.

Evaluate the pros and cons of       The government is reviewing the
                                    formula for distributing the DSG.
                                    The aim is to develop a single,
                                    transparent formula that will be
                                    available for use in
                                    distributing the DSG to local
introducing a differentiated        authorities. The Review will
voucher system of funding           consider additional educational
                                    needs: which pupils are affected;
                                    what indicators are best used to
(as in Chile) where pupils from     distribute money for these
poorer families receive vouchers    pupils; whether in the context of
that are valued more highly than    the personalisation agenda it is
those for the general population.   possible to attach money more
                                    directly to deprived pupils, for
                                    example, as they move round the

Consider modifications to the       The Working Tax Credit (WTC)
tax and benefit system that would   tax credit, over the longer term.
reduce the marginal effective       1 200[pounds sterling] in April
tax rate faced by lone parents      2008, balanced by a small
                                    decrease in the tax credits
and one-earner couples when         withdrawal rate from 37 to 29%,
                                    further enhancing participation
extending their hours or when       incentives for low income
                                    families. The number of families
progressing in work.                facing the highest effective tax
                                    rates (above 70%)remains less
                                    than half its level in 1998.
                                    Since November 2008 lone parents
                                    claiming benefit, whose
                                    youngest child is aged 12 and
                                    over, can no longer receive
                                    Income Support solely on the
                                    basis of being a lone parent.
                                    They can claim Jobseeker's
                                    Allowance or another benefit if
                                    appropriate which require
                                    being actively preparing for or
                                    searching for work. This is
                                    being rolled out to stock
                                    claimants from March 2009.

Improve incentives for labour       Implicit taxes on work for
force participation by second       second earners are significantly
earners by reducing the high        reduced, particularly for low
implicit taxes on returning to      earners, through the childcare
work caused by high child-care      element of the Working Tax
cost.                               Credit. It provides support for
                                    up to 80% of childcare costs
                                    up to limits of 175-300 [pounds
                                    sterling] per week for families
                                    with one/two or more children.
                                    The percentage of eligible
                                    childcare costs covered rose to
                                    80% in April 2006.

Improve incentives to up-skill      The new Free Childcare for
by making the child-care element    Training and Learning for Work
of the Working Tax Credit           scheme offers free childcare to
available to low-skilled people     potential second earners
undertaking approved courses of     potential second earners
study, as well as those who are     entering training. The Sixth
working.                            Form College Childcare Scheme
                                    will pay up to 175 [pounds
                                    childcare support for parents on
                                    approved training courses. The
                                    Childcare Grant can pay up to
                                    85% of a higher education
                                    student's childcare costs.

Extend the Pathways to Work         The government has rolled out
scheme on a mandatory basis to      student's childcare costs.
the stock of existing claimants.    remaining 60% of the country.
                                    The Welfare Reform Green Paper
                                    (2008) set out plans to widen
                                    mandatory participation in
                                    Pathways, so that all those
                                    under 50 who fall in the "Work
                                    Focussed Group" of claimants of
                                    Employment Support Allowance
                                    (ESA) will have to participate
                                    in Pathways. The most severely
                                    disabled, the Support Group,
                                    will be able to participate in
                                    Pathways on a voluntary basis.

Improve the monitoring of the       Incapacity Benefit has been
of their entitlement to sickness    replaced by ESA for new
pay and benefits and make the       claimants (from October 2008).
medical assessment of benefit       In parallel with the
claims earlier.                     introduction of ESA, a new
                                    eligibility test conducted at
                                    the start of a claim will be
                                    introduced (the Work Capability
                                    Assessment (WCA)). A 10%
                                    reduction in those claiming ESA
                                    as a result of the WCA is
                                    expected. The WCA will be
                                    applied to the stock of claimants
                                    over the next five years.

Pay more attention to the early     The new WCA focuses on what an
sickness stage of the large         individual can do. This
number of people claiming           information is available for
incapacity benefit from a           advisors to work with claimants
non-employment status.              at their Work Focussed
                                    Interviews, where the advisor
                                    and claimant can discuss and
                                    agree what kind of steps could
                                    be taken to help the claimant
                                    back into work.

Consider rolling out the City       The fifteen pathfinder pilots
Strategy "pathfinders"              have been extended for a further
programmes on a wider basis.        two years, to end in 2011. With
Also since programmes tend to       the introduction of the Flexible
become less effective over a        New Deal in October 2009,
period of successful                increased flexibility at the
period of successful                local and sub-regional levels
implementation, new approaches      will be explored: from
should be developed and             consulting local partners on how
evaluated.                          programmes are commissioned
                                    (level one); integrating
                                    innovative services to local
                                    proposals or a sub-regional
                                    approach (level two);
                                    potentially extending devolution
                                    to give local areas a role in
                                    letting contracts (level three).

Improve statistical monitoring      The Office for National
of the stock of migrant labour      Statistics is currently engaged
by "cross-checking" registered      in a substantial programme that
workers on the Worker               includes taking forward the
Registration Scheme against         recommendations of the 2006
other databases (e.g. taxpayers).   Interdepartmental Task Force on
                                    Migration Statistics and the
                                    more recent Treasury Select
                                    Committee report "Counting the
                                    Population". The programme is
                                    expected to lead to significant
                                    improvements in both quality and
                                    timeliness of data on migration
                                    and the population more


Facilitate the entry of new         The government is considering
businesses by reforming planning    proposals to maintain the "town
regulations, especially in the      centre first" approach, while
area of retail trade, and           improving its effectiveness by
abolish the "needs test" for        removing the current need test
market demand. Put more weight      and replacing the existing
on economic issues in the           impact assessment with a new
planning process.                   test, a key feature of which is
                                    a broader focus with emphasis on
                                    economic, social, environmental
                                    and strategic planning impacts
                                    and their impact on car use,
                                    traffic and congestion.

Free-up land for development by     Planning authorities review
reconsidering the boundaries of     green belt boundaries when
the "green belts" in                implementing planning policy.
fast-growing areas.                 The government is currently
                                    reviewing Regional Spatial
                                    Strategies (RSSs) forthe South
                                    East, South West and East
                                    Midlands all of which contain
                                    green belt review recommendations.

Consider further incentives for     The Planning Act 2008 provides
land development particularly       powers to establish a new local
those with the potential to         charge (the Community
contribute to the funding of        Infrastructure Levy) which local
local infrastructure.               authorities will be able to
                                    apply to new development.
                                    Receipts from the new charge
                                    must be applied to the provision
                                    of infrastructure needed to
                                    support growth.

Ensure that infrastructure          The government will implement
investment does not fall short      five year transport plans to
of that envisaged in the            provide greater certainty. This
government's Ten Year Plan for      follows the example of the
Transport. Consider ways to         "control periods" for rail.
improve the predictability of       Targeted spending in key areas
transport funding. Follow           was announced in January 2009:
through with targeted spending      for example detailing a National
in key strategic growth areas.      Roads Programme of up to
                                    6 billion [pounds sterling] to
                                    increase capacity and reduce
                                    congestion in the worst affected

Continue to examine the options     A demonstration project to trial
for addressing road congestion      the technology and processes
and environmental impacts           that could underpin more
including the implementation of     sophisticated road charging
a road-pricing system on a          systems will be underway by
national scale.                     spring 2009. In addition, the
                                    government is bringing forward
                                    schemes where capacity can be
                                    increased at peak times through
                                    the opening of the hard shoulder.

Raise the skill level of the        Subsidy rates for publicly
workforce by focusing adult         funded training--basic skills
training on the most                and first level 2 qualifications
disadvantaged groups. When          are fully funded and level 3 is
evaluating progress, focus more     part funded (50% by 2011).
on broader measures. This           Information is collected
encompasses improving the           regarding attainment, volumes
quality and volume of               and quality of the various
qualifications, as well as the      skills programs. The method for
employment outcomes from            measuring overall progress is
acquiring skills and                the agreed PSAs indicators for
qualifications, and international   2011 and the Leitch 2020 vision.
measures of adult cognitive         In terms of employment outcome
skills.                             measurements considerable work
                                    is underway to enable this to
                                    occur in the Integrating
                                    Employment and Skills trails and
                                    once data sharing legislation is
                                    approved (July 2009) measures of
                                    employment outcomes from
                                    acquiring skills and
                                    qualifications and progression
                                    measures will be able to be put
                                    in place.

Assess the efficiency of fiscal     An independent study in 2006,
support to R&D, such as the R&D     commissioned by the UK
tax credit, over the longer term.   government, concluded that a
                                    sufficiently long time series of
                                    data was not yet available to
                                    support robust estimates of the
                                    effect of R&D tax credits. The
                                    government remains committed to
                                    undertake a full evaluation of
                                    the schemes as soon as
                                    sufficient data becomes

Tax competition

Continue to cut the statutory       Reforms to corporation tax
corporate tax rate and broaden      announced in March 2007 included
the base.                           a two percentage point reduction
                                    in the main rate to 28%,along
                                    with a reduction in the rate of
                                    capital allowances to 20%, the
                                    phasing out of some other
                                    capital allowances and the
                                    introduction of an Annual
                                    Investment Allowance of 50 000
                                    [pounds sterling].

Look into the merit of moving       The Finance Bill 2009 proposes
to a dividend exemption system.     an exemption from tax for most
                                    foreign dividends received and
                                    a Targeted Anti-Avoidance Rule
                                    will apply to protect against
                                    avoidance activity.

Reduce the complexity of the        Since 2007, four reviews to
tax code.                           simplify specific areas of tax
                                    policy were conducted and more
                                    than 50 measures to simplify
                                    the tax system for business
                                    brought forward. The government
                                    is reducing the administrative
                                    burden of the tax system.


Monitor closely the speed and       The Planning Act 2008 will set
efficiency of the planning          up a new Infrastructure Planning
system and progress towards the     Commission. It will plan major
government's regional housing       national infrastructure projects
targets.                            and aims to cut the time taken
                                    from application to decision to
                                    less than one year. In addition,
                                    a new planning policy for housing
                                    has been adopted aimed at
                                    ensuring more land is brought
                                    forward to respond to housing

Consider imposition of some         In 2008 the UK enacted a
form of mandatory pension           programme of pension reform,
savings in the medium term.         following recommendations made
                                    by the Pension Commission. These
                                    comprise: a statutory duty on
                                    employers to automatically enrol
                                    eligible workers into workplace
                                    pension schemes which must meet
                                    minimum qualifying requirements;
                                    and the public provision of a
                                    trust based multi-employer
                                    pension scheme for those
                                    otherwise without access to a
                                    qualifying scheme. The
                                    introduction of the employer
                                    duty to auto-enrol eligible
                                    workers is planned for 2012.


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Blanden, J., P. Gregg and L. MacMillan (2007), "Accounting for Intergenerational Income Persistence: Noncognitive Skills, Ability and Education", The Economic Journal, Vol. 117, No. 519, Blackwell Publishing.

Blanden, J. and S. Machin (2004), "Educational Inequality and the Expansion of UK Higher Education", Scottish Journal of Political Economy, Vol. 51, No. 2, Blackwell Publishing.

Brook, A. (2008), "Raising Education Achievement and Breaking the Cycle of Inequality in the United Kingdom", OECD Economics Department Working Paper, No. 633.

Department for Communities and Local Government (DCLG), (2008), Facing the Housing Challenge: Action Today, Innovation for Tomorrow, July 2008, London.

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(1.) The recent "Facing the housing challenge" (DCLG, 2008) report announced a number of measures aimed at increasing the supply of housing including assisting first-home buyers, funding for local councils that are facilitating the supply of housing, and funding to purchase unsold stock from house builders for affordable homes.

(2.) Average scores in the 2006 PISA study were below those in the 2000 and 2003 studies. However, because of a low response rate in the previous years (see Micklewright and Schnepf [2006] for details), the 2000 and 2003 results are generally excluded from international and across-time comparisons. Thus, it is only possible to say with confidence that the UK's sample results in the 2006 study reliably reflect those for the national population with the level of accuracy required by the PISA study.

(3.) In the 2001 study England ranked 3rd and Scotland 14th out of a total sample of 35 participants. In the 2006 study England ranked 19th and Scotland 26th out of a total sample of 45 participants. Similarly, in the 2003 TIMSS study of mathematics skills among 9-10-year olds, England ranked tenth and Scotland 18th out of a total sample of 25 participants. Note that in both the PIRLS and the TIMSS studies the participant samples included developing as well as more advanced countries.

(4.) Between 1981 and the late 1990s, young people from the poorest 20% of families increased their university graduation rate by just 3 percentage points, compared with a rise in graduation rates of 26 percentage points for those born to the richest 20% of parents (Blanden and Machin, 2004). To date, the academic A-level track at secondary school has been the main conduit to university, but students from low socio-economic backgrounds are less likely to have the grades to enter this track. With the introduction of the new Diplomas, care should be taken to ensure that socioeconomic segregation does not increase between A-level and less academic tracks.
Table 5.1. Average PISA scores by percentile ranking: Top seven
performers versus the United Kingdom (1)

                                      5th    10th   25th   Mean

Average PISA score top 7 countries    370    407    468    530
United Kingdom                        335    372    435    502
Gap: Top 7--United Kingdom             34     35     32     28

                                      75th   90th   95th

Average PISA score top 7 countries    595    646    675
United Kingdom                        571    628    660
Gap: Top 7--United Kingdom             24     18     15

(1.) Measured by the unweighted average of the various percentile
scores for mathematics, reading and science. The top seven
performers are Finland, Korea, Canada, New Zealand, Netherlands,
Australia and Japan.

Source: DECD (2007), PISA 2006: Science Competencies for
Tomorrow's World, OECD Publishing.

Table 5.2. Percentages of students reaching the PIRLS 2006 reading

Top seven performers versus the United Kingdom

International Benchmark
                                            Advanced       High

Average percentage reaching England            17           57
  in top 7 countries (1)
Percentage reaching benchmark in               15           48
Gap: Top 7--United Kingdom                     2             9

                                          Intermediate      Low

Average percentage reaching England            88           98
  in top 7 countries (1)
Percentage reaching benchmark in               78           93
Gap: Top 7--United Kingdom                     10            5

(1.) Measured by the unweighted average of the percentage of pupils
reaching each international benchmark. The top seven performers
were Singapore; the Russian Federation; Canada, Alberta; Bulgaria;
Canada, British Columbia; Canada, Ontario; Luxembourg and Hong Kong

Source: International Association for the Evaluation of Educational
Achievement (2007), PIRLS 2006 International Report.
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Title Annotation:Chapter 5
Publication:OECD Economic Surveys - United Kingdom
Geographic Code:4EUUK
Date:Jun 1, 2009
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