Rachel's difficult budget and the UK productivity gap

As Westminster frets over which tax rise will cause Labour the least political pain, one thing becomes increasingly obvious: none of this gets near the UK’s real economic crisis.

Because Britain doesn’t just have a tax problem. It has a bigger mobility and productivity problem.

And unless policymakers confront that truth, the country’s economic geography will continue to calcify into a nation where opportunity is largely predetermined by birthplace rather than ambition.

For the last two years I’ve been working on a paper, Unravelling the UK Wage Curve, analysing the granular detail of ONS microdata to understand why wages and productivity remain so unevenly distributed. The picture that emerges is sharp and uncomfortable. Not only are UK regional wage inequalities among the most acute in the industrialised world. Worse, they still show no sign of naturally correcting themselves.

More than a decade after the global financial crisis, the UK has settled into a model of low wages, weak productivity, and entrenched divides. The political slogan of “levelling up” has failed to translate into economic rebalancing. If anything, the underlying structure looks even more skewed than ever.

London maintains an iron grip on skills and wages

Successive governments have promised to rebalance the economy, yet none have come close to diluting London’s dominance. High-value firms, the most productive jobs, graduate talent, and the country’s innovation ecosystem remain concentrated in the capital and its commuter belt. Other regions simply cannot compete on the same terms.

The hierarchy of regional wages today looks remarkably similar to the early 2000s. London’s gravitational pull hasn’t weakened; it's tightened. And because opportunity clusters there so heavily, the rest of the country struggles to create the economic mass needed for sustained growth.

Only the highly skilled benefit from inter-regional mobility

Britain likes to describe itself as having a flexible labour market, but the data suggests something closer to regional stickiness. Only a very small share of workers move between regions each year. Those who do are usually highly skilled, already well-paid, and—crucially—headed into London or the South East, where the wage premium justifies the move.

For most workers, regional mobility doesn’t elevate earnings at all. In many cases it reduces them. Housing is the main culprit: the wage uplift of moving into more dynamic labour markets is often wiped out by spiralling rents.

The cost of accessing opportunity has become a barrier to opportunity itself. Mobility does exist in Britain — but only for those who can afford it.

Low-skill regions are trapped in low wages

Lower-skilled workers in struggling regions are caught in an economic trap. The industries around them are standing still. Productivity is stagnant. New firms rarely arrive. And because so few people move in or out, the cycle reinforces itself every year.

In the wage-curve analysis we write that “the distribution of wages across industries and geographies mirrors the cumulative effects of local labour demand, worker mobility, institutions, and bargaining power.”

What this means in practice is simple: once a region falls behind, the forces pushing it back are stronger than those pulling it forward.

This is textbook path dependence — the past shaping the present — and the UK is deep within it.

Britain’s mobility crisis Is now also a generational crisis

The Institute for Fiscal Studies warned in 2023 that social and economic mobility in the UK is now at a 50-year low. The wage-curve data reinforces that grim diagnosis. We are no longer talking about temporary disparities or cyclical gaps but a system that reproduces its flawed self with startling consistency.

Britain has quietly become a country where, for many people, “moving up” increasingly requires moving south — and even that ladder is now limited to those who can afford the climb.

So what should be done?

The research points to a conclusion that should reshape the national debate: quick fixes and cosmetic reallocations will not solve Britain’s productivity problem. The country needs a new model, one rooted in long-term strategy rather than fiscal theatre.

Real rebalancing means creating better jobs where people already live, not just encouraging talent to chase opportunity elsewhere. It means infrastructure that actually connects regions, skills policies built around employer demand, and housing markets that don’t trap workers in place.

Crucially, labour mobility must become realistic rather than punitive. People need to be able to move between regions without facing a housing penalty so severe it erases any economic benefit.

Equally, those who stay should not be condemned to low-wage, low-growth local markets.

Minding the productivity gap - a warning for policymakers

As the research concludes, “regional policies that fail to account for the interaction between wages, unemployment and mobility risk deepening disparities rather than reducing them.”

Cutting taxes will not fix Britain’s productivity gap.

Regional handouts will not fix immobility. And rebranding old ideas will not make levelling up any more real.

The UK’s problem is not a lack of policy announcements. It is a lack of structural change.

Britain’s economic geography is not accidental. It is systemic.

And systems do not change with slogans. They change when governments stop asking which tax rise is safest — and start asking which investments genuinely unlock mobility, productivity and opportunity.

Until that shift happens, the regions that need change the most will continue to wait.