The UK’s economic performance, like much of Europe’s industrial heartland, has struggled in recent years. However, Spain has emerged as an outlier, offering a potential blueprint for success. With GDP growth of 3.2% in 2023, Spain outpaced the UK and every other Eurozone country while simultaneously raising the minimum wage, strengthening workers’ rights, investing in green energy, and subsidising fuel. So what is Spain doing right, and can the UK learn from its approach?
According to the Good Growth Foundation’s recent report, Mind the Growth Gap, the cost of living crisis remains the dominant lens through which British voters perceive the economy. Spain addressed this issue early by capping essential costs such as energy, transport, and housing in 2022. It also introduced direct payments to those most affected, mitigating the crisis that had gripped much of Europe. By the end of that year, Spain’s inflation rate had dropped from above the Eurozone average to the second-lowest. This trend continued, with core consumer prices rising by only 2.4% in 2024 – compared to the UK’s 4.1%.
Unlike the UK, where austerity remains a familiar policy, Spain has prioritised investment. As the second-largest recipient of an €800 billion EU investment fund, Spain has heavily funded its transportation networks and green energy production. The conditions attached to this funding required productivity-enhancing structural reforms, resulting in over half of Spain’s energy usage coming from renewable sources for the past two years in a row. Combined with government price caps, Spain now enjoys some of the cheapest energy in the EU.
Much of Spain’s growth story is tied to tourism and immigration. While VisitBritain estimates UK tourism grew by 9% in 2024, this represents only a 1% increase from pre-pandemic levels. The UK may not have Spain’s climate, but Germany’s stronger post-pandemic tourism recovery suggests there is untapped potential in the sector.
Immigration, however, is an economic lever we in the UK are less likely to see our Government pull. Spanish Prime Minister Pedro Sánchez has championed pro-immigration policies and rhetoric, arguing that “welcoming the outsider” is both a duty and a means of sustaining the welfare state. This may be morally and economically sound, but it is an approach that is unfortunately unlikely to gain significant traction in the UK. Having had record high immigration levels over the past decade, immigration has become a hotly contested issue across the country. With Reform leading in some polls, parties across the political spectrum, including the governing Labour Party, are pushing policies that are hoped to bring down immigration numbers.
Spain’s combination of low energy costs, competitive labour costs (partly due to high immigration), and substantial government investment has made it an attractive destination for foreign investors. The country received $33 billion in foreign direct investment (FDI) between January and November 2024 – matching its total for the whole of 2023 – and secured 54 new renewable energy projects. In 2023, Spain ranked joint first with the US in securing 77 new projects
At the same time, Spain has enhanced workers’ rights, increased the minimum wage, and improved pensions. Since Sánchez took office in 2018, the minimum wage has risen by more than 50%. By the last quarter of 2024, unemployment had declined to its lowest level since 2008, largely due to labour reforms. These reforms tightened the use of temporary employment contracts hand in hand with increasing the flexibility of permanent contracts, thereby derisking taking on workers permanently and encouraging job stability. Consequently, Spain has reduced the number of workers in temporary employment without hindering job creation.
It depends on the Government’s economic priorities – what are we really hoping to achieve? If the primary goal is GDP growth, a more open approach to immigration and investment would be a logical step. However, while high immigration boosts overall GDP, it does not necessarily translate to higher GDP per capita – an area where Spain, like much of Europe, continues to struggle.
Our research has shown that the British public will reward growth that brings down the cost of living and improves the lives of working class people. Despite Spain’s macroeconomic successes, Sánchez eked out a narrow victory in 2023, and his Spanish Socialist Workers’ Party (PSOE) is projected to lose power in 2027.
Stagnant GDP per capita means that many Spaniards do not feel the benefits of economic growth. Additionally, there is growing anger against some of the Government’s growth policies themselves. Backlash against tourism – blamed for exacerbating an already severe housing crisis – and persistent unemployment remain significant concerns. Youth unemployment stands at 25%, and Spain has the highest overall unemployment rate among OECD countries. While inflation is often viewed as more politically damaging than unemployment, some Spanish regions experience unemployment rates exceeding 50%, fostering instability.
Spain’s growth model presents valuable lessons for the UK, particularly in targeted investment, green energy infrastructure and worker protections. But the political consequences of its approach serve as a cautionary tale. Without ensuring that economic growth is widely felt across society, governments risk losing public support – even, perhaps especially, when the macroeconomic indicators look strong. In an era where people prioritise tangible economic benefits over abstract growth figures Spain may follow the path of the US, where a growth-focused incumbent was voted out because the economic dividends were not felt by those who decide elections.
Read another blogpost on the UK taking inspiration for the growth agenda here.
