Is Britain fit for purpose?
Our economic and physical health has been deteriorating for some time
Welcome! The Conservative Reader continues to bring you our popular weekly digest of the best comment, analysis, policy research, books and newslinks of the week. But we are expanding - every Monday lunchtime the Reader will publish new content by a brilliant line-up of writers, brought to you by our colleagues Poppy Coburn and David Cowan.
This week we kicked off with an exclusive essay by Levelling Up Secretary Michael Gove, who says conservatism must go beyond the politics of the individual and address our national quest for community. You can read it here.
We hope you enjoy this week’s roundup and the new content coming your way. Like, comment and subscribe below.
Nick and Gavin
Towering Columns
In the Financial Times, former chief economist of the Bank of England Andy Haldane suggests tightening monetary policy may risk repeating the mistakes of austerity:
It could be argued that tolerating above-target inflation for a little longer than usual is to ignore the inflation target mandate. It is no such thing. That framework and its open letter system gives the BoE and the chancellor all the latitude they need to extend the horizon over which inflation is returned to target. Indeed, this flex was built in precisely for these circumstances. The oddity is it is not being used.
Doing so would enable the bank to pause and take stock, smoothing the path of rates facing borrowers and thereby lowering the risk of policy-induced recession. Other options, such as leaning on lenders as both main UK political parties have proposed, are better than nothing but plainly far inferior to smoothing at source. Imagine a doctor, uncertain about the nature and severity of a disease, who has administered a large medicinal dose which has yet to take effect.
Prudence would cause them to pause to see how the patient responded before doubling the dosage. That principle is one central banks should heed now to avoid overdosing the economy. Over a decade ago, in pursuit of lower debt, the UK enacted fiscal austerity. This ruptured growth and was self-defeating for debt. Today, in pursuit of lower inflation, monetary austerity risks the same fate. It is time to steer the stampeding herd away from the cliff edge, for the sake of the financial security of millions of people and the credibility of our policy institutions.
Also in the Financial Times Sarah O’Connor says GDP may be an insufficient measure of national prosperity compared to life expectancy, and that health and growth are tightly linked:
People are donating their leave to each other because the US system is so miserly in this regard. America has no statutory entitlement to paid maternity leave or paid sick leave at the national level. It’s hard to overstate how much of an outlier this makes it among rich countries. On average across OECD countries, mothers are entitled to almost 19 weeks of paid maternity leave. I took off about a year when I had a baby in the UK, most of which was paid.
I think about disparities like this whenever I hear Europeans fret that their continent is falling behind the US in terms of economic might. It’s not that GDP doesn’t matter, but is it really the only yardstick by which countries should jealously compare their progress against one another?
…People who care about health and want to influence policymakers or the public often try to highlight the impact it has on the economy. “Poor health reduces global GDP by 15 per cent each year,” one McKinsey study claims. “Endemic ill-health in England’s “left behind” neighbourhoods costs the country almost £30bn a year because people are often too ill to work and die earlier” another report suggests. But this is to get things precisely backwards. We don’t want to live long and healthy lives so we can generate GDP, we want GDP so we can live long and healthy lives.
In The Telegraph, Henry Hill says tackling mass immigration will require significant economic restructuring, but it’s a challenge the Tories must face:
Any serious effort to bring numbers down over the medium term would require serious engagement with the structure of the British economy, and coordinated policy across government to wean sectors off imported labour and create the domestic skills pipelines to replace those workers.
That isn’t an impossible mission. But it would require making every department pull their weight, rather than leaving the Home Office to play bad cop whilst Business, Education, and other key ministries keep agitating for the short-term salve of higher numbers.
Despite more than a decade of tough talk, there is no sign that the Conservative leadership have given any thought to actually doing that. Their rhetoric has thus created an increasingly toxic gap between public expectations and their own actions, which rebellious MPs are starting to fill. (One might have thought, after Brexit, they’d have learned their lesson on that.)
Also in The Telegraph, Jeremy Warner says the failure of Thames Water is symptomatic of our short-termist economic culture:
That it hasn’t worked out…is not the fault of privatisation as such. Rather, it is down to key failings in regulation and to deeply embedded structural faults in our capital markets and economy – weaknesses that routinely favour short-term gain over long-term return, consumption over investment, and voluminous debt over equity… Virtually all the other privatised utilities, including the electricity industry, suffer from a similar affliction.
… It’s not as if Britain lacks the capital to invest in our crumbling infrastructure; there’s trillions of pounds-worth of it tied up in pensions and housing wealth. But it’s not getting through to the industries that need it. Instead, our pension wealth is overwhelmingly invested in the seeming safety of government debt, rather than chasing the higher long term rates of return promised by riskier equity investment. Dead money, in other words.
This has created a void into which the “live money” of international finance has stepped, with Thames Water and many of our other public utilities leveraged to the hilt and substantially in private or foreign ownership. A clinically minded focus on sweating the assets has replaced almost all sense of loyalty to country and civic duty. Stripped down to the last lightbulb, it is no surprise that our utilities can no longer deliver the services the public expect.
In the New Statesman, Richard Layard says Labour is still focusing far too heavily on universities and not enough on apprenticeships:
There are so many talented young people who want to earn as well as learn. So no surprise that expanded university entry hasn’t been accompanied by increased social mobility – we need a way of training and learning that doesn’t involve university.
Of course, introducing guaranteed apprenticeships would be neither easy nor immediate – funding patterns have to change. But efforts should be concentrated on under 25s. Bizarrely, since the apprenticeship levy (effectively a tax placed on larger employers) became the main source of funding for apprenticeships in 2017, over half that funding has been directed to people over 25. Much of the apprenticeship levy has been diverted to a sort of continuing professional development. This distorts the concept of apprenticeships, which are supposed to get people off to a good start in life. And of course it is the under-25 age group that falls behind on skills and education. Over-25s, meanwhile, have more experience, and their further training could be financed by their employers as part of professional development.
What about other forms of further education not linked to apprenticeships? This funding too should be demand-led, as in universities. Colleges have a crucial role to play in post-school education, for example preparing young people who do not already have the necessary qualifications for apprenticeships. But, for a headline pledge, Labour should focus on apprenticeships – they are what people want, and what the economy needs. The present situation discriminates disgracefully in favour of the academic route. It is perhaps no wonder that we have such a divided country when such inequality persists between graduates and non-graduates.
Wonky thinking
In a report for Policy Exchange, More Help to Grow, James Vitali argues that medium-sized businesses are an overlooked part of the UK economy, laying out a plan to more effectively target the Government’s Help to Grow scheme:
Medium-sized businesses provide 30% of employment and nearly 40% of total SME turnover, despite being only 2.5% (35,940 businesses as of 2022) of SME businesses. Their growth prospects are also immense. According to Beauhurst data, nearly a fifth of firms with turnover of £10-50 million and 50-249 employees had compound growth rates in either employment or turnover of more than 20% in the last two years. They are more likely to be in industries such as manufacturing, and are disproportionately concentrated in the North, Wales, Scotland and Northern Ireland. They are much more likely to export than smaller businesses, are less likely to be family owned, and are overwhelmingly likely to have a company structure, rather than owner-manager or partnership. They also, compared to their smaller peers, spend nearly twice as much employee time each month on regulation and are much more likely to find that staff recruitment and development present their biggest challenges. According to OECD data, labour productivity at medium sized firms is still more than £7,800 lower per capita than larger UK peers.
In short, medium-sized firms have distinct interests and challenges that are not reflected in the current conversation in the United Kingdom. It is essential that these businesses are supported and are able to grow and scale. They would benefit from distinct Government consideration, and from particular interventions that recognise their unique place in the market. The issue of growth and scaling up has already been addressed partly by Unleashing Capital, which pointed out significant funding gaps in terms of patient and long-term capital in the United Kingdom. That work examined the supply problem for businesses, around capital investment and business support. This paper examines key interventions on the demand-side: looking at the ways businesses access support, capital and investment, and ensuring that they deploy these things effectively.
ReGenerate’s Good Jobs Project has published a report, The Purpose-Driven Business Solution to the UK’s Labour Shortage, laying out a plan to deal with the UK’s lack of workers. The report sets out proposals to fill vacancies with economically marginalised groups.
The current labour market challenge has created an amazing opportunity to act as a catalyst to encourage employers towards a more purpose-driven approach to recruitment. Specifically, there is the opportunity to fill the significant number of labour vacancies with people facing marginalisation, to the benefit of both the businesses and the people they are recruiting. These groups include single parents, people with disabilities, people with criminal records, people who are or have been homeless, the over 50s, young people aged 24 or under, people leaving care, care providers and others.
The Good Jobs Project is seeking to make this opportunity a reality. It brings together leaders in business, recruitment, government, investment, business networks, researchers and those who strive to support marginalised individuals into good jobs. Its purpose is to take advantage of a triple win whereby:
1. Businesses can fill their vacancies and maximise value creation
2. Individuals facing marginalisation are able to find good jobs
3. The economy benefits from increased productivity and growth and a reduction in the cost to the state borne out of prolonged worklessness
The power of this purpose-driven solution is that it not only tackles a social issue, but also benefits the businesses that do it. Through solving the business need of successfully filling labour vacancies, we can also support people who are kept out of the labour market into good jobs. This approach requires a concerted effort and reforms from government, investment and business networks to move the needle. Each stakeholder has a part to play and it cannot be done alone.
This report is the first publication of the Good Jobs Project and is written for people that can influence the business ecosystem, whether through government policy to incentivise business behaviour, through investments to ease the flow of capital, or through other support provided by professional services, business networks and researchers. It aims to demonstrate some of the things that can be done to encourage more businesses to intentionally target those groups for recruitment.
Book of the Week
Our chosen book this week is Hell to Pay: How the Suppression of Wages is Destroying America, by Michael Lind. While the book focuses on America many of its arguments apply equally to the British economy, and Lind argues:
According to the human capital story, the polarization of wages in the twenty-first-century United States accurately reflects the skills demanded by the new, globalized, high-tech economy. Automation and other kinds of technological progress have eliminated many “middle-skilled” jobs in manufacturing. What remain are high-skilled jobs in the high-tech “knowledge economy” and low-skilled jobs in “high-touch” sectors such as low-end nursing, leisure and hospitality, and retail. The human capital story is based on an academic economic theory. The marginal revenue product (MRP) theory holds that what each individual worker at a firm earns exactly reflects that individual worker’s contribution to the firm’s profits not a penny more, not a penny less.
The MRP theory of wages continues to be taught by academic economists and treated as orthodoxy by most libertarian ideologues and free-market conservatives, as well as many center-left neoliberals in the United States… [It] may approximate reality in a few cases. In a fast-food restaurant, it might be possible to correlate sales with how many hamburgers particular workers make per hour. But how is it possible to specify the individual contributions to the annual global sales of a multinational corporation like Boeing of an executive secretary, a vice president for marketing, and a production engineer? It can’t be done. Nevertheless, the bipartisan American economic elite has taken the human capital theory to heart. And with good reason, from its perspective. The human capital story shifts any responsibility for low wages from employers or government policies. The theory can be invoked as proof that all wages are accurate and objective reflections of worker contribution to profits, based on worker skills…
Notwithstanding the attempts of the economic elite to distract us with misleading explanations for low wages in the United States, worker bargaining power remains the central issue. Certain institutions and policies increase worker power and diminish the bargaining power of employers - among them, a high degree of labor union membership, or at least coverage, by collective bargaining agreements; limits on the ability of firms to avoid paying high wages by moving jobs out of the country or importing immigrants willing to work for lower pay in worse conditions than native and naturalized workers; high federal and state minimum wages; and a system of unemployment insurance and other social insurance that allows individual workers to hold out longer while waiting for employers to give in and raise wages.
Other institutions and policies have the opposite effect. They diminish worker power and increase the bargaining power of employers among them, de-unionization; government trade and investment treaties that make it easier to offshore jobs; government immigration policies that expand low-wage legal immigration or fail to enforce sanctions against hiring illegal immigrants; allowing inflation to lower the value of federal, state, and local minimum wages year after year; and a system of public assistance that compels its recipients to work at poverty-wage jobs, trapping them in a limbo in which they may never be able to earn enough to be free from public assistance. Worker protections did not gradually disappear from the 1980s to the present as a result of allegedly irresistible forces of technology or globalization. The protections were deliberately eliminated.
Quick links
61% of adults, 40% of Labour voters and 44% of Remain voters believe immigration is too high.
The Education Secretary defended preferred pronouns and ‘social transitioning’ in schools.
House prices are now 9 times the average salary.
Former Health Secretary Sajid Javid said the ailing NHS is making us sicker.
The UK and EU have agreed a draft deal for British re-entry into the Horizon research programme.
Sir Jim Ratcliffe says Britain’s energy policies risk killing our industrial base.
Brazil has built a consistent and growing trade surplus.
The income boost from higher interest rates has outstripped rising mortgage costs - so far.
Despite Labour’s 20-point poll lead, they would still not exceed the 2019 Tory vote in numbers.
Convicted rapist Isla Bryson has complained of transphobic abuse in prison.