Taking stock of our industrial strategy

Recent electoral surprises, particularly the referendum last summer and last month’s general election, have been described as reactions against the economic status quo. The shocks have been greeted by politician promising no more business as usual. Theresa May has said that her government will create “a country in which prosperity and opportunity are shared right across this United Kingdom”, while Jeremy Corbyn has repeatedly promised to “build a society where no one and no community is left behind”.

However promising a break with the past – particularly in terms of economics – is nothing new. Following the onset of the financial crisis the Labour government promised to rebalance the economy away from finance. In 2011 George Osborne called for a “Britain carried aloft by the march of the makers”. The Coalition Government identified 11 key sectors (including aerospace, life sciences and professional and business services) to support. Given this, last week’s announcement by Greg Clark that the government would continue to support key sectors in an attempt to raise productivity and living standards, should be seen as a continuation of an approach that has been in place for almost a decade now. The real question is how successful has it been?

For the first time we have comprehensive evidence that provides an answer. The Resolution Foundation, working with Dr Neil Lee at the London School of Economics, has estimated the impact that advanced sectors – many supported by government – have had on living standards across the country. In terms of the sectors themselves government support appears to have helped them expand. Between 2009 and 2015 140,000 additional jobs were created in the digital sector (computer hardware, software and telecommunications), alongside 120,000 more jobs in the creative (advertising, architecture, fashion) and tech sectors (aerospace, pharmaceuticals, advanced manufacturing).

Such jobs form an important – although relatively small – proportion of the 2 million or so jobs created over this period and clearly many of them – particularly those that are high paying – were a boon to the people who filled them. But to what extent did the expansion of these sectors help share “prosperity and opportunity”?

Our analysis shows that these sectors, where they flourish, create significant numbers of jobs in the wider economy. Our estimates suggest that for each ten jobs created in advanced sectors over the period, a further six jobs are created in the wider service sector economy, and four of these jobs are filled by people with fewer qualifications. In terms of job creation there is strong evidence that policies that help advanced sectors can also raise the living standards of the least well-off.

This is the good news, the bad news is that many people and places aren’t benefitting as much as they could be. London accounted for three-quarters of the growth in high-tech, digital economy, tradeable finance and creative industries between 2009 and 2015 and currently a quarter of all jobs in these advanced sectors are found in the capital. Although there are pockets of excellence across the country – Manchester, Newcastle and particularly Leeds have made progress recently – the majority of areas that have seen the greatest growth in advanced industries since 2009 are in the south east.

It is also concerning that where advanced industries are flourishing the benefits aren’t always spreading through the local area. 5,500 more jobs in advanced sectors were created in Oxford over the period, but almost no additional service sector jobs were created as a result. The same is true of Portsmouth, Poole and High Wycombe. By contrast for each ten additional advanced sector jobs created in Cambridge a further 28 jobs were created in the wider economy. This speaks to the fact – noted by successive governments but not always acted upon – that place does matter. Devolution – although perhaps (sadly) less of a priority now than it was before the referendum – has the potential to give places greater control over economic growth and living standards, but for this to happen all areas must have the opportunities currently being grasped by a handful of large city regions.

Finally such sectors have far less of an impact on pay. The evidence is that when an aerospace plant or pharmaceutical firm expands it marginally increases pay for mid-skilled workers in the wider economy, but it does little for the lowest paid. In fact pay falls slightly for workers at the bottom of the labour market as more low-paid people enter work, dragging down the average.

A lack of focus on low-paying sectors is the biggest omission of the industrial strategy. Although governments have rightly grasped that some sectors should be supported, and that local as well as national actors should be involved, lower paying, big employing sectors have been ignored. This has always been a problem given that the vast majority of people work in these sectors and productivity in these industries is lower than in their counterparts in other developed countries. However it is something that now needs to change as many of these sectors will be particularly affected by an increasingly generous NLW, expanding auto enrolment, and a reduction in inward migration. When sectors such as retail, hospitality and accommodation are described as ‘strategic’ we’ll know we have an industrial strategy really working for everyone.

This article originally appeared in Bright Blue’s Centre Write publication