IPSOS VIEWS

UNDERSTANDING SOCIETY

Foreword

Editorial: Lucy Tallentire Jayesh Navin Shah Patricia Pinakova Yasmin White

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Welcome to this edition of Ipsos MORI growth, employment statistics and low efficiency in the workplace, or a risk to jobs? Social Research Institute’s Understanding productivity. While there are no quick-fix Do they understand the full implications of AI 03. 16. 28. Society. This issue, Tomorrow's Business, solutions, she suggests we should open new on society and the economy, and do they delves into the landscape of UK businesses lines of communication between businesses appreciate the full value of their personal – not only the contemporary and upcoming of different sizes, and across different sectors. data in an AI-driven world? Foreword Cyber attacks: a dangerous Solving the productivity puzzle challenges that threaten their success, but Can they create a space to share good Finally, we look at the complex world by Kelly Beaver business An interview with Gemma Tetlow, also some of the opportunities that await practice and ideas, and to develop new of cyber attacks – an increasingly everyday Can UK businesses and Chief Economist at the Institute them. Perhaps even more so than normal, ways to boost productivity together? threat to businesses. As the latest hacking charities better protect us for Government the state of the UK economy is of critical Communication is also the focus of the attacks and ransomware threats make from cyber attacks? importance to our country’s researchers, interview between Kamal and our Chief headlines in the UK and worldwide, are UK 04. policymakers and practitioners. It has Executive, Ben Page. Kamal draws on his businesses and charities up to the task of Kelly Beaver never been more important for central wealth of experience in journalism to argue protecting our data from harm? Rowena Schoo, Senior Policy and Europe 10 years Government to engage with businesses that the media, economists and business We hope you enjoy reading this edition Communications Advisor at the after the crash to deliver its Industrial Strategy, improving managers should re-engineer how they of Understanding Society, looking at today’s Department for Digital, Culture, the UK’s productivity and coordinating its communicate policy and future challenges and tomorrow’s challenges for businesses How do European businesses Media and Sport (DCMS), 32. departure from the European Union. to the general public. This, he believes, is one and the economy. We hope that the insights and global investors view Jayesh Navin Shah, Harry Williams And there it is – the elephant in the way to resolve the so-called twin deficits in of all our contributors, drawing on our own prospects in Europe? Skills gap or skills divide? room. Regardless of your views on the public understanding and public trust. research and analysis, and other contextual outcome, it is fair to say the vote to leave Work by our researchers also touches on data, will inform the debate among our Public support for investing Allan Simpson, Kelly Finnerty the European Union has transformed the similarly deep-seated structural challenges. readers on these important topics. We in UK workers’ skills post-Brexit 20. political, cultural and economic landscape First, we give an overview of business and remain committed to understanding of Britain. Brexit and the prevailing inward investment in Europe since the 2008 society from the broad range of social and We need to talk about Trinh Tu, Patricia Pinakova atmosphere of uncertainty in the UK make financial crash, and how this illuminates economic research we and others conduct, 08. automation it difficult to focus on anything else. Our the present and future prospects of the in the belief that this leads to better politics, monthly Issues Index shows that Brexit now UK and other European economies. We policy and practice. If you would like to The views of UK businesses, dominates public concern just as much as explore the UK skills shortage, and how the discuss any of the research here, please get Communicating economics MPs and the public on automation the economy did after the financial crash 10 public attitudes might help or hinder certain in touch. 35. 1 An interview with Kamal Ahmed, years ago. solutions and policy approaches. And we former Economics Editor for Mark McGeoghegan Business-as-usual is a thing of the past, consider the problems small and medium- Is the penny dropping BBC News for the Government and businesses alike. sized businesses encounter in their attempts for Britain? However, businesses and the economy will to access finance, and how the Government Kelly Beaver The move from cash still be here after March 2019, dealing with the can support their growth ambitions. Ben Page to contactless challenges that await them. In this issue, we But this edition is not just about structural 23. Managing Director, strive to create a vision for the future of the deficiencies – it’s also about technological Ipsos MORI UK economy, based on research carried out innovations that are reshaping the Your country needs Darragh McHenry Social Research Institute by business and economics experts in our workplace and the wider economy. Our (data about) you! 12. UK Social Research Institute. We shed light article on cashless payments demonstrates @KellyIpsosMORI Can AI win public hearts on important themes that risk falling under the significance of contactless to consumer Prosperous beyond Europe and minds? the radar of public interest: productivity, skills, spending behaviour. It also warns of the 39. new technologies, and trade. impact on demographic and economic A vision of trade outside the EU To help us explore these themes further, groups vulnerable to this transition, such Sarah Castell The credit they deserve we are delighted to have contributions as the homeless, the elderly, and small Joanna Crossfield, Krishna Dabhi from Gemma Tetlow, Chief Economist at family businesses unwilling to invest in card How can we improve access the Institute for Government, and Kamal payment technology. to finance for UK SMEs? Ahmed, Editorial Director and Economics We look at the role of automation and Editor at the BBC. In an interview on the UK’s artificial intelligence (AI) in the world of Matt Adey, Director of Economics productivity puzzle, Gemma discusses the work, and public perceptions of this. Do at the British Business Bank, contradictions and links between wage people believe automation is essential for Dr Rebecca Klahr, Yasmin White 2. 3. Ipsos MORI – Understanding Society November 2018 Europe 10 years after the crash – How do European businesses and global investors view prospects in Europe?

Europe 10 years Allan Simpson after the crash When it comes Kelly How do European businesses and global investors view prospects in Europe? Finnerty to inward

Europe has many winners investment in Figure ONE: Future expectations vs. current investment the UK, it’s a

30% Low investment and expanding High investment and expanding slightly different

Hungary Croatia story. Global 20% Cyprus Austria Lithuania Germany Slovakia Netherlands Poland Portugal Slovenia Estonia Belgium Luxembourg investors are Italy Czechia 10% Latvia Denmark Finland UK Sweden Spain Bulgaria France split three ways. Malta All EU business average Greece 0% Just over a Romania Ireland increase investment in 2017* in investment increase Net balance of firms expecting to -10% Low investment and contracting High investment and contracting third say Brexit 65% 70% 75% 80% 85% 90% 95% 100% Share of firms investing will make no *Net balance is defined as the % expecting to increase investment minus the % expecting to decrease investment. difference to them investing

global investors towards Europe, and said they would invest less than before. Turning to inward investment from rating agencies downgraded many of in the UK over how these compare with those towards Businesses’ actual behaviour has also global investors, prospects are also A tough Europe’s biggest economies. Economic the US and China.5 exceeded their own expectations in broadly positive. In total, six in ten (60%) growth in the Eurozone and the UK came the recent past. Our data show that, one of the global investors we surveyed the next five decade to a virtual standstill in 2011. Eurostat data year previously in 2016, 26% of European believe their fellow investors will increase show that net investment – in capital businesses said they would invest less their investment in Europe over the next expenditure, research and development, A good news years. over the course of that year than they five years, and a quarter (24%) strongly Just over 10 years ago, in August 2008, and in staff training – in the Eurozone and had in previous years. In the latest survey, agree with this sentiment. the investment bank Lehman Brothers UK economies fell dramatically post-2008.3 story? we retested this prediction against what filed for bankruptcy, kicking off the global So where does the story go from businesses actually did in 2016. Just 15% financial crisis. It’s hard to understate the there? What has happened to investment really did invest less in 2016. impact this had on European economies, prospects in European economies In the current climate of uncertainty, One Europe, Wider investment indicators outside and on their citizens. Before the crash, since the crash? Two international Ipsos it can be difficult to find good news. our European businesses survey paint the unemployment rate in the European MORI surveys give us several important Nevertheless, our survey of European many countries a similar picture. For example, the Union (EU) had reached an all-time low insights. The annual European Investment businesses shows just that. For two years European Investment Bank’s 2017/18 of 6.8% in February 2008. By February Bank Group Survey on Investment and running, more businesses have said they economic investment report highlights 2013, this was at an all-time high of 11%.2 Investment Finance shows the investment would increase rather than decrease their There is, of course, variation across that net business investment in the EU is The decade that followed the crash perspective of around 12,000 European levels of investment. Most recently in 2017, countries (Figure ONE). The investment now growing at a faster rate than it was proved tough for Europe. There was businesses.4 And our 2017 Global 35% intended to increase their levels of outlook has been particularly positive from 1995 to 2005 – a faster rate than the the Eurozone debt crisis and associated Investment Decision-Makers Survey for investment, while 40% said they would in countries like Denmark, Slovenia, pre-crash average, effectively.6 bailouts for Greece and Portugal. Credit Invest Europe looks at the attitudes of maintain current investment levels. Just 23% Luxembourg, Sweden, Finland and 4. 5. Ipsos MORI – Understanding Society November 2018 Europe 10 years after the crash – How do European businesses and global investors view prospects in Europe?

Belgium, where, as our survey shows, a challenges. Since 2015, several EU Global investors perceive strengths and weaknesses with Europe very high proportion of firms is already countries have had an influx of economic Europe’s investing, and investment prospects for migrants and refugees, termed the EU Figure TWO: Q. From the options provided, which country or region do you think is the strongest performer in each of the following areas? subsequent years have been among the migrant crisis. Our 2017 global poll on perceived most favourable. At the other end, Greece, attitudes to immigration shows that Bulgaria and Romania have lagged behind people in Germany, Sweden and Italy structural 74% 53% 51% 50% 50% 50% 48% 48% with only around six to seven in ten of are among the most likely to think that firms in these countries currently investing immigration has increased “a lot” in their weaknesses (versus an EU average of 84%), and countries over the last five years.7 38% with more muted investment prospects Alongside this, populist parties have 33% 25% 24% 31% 32% compared to other EU countries. gained power in EU countries, such Global investors have their own 31% Comparing 2017 investment as Italy, Austria, Hungary and Poland. thoughts on the relative strengths and 16% expectations to actual 2017 GDP growth Our most recent (September 2018) weaknesses of European economies. 26% 25% 16% 16% 19% 21% 14% rates also highlights the stronger global survey shows that an anti-system These tell a familiar story, as shown in 11% and weaker performers. Among the sentiment is still strong in Europe. We find Figure TWO. Commitment to Rule of law High-skilled Political stability Social stability Transport Government Regulatory climate established high-income economies, that people in Hungary are among the Europe’s perceived strengths, relative to environment workforce infrastructure incentives Germany and the Netherlands have most favourable in the world towards those of the US and China, include a high- both higher-than-average investment having outspoken leaders, while people skilled workforce, access to Government 39% 37% 36% 31% 30% 30% 23% 18% expectations, and high growth rates in Spain and Italy typically have the least incentives, the rule of law, and commitment (growing 2.2% and 3.2% respectively). By confidence in the banking system.8 to environmental sustainability. Europe is 14% 25% contrast, the UK and France come across also more likely than the US and China 57% 33% 50% 68% as relatively stagnant, with both lower- to be seen as politically and socially 49% 44% 38% than-average investment expectations, Don’t forget stable. This puts the earlier findings into 52% and relatively low growth (each growing perspective – businesses are concerned 37% 1.8%). Across the rest of Europe, it is the about the political and regulatory climate, 25% Brexit 19% 20% new European economies leading the but political stability is still seen on balance 12% 13% way – Slovenia, Estonia, Hungary and as a strength of Europe, relative to the US Efficient capital Access to global Tax levels IT infrastructure Labour flexibility Innovation and Economic growth Access to low- Poland all have higher-than-average and China. Yes, Brexit is happening. But as a markets markets entrepreneurship skilled workforce investment expectations, and GDP growth At the same time, Europe is whole, Europe is perceived to be rates at or in excess of 4%. perceived as comparatively weaker resistant to big shocks. Half (50%) of % saying Europe % saying US % saying China than the US in its access to other global the global investors we surveyed feel markets, efficient capital markets, its IT that Brexit will make no change to infrastructure, and in innovation and Beyond the their decision to invest in EU countries important not to judge this prematurely. include worries about the political and across European economies looks good. entrepreneurship. This highlights that (excluding the UK) over the next five The EU unemployment rate has only regulatory climate, and ever-present If businesses and investors are right, there are persistent reservations about economics years. And a further third (33%) say recently got back down to 6.8%, and perceptions of a lack of dynamism in the collective future of the continent Europe as a place to invest. they will be more likely to invest. youth unemployment remains high.9 European economies compared to the is brighter than we might think. When it comes to inward investment Wage growth in several European US. These kinds of concerns are hardly European businesses still have in the UK, it’s a slightly different story. economies has been poorer than overall surprising in the wider context of Brexit, concerns about the future. On balance, Global investors are split three ways. Just A recovery economic growth – analysis by the the migrant crisis, populist governments they think the overall economic climate over a third (36%) say Brexit will make European Trade Union Institute reveals and the spectre of US trade tariffs. will get better over the next 12 months. no difference to them investing in the fraught with the average European worker in the UK, Nevertheless, our surveys, and On the other hand, twice as many expect UK over the next five years. Three in ten Belgium, Finland, Greece, Italy and Spain other economic indicators, highlight the political and regulatory climate to (30%) say they would be more likely to challenges was earning less in 2017 than they were in several positive sentiments among decline (28%) over this period as expect invest in the UK over this period, and a 2010.10 And a new debt crisis in Italy may businesses and investors. Europe is a it to get better (14%). third (33%) say they would be less likely be just around the corner. big place, with high performers and Perhaps this isn’t surprising, given to do so. Europe’s ongoing recovery comes At the same time, our surveys highlight low performers, economically speaking. Europe’s broader concerns and after years of turbulence and it’s areas where the outlook is mixed. These But as a bloc, the investment climate 6. 7. Ipsos MORI – Understanding Society November 2018 Communicating economics – An interview with Kamal Ahmed, Economics Editor for BBC News

Communicating economics Businesses Ben An interview with Kamal Ahmed, Economics Editor for BBC News Page are still more

For fear of stating the obvious – Brexit the productivity puzzle, tax or legislation, have begun to realise they are part of On public trust – we need to reflect likely to be is a primary concern for every global or remuneration. A potential partnership the solution to issues like income and on the public’s perception of experts. company, at present. The UK leaving would significantly brighten the future of productivity – and that the Industrial For instance, does the public understand risk-averse the EU will also prove significant for the the UK economy. Strategy is at least an attempt to have enough what a forecast is and why wider business community who trade those types of discussions. it is necessary? The notion that all with and rely on EU goods and services. forecasts are wrong has been toxic to because of the BP: In your opinion, which industries It’s easy for me to get an overly the economic profession, and unfairly face the most challenges over the next BP: Do you think businesses lack optimistic view of business because so. Forecasts are a set of possible five years? confidence? financial crisis, I speak to some very successful outcomes, of which some are more companies. But I have found a surprising probable than others. Forecasting is a number of smaller businesses to be I think the most obvious are those Well, a typical business leader is statistical exercise, not an exact science the Eurozone more optimistic than anticipated. I think with a complicated supply chain no shrinking violet; Chief Executives – it’s not like saying “if I drop this ball, this is likely to be a result of our current and links with the EU, such as the rarely lack confidence within their own it will fall”. crisis and the Kamal Ahmed is Editorial Director of the position in the single market with a car, pharmaceutical, food and retail businesses. Nevertheless, some clearly Economics has become crucial to BBC, and Economics Editor at BBC News. depressed currency value. This has industries. Those with global connections lack confidence to participate in public the future of the UK and for that very He joined the BBC in April 2014 as resulted in a general economic boost will be less affected than those with a debate. Since 2008, there has been a reason I think that the Bank and the uncertainty Business Editor from the Telegraph for the country; costs have decreased, particularly European focus. growing fear to enter the public domain, media are duty-bound to tackle the Media Group where he was Executive for example, for small engineering There are also several prevailing issues with which there has not yet been deficit of public trust to which Andy around Brexit. Business Editor with responsibility for the firms, which import from abroad and for smaller and medium-sized businesses, adequate engagement. I suspect most refers. The best approach is explaining Sunday Telegraph’s business coverage. do small-scale manufacturing here for particularly around productivity and how business leaders fear they will not get a the use of forecasting in planning for He was also the editorial lead for the export. There is also a degree of optimism to invest for the future. Businesses are fair hearing, so they avoid the possibility the future. As Tony Blair once said: “The Telegraph’s annual Festival of Business. regarding global growth, which has still more likely to be risk-averse because of it altogether. Nigel Wilson of Legal & two options on the table are not where Between 2007 and 2009 Kamal remained stronger than many expected. of the financial crisis, the Eurozone crisis General is, perhaps, the exception that we are and Shangri-La, it’s where we are was Group Director, Communications, and the uncertainty around Brexit. These proves the rule – he is one of the very and the alternative.” The alternative to at the Equality and Human Rights issues have created an atmosphere few businessmen willing to publicly forecasting – not forecasting – would BP: There is obvious uncertainty about Commission, the regulator charged in which it feels like the next crisis is discuss the role of business in issues such be far worse than the risk of over- the outcome of the Brexit with upholding and enforcing equality just around the corner. Businesses are as housing and income. interpreting a few outlying results. negotiations. But in terms of skills and and human rights legislation in Britain. now carrying much more cash on their transport, where do you see the Before joining the Commission in balance sheet than they did in the past. position of the UK economy in five BP: Chief Economist at the Bank of BP: We know that people struggle to 2007, Kamal was Executive Editor at Uncertainty has depressed the level of years’ time? England, Andy Haldane said economic calculate how much they should put the Observer with responsibility for the investment and has made it more difficult policy has “twin deficits” – both a away for the future, or how much it costs news section of the paper. He was a for businesses to think about how deficit of public understanding and a to raise a child. If it is difficult for them member of the team that developed and A major concern is that Brexit has they can invest for the future, to drive deficit of public trust.12 Do you agree to manage their own incomes and re-launched the Observer as a mid-sized, dislodged other important issues from sustainable productivity. with Andy? spending patterns, do you think they can full-colour Sunday paper, a development policymakers’ minds. Are we currently deal with complex macroeconomics? that won Newspaper of the Year at getting a coherent line on the new BP: Do you think that the Government’s the British Press Awards in 2005, the world of work, the skills debate or the A key challenge for the Governor business strategy is well-received by highest award for any newspaper. productivity problem? And we should be and Andy Haldane is improving I don’t want to criticise the public for UK businesses? mindful of a lack – or even absence – of communication with the public, to help giving little thought to tail risks, bond policy proposals in other areas. the public understand the role of the yields and the Government’s fiscal rules. BP: Thanks for joining us, Kamal. I’d The general political tone of late has I do – I think businesses appreciate Bank of England. The visibility of central What we need to do is connect these like to start by getting your take on been described by some as anti-business, the fact that the Government is talking banks in public debate has changed topics to what people will understand our recent study of FTSE 500 so one of the greatest challenges for about these issues, particularly given my dramatically over the last 20 years – – the price of everyday goods, interest companies, which revealed a UK businesses is how to change the earlier point that we’re unlikely to see Mark Carney is now seen as pivotal rates and employment levels. These pessimism about our economic Government's inclination to be tough any policy changes or new legislation for to the future of the UK economy. This issues are very direct and relevant to future.11 What do you see as the key on them. The Government faces several a while. The Industrial Strategy promotes comes with great responsibility, and people’s everyday lives. We should pressures on the UK economy? issues in which businesses could be conversations between the Government I personally believe that the Bank is not expect the audience to understand asked to play an advisory role, be that and businesses. I think businesses dealing with that relatively successfully. the granular detail of complex 8. 9. Ipsos MORI – Understanding Society November 2018 Communicating economics – An interview with Kamal Ahmed, Economics Editor for BBC News

There’s a place for instinct, of macroeconomics – we should do more our audiences and the wider population things private for a while.” I think there former Director of BBC News, had what to simplify these issues into language can participate in that conversation. course, but is a duty on us to do much more “return he called “slow news”, which is more people can understand. And we should journalism” – going back to a story and considered, contemplative and emotive, be particularly careful not to let complex looking at what actually happened with but it has been mainly text and digitally BP: Following on from this, what role there is also terminology affect public understanding the help of hindsight. based so far. We need to think about should journalists and businesses play of, and trust in our experts. how we can be a bit slower on television in “reality checking” the facts? a place for news as well, give things a bit more air, BP: How do you get that “return rather than bang, bang, bang. BP: How do you think businesses journalism” into a busy news cycle? We have a concept called “BBC and journalists should communicate really trying Explain”, which acts as a centralised economic and business policy to BP: Some great insights. Thanks, Kamal. reality check unit. We have both data Well, we could put it anywhere, but the public? and visual journalism there. I think that to understand it needs to have visibility to make an institutions and organisations should impact. The media still relies too heavily It is up to us, as businesses and at least attempt to get beneath the how and why on the 24-hour cycle – here’s the news in journalists, to focus on what is most headlines to discover what is really going the morning, here’s some other news in important, and make this as relevant and on. There is a tendency in the media the evening, and then tomorrow here’s relatable as possible. To mark the 10th to be quite binary, which I describe as people think some completely different news. anniversary of the financial crisis, we did “black-hat/white-hat” – that there is a Sometimes news can seem chaotic, a piece that took readers on a whistle- goodie and a baddie. But often there is a certain way; we need more reflective journalism. stop tour of the crisis as it happened neither, and we need to think about how The hectic, noisy crises that form – Lehmans, RBS, Alistair Darling, Obama, we report that. so much of our news are often not a heck of a lot of people carrying boxes “BBC Explain” includes a network once you relatable for the public, whose lives and Mervyn King. That worked well, but of experts – trusted guides to educate are not typically in constant crisis. They we found our real-people case studies and inform. It’s not just about reporting understand get up every morning, go to work, particularly effective. We interviewed a the news, it’s about giving context. come home, see family and friends or single father, whose income was £18,000 It’s an incredibly important part of whatever else it might be. As a news in 2008 and is still £18,000 today. We what we do because it questions our that, you can group board, we’re trying to come up let him tell his story; he had worked instinctive prejudices. There’s a place with fresh ways to appeal to a more for Woolworths, was made redundant for instinct, of course, but there is also engage with diverse audience, and different types of almost immediately after the crisis a place for really trying to understand audiences. BBC Three is experimenting and had to deal with the financial hit how and why people think a certain with news formats right now to engage of sending two children to university, way. Once you understand that, you can them. younger audiences, for example. simultaneously. It’s a different narrative engage with them. We must engage in from the usual experts’ perspective; and this kind of debate – I think that’s true BP: Popular science is a hugely popular audiences can relate to that. with all institutions. area of publishing – could journalists I think the challenge for journalists and The term "transparency" is banded and businesses learn from that? businesses is to re-engineer the way they around a lot now, as well. Your work at communicate – we need to blend expert Ipsos MORI provides very helpful insight opinions with the far more engaging into audience trust. I recently had dinner We should try to learn from their narrative of the public’s experiences, with a senior person at TSB, where I was example. Isn’t it amazing, about 20 years giving information and explaining the told the full story behind their IT issue. ago, BBC History plugged into people’s world in a way that audiences can I think people would respond well to obsession with knowledge to cover engage with. Communication is a huge businesses with the initiative and the things they really wanted to learn about. responsibility for anyone involved in this courage to stand up in the public domain Businesses should try to learn from debate – not just for journalists but for and explain what happened. Businesses popular science journalism which tells business people too. We are in a period should lead by example and be brave compelling stories about its world, like of flux and if we want to have a national enough to say “these were the issues the struggle against adversity or success conversation about these very important we faced, this is what we did to resolve following a crisis. It makes it emotional issues, then we need to understand how them, and this is why we kept some and creates empathy. James Harding, the 10. 11. Ipsos MORI – Understanding Society November 2018 Prosperous beyond Europe – A vision of trade outside the EU

Prosperous Joanna Crossfield beyond Europe Over half Krishna A vision of trade outside the EU Dabhi (55%) of us see

international trade. The British Social We are increasingly positive about opening up the Attitudes survey found that feelings international trade of protectionism dropped, across a UK economy range of measures, between 2003 Figure THREE: % agreeing with the following statements and 2013. A follow-up survey in 2017 found these views had fallen even to foreign further, suggesting we are becoming Large international companies are 62% increasingly positive about the role trade doing more and more damage to 56% businesses plays in our economy (Figure THREE). local businesses in Britain 53% Good news for those tasked with setting the scene for our future relationships and trade as 57% with the EU and the rest of the world. Free trade leads to better products becoming available in Britain 63% 63% an opportunity Seeing the big Britain should limit the import of 56% compared to foreign products in order to protect 48% picture its national economy 36% a fifth (20%)

It doesn’t look like this positivity is built 2003 2013 2017 who see it as entirely on blind faith. It seems to be grounded in at least some understanding: the vast majority of people (68%) know a threat. But our picture of our own place underestimate how much we export to the that the EU is our biggest trading partner in world trade is less clear. In fact, it rest of the world. What’s more, perceptions – although only half of us (50%) know could even be described as conflicted. of the players we trade with have not that there is a difference between the Although half (49%) of us agree that our changed since we last asked this question Customs Union and the single market “country is in decline”, we still seem to in 2016. This suggests that increased – and over six in ten (62%) know that exaggerate our role in global trade in coverage of the issue, as Britain prepares we are net importers, which makes our some areas. For example, despite getting to negotiate an independent trade policy support for free trade more notable. the hierarchy of the four biggest global for the first time in over 45 years, has had We are also mostly able to identify traders right, we’re off the mark when limited impact on public knowledge. the big players in international trade and it comes to our own position, pushing These attitudes create opportunities where they are placed. When asked false? And what does this mean for ourselves up from eighth to fifth. We also for the Government. British people are to rank 14 countries on the value of A new vision policymakers and communicators? promote the Commonwealth countries clearly open to international trade and their international exports, on average It certainly seems that we’re entering Australia and India, at the cost of our are becoming more so, suggesting the British public correctly identify for trade into this new era with open hearts. neighbours France, Italy, the Netherlands its promotion should fall on fertile China, the US, Japan and Germany Over half (55%) of us see opening up and Switzerland. This suggests we ground. However, policymakers and as being the top four, suggesting we the UK economy to foreign businesses magnify not only our own position, but communicators will also need to manage have a clear picture of where future Trade is back in focus, as the and trade as an opportunity, compared also that of non-EU countries with whom our great expectations. Our findings opportunities lie (Figure FOUR). Government prepares to negotiate to a fifth (20%) who see it as a threat. we have a historic relationship. suggest that an uplift of our place in the independent trade agreements after 45 That puts us amongst the most open We also overestimate the strength of global trade hierarchy and diversification years of common European Union (EU) of the 23 countries that Ipsos MORI our trade relationships with key countries. of trading partners away from the EU policy. But how do the British people feel surveyed in 2016. Twice as many Magnifying the We think we export much more to China, may only meet, rather than exceed, about this? How do we see ourselves of us support economic openness Japan and Australia than we do in reality expectations of our place in the world. when it comes to international trade – and than in Italy, France or Japan.13 UK’s position (Figure FIVE). We are about right on our Despite this slightly overinflated sense just as importantly, do we understand the Other indicators also seem to exports to the US, slightly underestimate of self, we actually underappreciate realities about trade, or are our perceptions point to a growing warmth towards exports to the EU, and even further our current trade performance in other 12. 13. Ipsos MORI – Understanding Society November 2018 Prosperous beyond Europe – A vision of trade outside the EU

Which countries do people perceive as We overestimate We have false perceptions of UK trade high-value international exporters? the strength of some Figure SIX: Q. Do you think each of the following statements are true or false?

Figure FOUR: Countries ranked by value of exports (actual and perceived) trading relationships

Figure FIVE: % share of UK exports by The EU is the UK's largest Actual rank of countries shown Perceived rank trading partner (true) 68 16 17 Country trading partner (actual and perceived) based on value of exports among UK public In 2016, the UK spent more China 1 1 on imports of goods and services than it earnt in 62 13 25 exports (true) US 2 2 16% The EU Customs Union Germany 3 4 is the same thing as 50 19 32 the single market (false) Japan 4 3 38% 8% The UK sells more Perceived % share to countries outside France 5 7 among UK public of the EU than within 48 30 23 the EU (false) Italy 6 11 12% The UK sells more goods Netherlands 7 12 and services to the US than 33 40 27 it buys from them (true) UK 8 5 9% Less than a third (33%) 17% of the UK's total exports Canada 9 8 are from manifactured 19 50 31 goods (false) Switzerland 10 13 % correct % incorrect % don't know Russia 11 10

India 12 6

Australia 13 9 32% Portugal 14 14 forwards and back again, often taking even then, we will probably always have for Britain’s relations with other countries Actual % share a dip when external stimulus such as biases that will mean we overestimate over the next 10 to 20 years, much more based on value of 43% exports advertising is removed. Changing the our own performance, or that mean than our military or cultural influence for areas (Figure SIX). Taking our trade narrative is even harder in a current negative stories about decline will have example. Trade could play a bigger part relationship with the US as an example, Blurred vision 2% climate of mistrust: eight in ten (79%) the advantage over any good news. in our national conversation in the future. we see ourselves as net importers 3% lack confidence in political parties, Despite these challenges, we think when we are net exporters – we may 2% three-quarters (75%) in the media and there are reasons to be cheerful for those be underplaying what the UK brings 18% two-thirds (66%) in the Government.14 tasked with promoting international trade When it comes to trade, we seem to the table, to the US in any case. We Furthermore, all of our experience in to the British public: we’re open to it and conflicted about our place in the world. also underestimate the proportion understanding people’s misperceptions we think we’re quite good at it. There We feel that we’re not the trading nation of our exports from manufacturing, – whether about trade, our relationship may even be some quick wins to be had we used to be, while overestimating suggesting that we may offer the world EU US Australia with the EU, immigration, crime, or any by building awareness of the existing our position in the world simultaneously. more than we think. These beliefs may China Japan Rest of the world other important social policy – tells us strength of our trade relationships with Some things are worse than we think, help communicators to set up quick that simply trying to counter people’s the US, and bolstering confidence in and others are better. wins to boost national confidence and attitudes by quoting statistics to them is manufacturing, which might come in Changing attitudes is hard; we see pride when it comes to trade. This unlikely to work. Facts are important, but handy in the event of a “no deal” exit that every day in the wide range of might be particularly helpful to nurse they need to be woven into emotionally from the EU. What’s more, people tracking and longitudinal studies we run a collective bruised ego, should we resonant stories to help them stick. And recognise that trade is going to be vital for clients, where public opinion inches realise where we really sit in the world. 14. 15. Ipsos MORI – Understanding Society November 2018 Cyber attacks: a dangerous business – Can UK businesses and charities better protect us from cyber attacks?

Rowena Cyber attacks: a Schoo Jayesh Navin Shah dangerous business It would be a Harry Can UK businesses and charities better protect us from cyber attacks? Williams catastrophe for our Are any Which sectors think about cyber attacks? Figure SEVEN: % of business premises that were worried about online crime by sector reputation if businesses (2014 to 2017)

really offline Agriculture, forestry the information and fishing 38% anymore? Information and communications 34% should leak.

Manufacturing 29% Not really. The Cyber Security It would have Breaches Survey (CSBS) 2018 shows Construction 29% that virtually all UK businesses (98%) a long-term and charities (93%) rely on some form Retail and wholesale 27% of digital communication or services, such as websites, online bank accounts, Arts, entertainment effect on our and recreation 27% social media pages. Around half (56% of businesses and 44% of charities) hold Administration and support 26% reputation. personal data on customers electronically. These aren’t just tech firms. As Figure Transportation and storage 23% SEVEN shows, with data from our 2017 Ipsos MORI Reputation Council Member Commercial Victimisation Survey, firms Accommodation and food 11% in the agricultural, manufacturing and construction sectors are among the most worried about online crime. Despite the headlines, this isn’t all about complex hacks and malicious more staff) facing these kinds of attacks, behavioural challenge: it only takes one code written by nefarious programmers. the average resulting loss was £22,300. successful attack to wreak havoc, but CSBS 2018 finds that of the 43% of The introduction of the General Data businesses may look at the typical failed businesses that identified a cyber attack Protection Regulation (GDPR) earlier this cyber attack and come away thinking in the past year, three-quarters (75%) of year also means that businesses face far they don’t need to act. these were scam emails or websites more stringent fines for cyber breaches targeted at ordinary staff. involving personal data loss. There are non-financial costs too. Changing Global business leaders on Ipsos MORI’s Hardly a month goes by without news and almost 200,000 registered charities Cyber attacks Reputation Council see cyber security culture drives of a major corporation being struck by in the UK? And for their customers and breaches as one of the greatest threats a cyber attack. In the last two years, big beneficiaries, i.e. all of us? This is something can be costly to their corporate reputation, rated the action names such as Reddit, Ticketmaster and that various Ipsos MORI studies have sought same as poor quality products or services Uber have all taken a bruising. In the UK, to answer, including our series of Cyber (Figure EIGHT). the 2017 Wannacry attack on the NHS and Security Breaches Surveys with businesses Where cyber attacks have a tangible However, many cyber attacks We needn’t be alarmist. Most others was still fresh in people’s minds … and charities for the Department for Digital, outcome, like a loss of files or access to do not result in lost data or network businesses and charities do take basic just as the recent British Airways hack hit Culture, Media and Sport15, our Commercial a network, the costs can be substantial. access. CSBS 2018 finds that, among the actions to protect themselves, and their the news. Victimisation Surveys of businesses for According to CSBS 2018, businesses businesses experiencing cyber attacks customers or beneficiaries, as Figure If attacks on big business make the Home Office16, and research from that had these kind of attacks lost an last year, only two-fifths (37%) faced this NINE highlights. But more can be done. headlines worldwide, what is the situation Ipsos MORI’s Reputation Council of global average of £3,100 last year as a result. kind of tangible outcome. In most cases, Relatively few (37% of businesses) have for the other 1.3 million or so businesses business leaders17. For the large businesses (with 250 or the attacks failed. This presents its own rules around encrypting personal data, 16. 17. Ipsos MORI – Understanding Society November 2018 Cyber attacks: a dangerous business – Can UK businesses and charities better protect us from cyber attacks?

Introduction of the General Data Protection Cyber attacks hit reputations Not common Actions taken on cyber security Regulation Figure EIGHT: Q. From the following list, please tell me which two you feel are the Figure NINE: % of organisations that have rules or controls covering each of the greatest threat to your organisation's reputation? sense, but not following areas (GDPR) earlier hard either Up-to-date malware 90% 42% protection 73% A cyber security breach 47% this year also Firewalls with appropriate 89% Poor quality products or 42% It’s clear that the Government, configurations 69% services 31% industry and regulators all have a role means that to play in helping change corporate Restricting IT admin rights 78% to specific users 65% Malpractice by staff 27% cultures. In qualitative interviews in CSBS 20% businesses 2018, businesses and charities said that Backing up data securely 70% the Government, trade associations, via a hard drive 53% Poor customer services 26% 48% and regulators such as the Charity Security controls on face far more Commission in England and Wales, the organisation's 65% 42% Mistreatment of the 17% were trusted sources of information and devices (e.g. laptops) environment 7% stringent fines guidance on cyber security. Backing up data securely 58% False claims in marketing 17% The Government already offers a via a cloud service 38% or communications 16% range of guidance for organisations of all for cyber sizes. This includes: Encrypting personal data 37% Mistreatment of local 13% 31% communities 5% • the Small Business Guide18 and Small 19 breaches Charity Guide for cyber security, Businesses Charities Mistreatment of staff 10% setting out the simple, low-cost 25% involving steps these organisations can take to improve their online protection Global business leaders from Ipsos MORI Reputation Council Our research has consistently shown to do business online, we all need to UK business or finance journalists • the Cyber Essentials scheme20, personal that businesses find this sort of guidance take responsibility. The Government, which provides organisations with useful, but that they don’t make as much industry and regulators need to continue independent accreditation, so they use of it as they could. spreading good guidance. Management data loss. can reassure customers that they and even fewer (12%) hold their suppliers and didn’t require special rules or training. boards need to set the right culture have technical measures in place to to the same standards to which they hold On the other hand, some were scared of from the top. And, perhaps most of all, prevent the most common cyber themselves. Across the board, charities it, thinking it would be too technical for frontline staff need to know what to do attacks Taking fall behind businesses. them, or create a burden on their staff if when – not if – that next ransomware So how do you change behaviour? there were too many rules and controls. • the 10 Steps to Cyber Security21, responsibility email lands in their inbox. Qualitative interviews with businesses And many organisations suggested which sets out a comprehensive and charities as part of CSBS 2018 that change comes from the top, by cyber risk management regime for suggest that it requires a culture change having board members or trustees larger organisations No organisation, regardless of size within the organisation. On one hand, with responsibility for cyber security – • guidance for management boards or sector, can escape the growing and there were organisations that thought something which only 30% of businesses from the National Cyber Security costly threat of cyber attacks. If we’re cyber security was just common sense, and 24% of charities currently have, Centre (NCSC)22, helping them ask going to fulfil the Government’s National according to CSBS 2018. the right questions to keep their Cyber Security Strategy 2016-202123, and organisations safe online. make the UK the most secure place

18. 19. Ipsos MORI – Understanding Society November 2018 We need to talk about automation – The views of UK businesses, MPs and the public on automation

We need to talk about automation Businesses Mark The views of UK businesses, MPs and the public on automation McGeoghegan face a dilemma.

But people don’t seem particularly We predict jobs will be lost to automation … If they don’t concerned about their own jobs. Only one in four (24%) of the public are concerned Figure TEN: Q. Do you agree or disagree with the following statement? More jobs will automate that they, personally, may lose their job be lost than gained as a result of automation over the next fifteen years. to automation in the next 15 years. Even specifically among those who think what can be automation will lead to net job losses, only General public 54 24 11 12 three in ten (30%) are concerned that they automated, may lose their own job (Figure ELEVEN). Our 2017 qualitative public dialogue MPs 45 24 27 3 on machine learning for the Royal Society they lose their makes a similar point. The general public participants in the dialogue recognised % agree % neither agree nor disagree % disagree % don't know competitive that machine learning was an important technology, which could have an impact on their lives. But they often didn’t fully edge. grasp the potential of the technology. … but not that it will happen to us There was a sense of disbelief that machines could ever learn to make Figure ELEVEN: Q. To what extent are you concerned, if at all, that you personally will decisions, and therefore that they could lose your job to automation in the next fifteen years? ever really replace human workers, in jobs that require nuanced decisions.27 In sum, the general public is aware Among all general public 7 17 30 36 10 that automation will impact the labour market and could lead to job losses – Among those The Fourth Industrial Revolution is well social, political, and economic challenges but not for their job, which they think has who think will lead 8 22 29 34 6 underway. Automating work – replacing of transitioning to a heavily automated some uniquely human component. Are to net job losses human workers with robots, machine economy will be substantial. A recent they truly prepared and informed about learning algorithms, and artificial intelligence Institute for Public Policy Research (IPPR) what is around the corner? % very concerned % fairly concerned % not very concerned – is a phenomenon currently sweeping report argues that automation will, without % not at all concerned % don't know through every industry in the world. careful management, have an outsized Debate rages over the impact of negative impact on the poorest in society.26 Can’t we just (45%), as Figure THIRTEEN shows. automation on the labour market. The Governments, businesses and the Reskilling people to do high-skilled Organisation for Economic Co-operation public need to be prepared. Are they? Communication reskill? jobs is important, but we shouldn’t treat and Development (OECD) estimates that this as a magic bullet. It assumes that only almost one in ten jobs in the developed is key low-skilled jobs are at risk. The ability to world are currently at high risk of Not my job MPs are keen to forge ahead. Only automate mental, as well as physical, automation, and a further one in four 4% want the Government to regulate labour exposes a very wide range of jobs, face a risk of being mostly automated.24 Businesses face a dilemma. If they the degree to which businesses can including high-skilled jobs, to automation. In the UK specifically, the Bank of England don’t automate what can be automated, Evidence from Ipsos MORI’s MPs automate work, and just over half (53%) Lawyers, GPs, and even market estimates that a third of all jobs are at they lose their competitive edge. But survey, and our research among the would oppose an “automation tax” researchers will feel the impact. It also high risk of being automated out of as more work is automated, higher general public, shows that both groups (Figure TWELVE). Almost nine in ten (89%) assumes that the jobs of the future will existence by the early 2030s.25 unemployment and underemployment tend to believe that automation will cost think businesses should continue to be accessible to the current generation We might look at the original Industrial may take their toll on the communities more jobs than it creates. Almost half of automate work. A high number believe of workers displaced by automation, and Revolution in the early 1800s and argue in which businesses operate. Businesses our MPs and just over half of the public that the Government should respond not just to future generations. Neither that job losses will be offset by job creation need to engage with policymakers and think more jobs will be lost than gained in by investing in new industries (57%) and assumption is supported by evidence, in new industries. But even then, the the public on automation right now, the next 15 years (Figure TEN). helping to reskill the British workforce and both could be wrong. so they don’t end up being blamed by 20. 21. Ipsos MORI – Understanding Society November 2018 Your country needs (data about) you! – Can AI win public hearts and minds?

Your country needs (data about) you! Sarah Can AI win public hearts and minds? Castell

society for difficult and unexpected MPs support automating work … may be volatile, especially for businesses decisions taken in future decades. seeking to partner with the private sector. Engaging the public with complex Figure TWELVE: Q. Do you agree or disagree with the following statements? (MPs) In public dialogue, people are not issues like machine learning isn’t easy protesting about predictive algorithms – something we have learned from being used in principle. But if the way countless public dialogues. Businesses Businesses should continue public and commercial services are rolled and policymakers should learn from developing and using 2% artificial intelligence and 6% 89 6 23 out clashes with underlying questions of this too. It’s about having a two-way 3% robotics to automate work equity and the social contract around data conversation with the public, and Businesses which heavily sharing, there may be a backlash. discussing the potential challenges and automate work should pay 19 24 53 3 solutions with them, before forging an "automation tax" ahead with major societal changes. As BlackRock Chief Executive Officer % agree % neither agree nor disagree % disagree % don't know The public is (CEO) Larry Fink points out in his 2018 letter to CEOs: positive about “We also see many governments failing to prepare for the future, on issues AI systems in ranging from retirement and infrastructure … and want us to reskill or try new jobs to automation and worker retraining. As a principle … Figure THIRTEEN: Q. What should Government policy on automation be going forward? result, society increasingly is turning to the (unprompted, MPs) private sector and asking that companies respond to broader societal challenges We regularly talk with the public in … Companies must benefit all of their Invest in creation of new dialogue about the future governance stakeholders, including shareholders, industries, jobs, or ways of 57% of new technologies, on behalf of tech working employees, customers, and the companies, policymakers and others. communities in which they operate.” 28 Participants say in principle they are Automation should be All businesses want to be seen as encouraged or supported 48% happy and optimistic about new tech, socially responsible. In one scenario, when it comes to the benefits it might automation can destroy that ambition. bring them as consumers or service Invest in retraining or But if discussed in the right way, it’s also reskilling the workforce 45% users. The most positive perceptions of an opportunity to make good on it. AI are around automation of tasks that Plan for the impact on (MIT) designed an algorithm to create an computers might do better than humans, society/support those 24% AI made the artificial intelligence (AI)-enabled system, like assessing medical scans.31 affected/without jobs which maximised the efficiency of the We do know, though, that the public Engage with businesses school buses buses and the learning time for students. starts from a very low level of knowledge to form a strategy for 23% It was triumphantly unveiled, but parents about predictive algorithms, AI and the the transition run on time, complained about the outcomes of the data science on which it is all based. This is algorithmically-generated decisions. The reflected in a recent Ipsos MORI survey of but parents scheme was scrapped, even though the workers’ attitudes (Figure FOURTEEN). Other plan saved millions of dollars. surveys show that workers are worried protested In the UK, meanwhile, at least five about losing their jobs to AI. The majority of councils are developing predictive child those surveyed here in the UK had not had safeguarding algorithms.30 The media any experience of AI at work. Coming fresh Last year Boston city challenged reporting is uneasy. to the idea, two-thirds felt that AI tools might tech developers to optimise school Our work suggests that the situation reduce tedium and errors, and speed up start times and student bus routes.29 for those launching services which rely their work. Admittedly, this is less optimistic Massachusetts Institute of Technology on publicly and privately-collected data than the perspectives from the US and

22. 23. Ipsos MORI – Understanding Society November 2018 Your country needs (data about) you! – Can AI win public hearts and minds?

China, but even so, just over half in the UK International perceptions on AI differ markedly People are uncomfortable sharing data across the together technologists, the public, also felt AI might improve quality. industry, regulators and other civil society Similarly, in public dialogue, early Figure FOURTEEN: Q. Do you think that, in your workplace, the development of AI and public and private sectors stakeholders, can help us to imagine in the discussion, people express its applications will lead to … ? how technology might solve seemingly Figure FIFTEEN: Two traditional mindsets for data sharing spontaneous views which are relatively intractable problems and create a future positive. They tend not to express where we all could flourish. This work … reducing the time 66% Actively given unprompted concerns. spent performing 71% also tends to identify opportunities for certain tedious tasks 92% businesses – identifying new niches of "We're all helping each other" Open, vulnerable mindset real value to society, which will help build “You keep asking us about whether … enhancing your ability 63% Service using Buying My health records we’ve got any concerns. What should to meet your deadlines 66% Financial transaction reputations. for my care we be worried about? Unless you tell and do things faster 90% Finally, we must design systems me what might happen, I can’t think!” which ensure that if people give their … reducing the 61% Consent to use human tissue risks of error 64% data, the system is committed to and linked health data in health 90% equitable outcomes. 32 research dialogue … increasing the time 61% spent on tasks with the 63% Doing Being “Sift out the vultures who’d use data

Commerical transaction Existing in However, in dialogue, we go deeper most added value 80% Data transaction the wrong way.” "My data have financial value" public space than these spontaneous views, digging DeepMind Health dialogue … enhancing your ability to 56% into perceptions of possible social benefits innovate in your work 62% and harms from technologies based on 81% Passively taken Some communities, for example data sharing. For the Wellcome Trust we ethnic minorities, are rightly wary … reducing the 54% recently looked at attitudes to sharing data danger associated 57% of donating data in the wake of the with commercial companies.33 Participants with certain tasks 90% Windrush scandal. We should pilot and distinguished between information given prototype concepts like data trusts … enhancing the quality 53% in commercial settings (phone records, of your work 59% industry is unlikely to escape blame to use, and have a public value when (a slippery concept, but involving shopping data etc.) and in public service 93% if social harms are felt. So far, the AI aggregated with data about others in establishing ways of storing and sharing settings (e.g. tax or health information); industry, governments and civil society my cohort – but without erasing my free data, where mutual value to the data this could be information passively UK US China have mapped risks and benefits, and will and agency? The idea of a “data self” owners and those who want to use it is collected or actively given. They felt very defined values and principles by which in finance is acceptable; participants in agreed).36 This can help us explore the uncomfortable if information was shared new tech should work (such as our work our dialogue on open banking found hidden power relationships in the use across that divide, and used by either And once we show specific examples “Is there potential for that information with DeepMind Health, which established this easy to imagine.35 But other sectors of data – make sure that companies the public or private sectors to learn of how data given under different to be … linked to a third company, like principles for technology companies to will need to work on a clearer narrative. are working for the ultimate benefit something about them in the round. This circumstances might be linked, and the insurance companies, to the detriment of work with the NHS34). There is a complex social contract to of society in the broadest sense – felt very sinister – the invasive surveillance hypothetical future impacts of the public ethnic groups?” Debate now turns to identifying how dissect. What data will we need to have and ultimately ensure that predictive of a “one-way mirror”, as described by our and private sector working together, the Academy of Medical Sciences health principles should be operationalised, control or choice over, ourselves? What algorithmic systems at best redistribute Wellcome Trust participants (illustrated in discussion can take a more dystopian tech dialogue (publication forthcoming) what happens when values come into data do we want the state, or companies power, rather than encoding existing Figure FIFTEEN). And similar sentiments turn. Participants grasp that if personal conflict with each other, and how social to control? This will affect the way we biases and consolidating power in the emerged in our human tissue and linked information – especially new kinds of goods can be optimised at the same use and link data on health, tax, benefits, hands of the few. health data dialogue. information like genomic data, and How to time as encouraging economic growth from the criminal justice system, from commercially generated information in this sector. social media, consumer activities, phone “I’m not sure what could happen if like phone or shopping records – is build trust To equip the public for these future tracking and elsewhere. someone got that information. But I think, shared between state and commercial discussions, we must first create greater After this, we must inspire a more personally, I just wouldn’t want a load of actors, this could have far-reaching public understanding of the concept of creative discussion of the uses of people possibly knowing that particular social consequences. They suddenly the “data self". Participants in dialogue data. Currently some of the benefits This creates a potential reputational thing about me.” become concerned with the equity of take a long time to absorb the ways and harms we consider are presented risk for businesses working with the Consent to use human tissue social outcomes, rather than the personal data about them are useful. How can as inherently opposed (privacy vs. public sector; even when the public and linked health data in health benefit to themselves of getting better data about me predict some of my efficiency, for instance). Future visioning sector is nominally in charge of contracts, research dialogue products or services. needs, guide the services I might want and scenario planning work, bringing 24. 25. Ipsos MORI – Understanding Society November 2018 Solving the productivity puzzle – An interview with Gemma Tetlow, Chief Economist at the Institute for Government

Solving the productivity puzzle It can only be Kelly An interview with Gemma Tetlow, Chief Economist at the Institute for Government Beaver a good thing

crisis, but has pretty much flatlined But finance is not the only sector What Andy Haldane has pointed to ways to boost productivity together. if businesses since that time. We’ve seen almost no that has experienced a productivity is a long tail of low productivity firms For example, Be the Business have productivity growth at all since 2007. slowdown since the crisis. The in the UK. While our best performing set up a network for businesses in the with something There is also a separate longer-term manufacturing sector in the UK – and companies are as productive as the hospitality sector in the South West and puzzle about why UK productivity has in other countries like Germany – best in the world, we also have an another one for family-run businesses. lagged behind that of other advanced slowed down as well, although it’s less unusually large proportion of very low The idea of pairing big businesses in common economies – Germany, France and the obvious exactly why this happened. productivity firms. This is a long-standing with some of these smaller firms – and US, for example – for many years. phenomenon, not just something encouraging big businesses to utilise with each There are several theories about what that has appeared since the crisis. their larger networks – could be very KB: Wage inflation has also tapered has driven the productivity slowdown It appears that one significant part of beneficial for the UK. Big businesses off in recent years. Why is that? since the crisis. Immediately after the crisis, the explanation for this is comparatively have the advantage of learning from other share some said it was a temporary blip, which poor management practices in the UK. within, whereas small businesses have led to businesses keeping hold of workers While employment rates have Nick Bloom and others have been doing a much smaller pool of knowledge ideas and Gemma Tetlow is Chief Economist to avoid the cost of re-hiring. Others recovered since the crisis and a lot of work in recent years to show and experiences to draw upon. at the Institute for Government. blamed tight credit conditions after the unemployment is at a 40-year low, wage the importance of good management The institute aims to improve the financial crisis, with businesses struggling growth has remained very subdued, practices to improve firms’ productivity develop new KB: What is your take on this with effectiveness of Government through to get loans to invest in new productivity- which raises a question about why and it’s an area some firms are starting to regard to the Government’s recent providing rigorous research and enhancing machinery. But as time went workers have not been able to negotiate address with new management training pledge to invest in infrastructure, ways to boost analysis, topical commentary and on, these explanations fell by the wayside. better pay rises. There are several funded through the new Apprenticeship like superfast broadband and offering a space for discussion and theories: a more flexible labour market, Levy policy. Take Nestlé as an example – transport?40 To what extent do you fresh thinking. Gemma joined the less employment security, the declining it has now utilised its Apprenticeship Levy productivity KB: That’s interesting. Last year you think that this investment is likely to organisation in April 2018 and works power of trade unions, and a greater shift to provide people with higher-level skills, suggested a sector-based explanation support either regional redistribution across the Institute’s programme areas. to self-employment, to name just a few. in addition to traditional entry-level skills. to low productivity.37 Could you of productivity or indeed productivity together. Between 2016 and 2018, Gemma If businesses are able to employ expand on that? for the UK as a whole? was Economics Correspondent at more workers at lower wages, rather KB: Another example would be the the Financial Times, reporting on and than investing in costly machinery and UK’s "Be the Business" initiative, analysing economic developments in The slowdown in growth has been infrastructure, then – mechanically – this Historically, the UK has a relatively low encouraging knowledge exchange the UK and globally. Before that, Gemma much more concentrated in certain leads to lower productivity (which is level of public investment in infrastructure between highly productive and less led the Institute for Fiscal Studies’ work sectors of the economy – one of them measured as value added per worker and ranks rather poorly in terms of productive companies.39 Have you on public finances and pensions. being financial services. This is important or value added per hour worked). infrastructure quality. It is certainly an any thoughts on investment in Gemma has a PhD in Economics because financial services make up Because the UK has struggled to keep area for improvement and a good time schemes like this to help balance from University College London. a larger proportion of the economy up with the productivity of its direct to invest in infrastructure, since the the productivity across the spectrum? in the UK, than in other countries. competitors for some time, boosting cost of Government borrowing is still And how well are these received In part, this apparent slowdown in productivity now is not just a case of relatively low. The areas you mention – KB: Thank you for the interview, by businesses? financial services reflects a problem reversing the slowdown, but actually broadband and transport – are obvious Gemma. We’d like to start with with how we measure productivity in trying to claw back some of the lead examples of where the UK is lagging your take on the UK productivity that sector. Productivity in the financial that our competitors already had on us. I think we've yet to see quantitative behind its competitors. And it’s not puzzle. We have faced a greater services sector is measured by looking evidence of the impact of these just a rural area issue: there are parts of deceleration in productivity than at the difference between the interest initiatives, but I can’t see how they London and the South East that have other G7 countries since the 2008 KB: In 2017, Andy Haldane, Chief rates paid on deposits and those charged could be detrimental to productivity. It equally poor broadband infrastructure! financial crisis – what do you see Economist of Bank of England, on loans, then multiplying that by the can be very positive if good practices But a related problem is that the as the key factors behind the UK urged Government to set benchmarks size of banks’ balance sheets. As a result, established by one business can be technological advances of the past few productivity challenge? for businesses to demonstrate how financial services were thought to have transferred to others – and it opens a line decades do not seem to have led to they compare to the rest of the experienced a big boom in productivity of communication between businesses the kind of productivity enhancements world in terms of productivity.38 What people usually refer to as before the crisis, which has dropped away of different sizes across different sectors. that had been expected. One view How important is it for UK businesses the productivity puzzle is the fact since. But part of the measured slowdown It can only be a good thing if businesses on this is what you might call the to reflect on their situation from a that productivity had grown at about was quite possibly a correction of with something in common with each “technology pessimist” view, espoused global perspective? 2% a year running up to the financial something that was actually unsustainable. other share ideas and develop new by Robert Gordon – an American 26. 27. Ipsos MORI – Understanding Society November 2018 Solving the productivity puzzle – An interview with Gemma Tetlow, Chief Economist at the Institute for Government

The ageing population economist based at Northwestern and more of us are choosing to become bill for some initial costs. For example, EU countries that are more aligned to markedly in the last couple of University – who suggests that recent self-employed; and employees move is also set to we are likely to need new agencies exporting goods, rather than exporting months.42 What are your thoughts on technological advances have simply between companies more frequently to replace tasks currently carried services. That’s what the Bank of England this trend, and its importance? been less life-changing than previous than they once did. In that context, what pose a huge out by EU institutions. It is obviously paper indicated. There has been a gradual advances like electricity. But a less is the most effective way for a business taking up a lot of Government time movement over time to complete the Consumer spending is very important pessimistic view is that technology to invest in its workforce and ensure and effort to go through the Brexit single market in services, but we’re not to growth in GDP. One of the things could still make a difference – we just it has access to the skills it needs? challenge. negotiations, and that means that a lot there yet. that surprised many economists in have to figure how to use it properly. The ageing population is also set to of other long-term investments have the aftermath of the Brexit vote was Having in place those digital pose a huge challenge. Longer working been benched, too. Decisions just Longer working KB: Is there an appetite beyond the EU the extent to which UK consumers infrastructures and broadband is lives will mean we’re more likely to switch aren't being made at the moment. for the import of UK services? carried on spending, meaning UK necessary for us to take that next step. But careers, perhaps a few times. Businesses GDP growth remained quite solid we also need to make sure businesses will have to change their mindset on lives will KB: In January, the Bank of England after the vote. But growth has slowed are picking up new technologies and the profiles of people they recruit to About three-fifths of UK services stated that the single market – with more recently alongside the decline adopting new ways of working. entry level jobs. There may also be exports already go to non-EU mean we’re completely free trade in goods but in confidence that your indicator has Evidence for transport infrastructure increasing numbers of people wanting countries, with the US being the single restrictions on trade in services – had picked up. So yes – it does matter. and its impact on productivity is more of to take a step down in responsibility largest purchaser. So, yes, there is an disadvantaged the UK.41 How Everything stems from confidence. a mixed bag. Small and cheap transport towards the end of their careers, rather more likely to appetite for them beyond the EU. important is the service industry to infrastructure projects often have a than staying in a highly demanding Services can be exported in lots the future of business in the UK? greater impact on local productivity than senior role all the way to retirement. switch careers, of different ways. For example, by a KB: A great take-away for us all, I larger-scale projects like superfast cross- company in the UK providing a service think. Thanks very much! country train lines. But politicians have The UK economy is 80% services, remotely to a client overseas, or through KB: Perhaps the elephant in the room, tended to favour the latter. Faced with perhaps a which is a larger share than in many foreigners visiting the UK to enjoy a Brexit has created uncertainty both in limited resources, we’ll have to weigh up other European economies. That service – like attending university – terms of public sector investment and the benefits of small projects that increase slightly overplays the importance of here, or through a UK-resident travelling business investment, particularly in few times. links within a city, versus big spending services to the UK in terms of trading abroad to provide a service to a foreign areas we have already discussed, such on increasing national transport links. with other countries: there are some client, or through a UK company setting as infrastructure and technology. How services, like haircuts, that no one up a subsidiary overseas. So there will the transition period for us would come over from Paris to buy, for are a few factors that make services KB: We’ve focused up to now on the leaving the European Union (EU) example! Nevertheless, if you look at trade easier, including whether other current business climate – let’s look to impact growth and public spending? the UK economy compared to other EU countries recognise UK qualifications, the future. What would you say are economies, we have a much greater how restrictive their visa rules are, and the top issues that face businesses Evidence suggests that businesses comparative advantage in the services whether any restrictions are imposed around productivity in the UK today? and business leaders are delaying some industry. UK companies are good at on foreigners setting up businesses. big investment decisions until they know producing services, we have a very large History dictates that certain The UK has long struggled with the skill exactly where the UK is going. We’re business services sector and a large countries that were colonised by the level of its workforce, and that is certainly dealing with high levels of uncertainty; financial services sector, and services are British – such as Australia and New something holding back UK productivity we’ve no clue what policies will be in embedded in our manufacturing exports. Zealand – still have similar legal and growth. With a view to anticipating future place during any transitional period, or The EU single market has evolved accounting systems to the UK and many demands, the UK needs to focus on the indeed how long that period will last. over time and now constitutes a well- international contracts are drafted using creation of more highly skilled, value- Yes – we have a notional end date of developed single market in goods. English law. As a result, the services of adding jobs – and the workforce to fill 2020. But the implementation of all of The EU rules have also gone further UK-trained lawyers and accountants them. The UK Government acknowledged the policies and procedures that could than any other trade deal in trying are in demand around the world. this as a problem a very long time ago be needed after Brexit are unlikely to to remove barriers to services trade, but has struggled to get to grips with it. be completed by that deadline. It’s but the single market in services KB: Finally, Ipsos MORI tracks Here, the role of businesses would be to a difficult situation for businesses. remains far from complete. consumer confidence on a monthly provide adequate training. But there is a There are challenges to public sector Inevitably that combination – of basis. Our data indicate that bit of a question mark over their future investment as well. Once the Brexit completely free trade in goods but confidence has been falling for quite role in this area, in the context of an deal we’re going to get becomes clear, with some restrictions remaining on a while, but that it has dropped increasingly flexible labour market. More the public sector will need to foot the trade in services – has favoured those 28. 29. Ipsos MORI – Understanding Society November 2018 Skills gap or skills divide? – Public support for investing in UK workers’ skills post-Brexit

Skills gap or Trinh Tu skills divide? Of the 100 Patricia Public support for investing in UK workers’ skills post-Brexit Pinakova senior business

Certain sectors face greater skills shortages leaders in our Figure SIXTEEN: Vacancy ratios* by sector (June to August 2018) 2017 Captains

Accommodation and food 4.1 of Industry Other service activities 4.0 survey, Information and communications 3.5 94% named Finance and insurance 3.5 the Brexit Health and social work activities 3.3

Wholesale, retail, and repair of vehicles 2.9 negotiations Average for all vacancies 2.8 as one of the Professional, scientific and technical activities 2.8 most important Electricity, gas, steam and air conditioning supply 2.6 issues facing Transportation and storage 2.6

Arts, entertainment and recreation 2.5 Britain today. In the 2017 general election, Britain’s that half the British public would support employment rate in the third quarter of three main political parties each an increase in immigration by highly 2018 stands at 75.5%, with unemployment Manufacturing 2.4 made significant pledges around skilled workers. However, the public is at 4.0%.46 skills in their manifestos. In the same much less supportive of allowing in lower Employers’ appetites for increasing Real estate activities 2.3 year, the Government launched the skilled workers.44 But what does this mean their workforce show little sign of Water supply, sewerage, waste Apprenticeship Levy to fund an ambitious for shortages in low-skilled workers? diminishing, either. The number of and remediation activities 2.2 promise of 3 million new apprentices by What challenges does this pose to the vacancies in the economy has been on 2020, paid for by the largest employers.43 Government and businesses alike? an upward trend since 2012, and reached Administration and support 2.1 But the need to upskill the UK’s current an all-time high of 832,000 in the third workforce is more crucial than ever; as quarter of 2018. The majority of these Mining and quarrying 2.0 the UK’s exit from the European Union Britain’s labour vacancies are in service sectors (738,000), (EU) looms, there is growing concern that reflecting the relative size of services in Construction 2.0 labour shortages will hit UK businesses predicament the UK economy.47 and the economy. But by the same token, employers’ Education 1.9 Prime Minister Theresa May's cabinet unmet demand for workers has also recently announced a post-Brexit increased. This is most severe in five Public sector administration 1.6 The UK’s current employment immigration system that will offer visas to service sectors, which represent the record is nothing short of a miracle, immigrants in a tiered way, based on skills highest vacancy ratios (Figure SIXTEEN). *This is the number of vacancies per every 100 jobs. the likes of which was last recorded in and earnings, to ensure the UK retains This ratio partly reflects unmet demand 1974. The workforce has grown to 32.3 higher-skilled workers. This is likely to be for labour. One of the causes of this is a million helped by 2.3 million EU (non- well received by the majority – our 2017 mismatch between job requirements, and UK) workers as of August 2018.45 The research for King’s College London found the skills and qualifications held by those in 30. 31. Ipsos MORI – Understanding Society November 2018 Skills gap or skills divide? – Public support for investing in UK workers’ skills post-Brexit

We underestimate shortages for Where do people predict skills shortages? Work visas are not off the table for some jobs net contributors to the UK economy. It also recommended selecting migrants bankers and IT Figure SEVENTEEN: Q: In which of the following jobs, if any, do you think there will Figure EIGHTEEN: Q. When Britain leaves the European Union, EU citizens will no based on their skills and qualifications be a shortage of suitable workers for the positions available when Britain leaves the longer be able to freely come and work in the UK as they do now. Do you think that and not their nationality. It argued that a European Union? special work visas should or should not be offered to EU citizens who are coming to tighter control on low-skilled migrants professionals, Britain to work in the following jobs? may force more companies to invest in Seasonal fruit and vegetable more efficient technologies and enhance pickers 58% and worker productivity. Doctors 81 10 9 Care home workers 50% The Government has agreed that overestimate immigration post-Brexit will be skills- Restaurant and catering staff 45% based, to the dismay of many business Nurses 80 11 9 representatives. The UK economy, Construction workers businesses argue, needs a balance a shortage of and labourers 42% of both high and low-skilled workers. Academics 69 17 14 Doctors 42% Restricting businesses’ access to low- construction skilled workers during record low unemployment will worsen labour Staff in manufacturing 25% Computer and workers. software experts 61 26 13 shortages, which are already serious in 50 Baristas (coffee servers) 22% agriculture, retail and hospitality. Superficially, public opinion on this Care home 60 27 12 Academics 18% workers seems pretty clear. Our 2017 King’s College London research highlights that the public is, on balance, in favour of Computer and software experts 14% Seasonal fruit and vegetable pickers 56 31 12 more high-skilled immigration (by 52% to Bankers 7% 12%), and more students (by 40% to 13%), Construction but fewer people coming to do routine workers and 46 41 13 manual jobs (just 18% want more of this None of these 13% labourers type of immigration to Britain, but 44% want less). Don’t know 12% Restaurant and catering staff 42 44 14 As Figure EIGHTEEN shows, the public supports visas for EU workers for some lower-skilled occupations such Bankers 41 45 14 as seasonal fruit pickers, while not all unemployment and underemployment. If the 100 senior business leaders in our 2017 high-skilled jobs are seen the same way the UK were to end freedom of movement Captains of Industry survey, for example, – notably bankers. This partly reflects the Baristas (coffee for EU citizens, as Prime Minister Theresa 94% named the Brexit negotiations as one servers) 33 52 15 public’s views of where shortages are May has proposed, this would require of the most important issues facing Britain likely to occur. However, this is not the employers to entice local workers to fill today. They also highlighted the importance whole story. The public seems willing to these vacancies by offering higher pay, of EU staff to their business; 82% agreed it % should % should not % don't know accept visas for academics and computer offering better terms and conditions, or would be important for them to recruit EU experts, even though not many are encouraging movement of local workers workers easily, after Brexit.48 expecting shortages in these areas, which to areas with vacancies. This will take So, how aware of this predicament suggests wider reputational factors may too, such as restaurants and catering Migration Advisory Committee (MAC) both time and money for businesses, as is the general public? Our data show also come into play. staff, care home workers and doctors. set out how the post-Brexit immigration local workers will need to be trained and that the public is aware there will be Our latest research, though, also But we underestimate bankers and system could look.49 upskilled. Consumers may also have to get a shortage of workers when the UK suggests that a large proportion of IT professionals, and overestimate a The MAC’s first recommendation was used to higher prices. leaves the EU (Figure SEVENTEEN). the public would be prepared to live shortage of construction workers. to remove completely the current cap A poor Brexit deal is a serious concern We are able to correctly identify jobs with skills shortages in the short term, In its recent report, the independent on skilled migrants, who it identified as for businesses who rely on EU workers. Of that will be affected by this shortage if balanced by attempts to improve 32. 33. Ipsos MORI – Understanding Society November 2018 Is the penny dropping for Britain? – The move from cash to contactless

Is the penny dropping for Britain? Darragh The move from cash to contactless McHenry domestic skills to fill these shortages. We’re comfortable with the idea of a short-term Over four in ten (44%) agree with this, and another 13% think any gaps can be filled skills shortage by UK workers straightaway in any case. Figure NINETEEN: Q. If there are not enough workers to fill these jobs, which one of As Figure NINETEEN shows, this is strongly these possible solutions would you support the most? related to views on whether there will be shortages in the first place. Among Accept that there will be the one in eight who think there will be shortages in the short term, 44% but provide more skills to 46% no shortages, there is understandably UK workers to fill these 44% a limited appetite for issuing more roles in the future work visas. Instead, they believe UK Issue more work visas 31% workers should be able to fill these roles for suitable workers from 38% straightaway or after training. outside the UK straight away 32% By contrast, those who think there will Don't need to do anything be labour shortages are much more in because UK workers will 13% favour of work visas. But even among this be able to fill these roles 9% straight away 32% group, support is stronger for training and upskilling UK workers to fill job vacancies. Don't do anything, and 2% Short of demonstrating public accept a smaller number of 1% consensus, our data shed a light on these in the future 3% a number of important points for the Government and businesses. Britons 3% None of these recognise there will be some labour 2% 7% shortages across a range of occupations, but they do not correctly identify all of those likely to be hardest hit. Even then, All general public some high-skilled jobs do not get majority Among those who think there will be a labour shortage when the UK leaves the EU Among those who think there will not be a labour shortage when the UK leaves the EU support for more visas; this might be because the public underestimates how hard sectors like banking will be hit, and partly due to the wider reputational issues of that particular profession. Similarly, while wishful thinking, since employers’ primary underestimates the difficulties involved The autumn of 2016 marked a turning 4.9%.53 In 2017, cash payments fell again increase is not equally distributed across there is much less support for increasing motivation for recruiting EU nationals is a with filling skills-shortage vacancies, and point for the games company Hasbro, to just 34% of the 38.8 billion transactions all demographic groups in society. The lower-skilled immigration in general, lack of UK applicants. if that hits the economy and prices as as it launched the latest version of the made in the UK.54 2017 study found that people aged 65 public opinion can also change when For the Government and businesses, hard as some warn it could, consumers popular board game, Monopoly, with Undoubtedly, a key driver of rapidly and over were far less likely to have specific workers are mentioned, like care there is good and bad news. Firstly, could be unprepared, and might blame the tagline “Monopoly goes cashless”. increasing debit card usage has been ever made a contactless payment (27% home workers. the good: there is likely to be public policymakers and businesses even more. This was the first time since its release in the emergence of contactless payments, have never done so) than those aged On the other hand, our findings support for immigration policy based Furthermore, some sectors, despite their 1935 that the game broke from traditional which increased by 97% during 2017, and between 25 and 34 (6% never). The most suggest that many among the public on skills, and for the Government’s and importance to the UK economy, do not paper money. Despite initial opposition, is expected to increase further (Figure affluent, of NRS social grade AB55, are far think that shortages could be lived with businesses’ ongoing efforts to improve yet have public opinion on their side. It’s Hasbro reported a 2% increase in sales TWENTY). This growth can be attributed more likely to use contactless payments for an interim period, while UK nationals the domestic skill base, through training, one thing to persuade the public of the over the following months.51 to the continued roll-out of contactless several times a week (29%) than those are upskilled. This is laudable – it means apprenticeships and mentoring initiatives. merits of visas for doctors and teachers In the same year, Britain’s economy cards by banks, the increase in devices of social grade C2DE (12%). Contactless that the UK may finally address its However, there are dangers in relying – but convincing them that bankers experienced a similar turning point. For that take contactless payments, and the payments may be growing, but do not sluggish productivity. This is everyone’s on a simplistic reading of public opinion deserve the same is a much harder task. the first time, debit card payments (42.6% increase in consumer confidence to yet touch everyone equally.56 ambition, but achieving it assumes that as a guide to policymaking, particularly of all payments) surpassed those made make contactless payments. The move from cash to contactless UK workers would be willing to fill these when our data show that public by cash (42.3%).52 Debit card transactions But as Ipsos MORI’s National Payments also poses challenges to those at risk vacancies, and that upskilling workers opinion can change when represented had seen an increase of 4.5% from 2015, Study – our annual survey of over 2,000 of marginalisation in society. Electronic would be a quick process. Both may be with different information. The public whilst cash transactions dropped by consumers for UK Finance – finds, the banking requires a bank account, and 34. 35. Ipsos MORI – Understanding Society November 2018 Is the penny dropping for Britain? – The move from cash to contactless

In qualitative interviews,

We’re increasingly drawn to the ease of contactless consumers “pleasure of consumption and the pain Cash transactions in retail dwindle of paying” – they make it easier to spend Figure TWENTY: % of all UK transactions estimated to be made by contactless cards … Figure TWENTY ONE: % share of retail transactions with British Retail Consortium more. However, Dr Sivanathan notes tended to use members made in cash that consumers incur greater “financial hangovers” with contactless, which can 60% cash as a means lead to erratic spending patterns.61 Moreover, as the UK continues down 15% of controlling the path of digital payment, what might be the effects on the daily lives of those 40% 36% for whom cash still plays a fundamental spending, role? Ipsos MORI’s 2016 study of cash versus electronic payments, on behalf … in 2017 … in 2027 reducing the of HM Revenue and Customs (HMRC), highlights that some consumers and 20% businesses remain wedded to cash.62 risk of any In qualitative interviews, consumers tended to use cash as a means of “financial controlling spending, reducing the risk of any “financial hangover”: 0% 2013 2014 2015 2016

hangover”. “I feel more comfortable paying cash, I just feel more comfortable knowing that it’s paid.” decrease. With the significant predicted “You could put in a wrong amount, increase in card transactions over the yet 1.6 million adults in Britain today Learning from and not realise you’ve done it. And when next decade, an important challenge don’t have one.57 And 50% of those with How will it comes to finish and you just say accept, emerges for small businesses: they must a basic bank account still choose to others then you’ve paid too much for something.” either adapt to the increase in contactless manage their money in cash.58 Is Britain in contactless payments, or hope that their cash sales danger of marginalising the non-users of Conversely, people felt that debit can maintain the status quo. electronic payments? Sweden has been held up as the affect card and contactless payments With fewer coins in our pocket, Nevertheless, even though jewel in the cashless society crown, “crept up on you”, as they lacked the people may now feel less likely to contactless payments are not yet but even they faced challenges from behaviour? physicality of cash. However, even make spur of the moment donations. ubiquitous, by the end of 2017 there an accelerated journey to contactless.65 those who were most inclined to use Barclaycard’s 2017 study on contactless were approximately 119 million This includes the aforementioned risk cash felt that the migration to a cashless payments suggested that charities only contactless cards in circulation in the of financially excluding a section of The growth of contactless payments consumer model was very likely, and willing to accept cash donations could UK.59 Furthermore, the credit and debit society, and the increased the risk of in our daily lives could be viewed that they would have to embrace it. lose up to £80 million a year.63 Charities card industry has recently “committed to cyber attacks and fraud associated with through the prism of progress – we Whilst consumers might see cashless responded by launching Tap for Change ensuring that from January 2020 every electronic payments – something that can all acknowledge that contactless spending as the future, opinions among contactless donation boxes. Greater bank-issued payment terminal in the UK also worried UK consumers in our HMRC cards speed up our daily commute, small businesses (with under 50 staff) Change, a social enterprise in partnership will be capable of accepting contactless study. In a recent poll for Bankomat AB, buying food, and socialising in bars were mixed. Of those who said they with the University of Oxford, has payments”.60 British Retail Consortium a company providing ATM services in and cafés. But is Britain comfortable would not offer contactless payments, suggested that homeless people could data show cash payments on a steady Sweden, 68% of Swedes wanted cash with contactless, or merely conforming 32% said there was nothing that would carry QR codes to obtain donations via decline (Figure TWENTY ONE). Britain to remain as a viable payment option to it? Dr Niro Sivanathan, Associate make them offer such a service in the phones.64 As Britain’s spending culture appears to be undergoing a payment in the future, while 85% of those aged Professor of Organisational Behaviour future. Despite this, 43% of all small transforms, society endeavours to adapt infrastructure overhaul, regardless 65 and above expressed the same at London Business School, suggests businesses expected the number of cash to keep pace. of whether we are all on board. desire.66 Its central bank, Riksbank, issued that contactless payments separate the payments they received in the future to

36. 37. Ipsos MORI – Understanding Society November 2018 The credit they deserve – How can we improve access to finance for UK SMEs?

The credit they Matt Adey Dr Rebecca deserve Klahr Yasmin How can we improve access to finance for UK SMEs? White

a precaution for a fast move from cash challenges than larger firms when it to contactless, noting that it needed “to comes to finance. Of those who said they take place at a rate that does not create problems for certain groups or exclude would not offer contactless anyone from the payment market”.67 SMEs need to Similarly, Britain’s economy must recalibrate to our new spending norms. know their payments, 32% said there Electronic payments can certainly make our daily lives more convenient. But whilst options was nothing that would this may convenience the many, we should be wary of excluding the few: those who do not have the means, or The 2017 survey reveals a lack of make them offer such a desire, to join the contactless movement. awareness among smaller businesses of The pace of this move is essential, financial products beyond bank loans, particularly for the UK’s small businesses, service in the future. overdrafts and credit cards – and even some of whom aren’t ready to abandon when they were aware of products, cash. While we continue to enjoy the many did not have a trusted provider Despite this, 43% of all small benefits of cashless payments – less to contact. There were also regional commuter congestion, and fewer coins variations to awareness, particularly for weighing down our purses – we must also businesses expected the alternative sources of finance like venture be mindful of how it can change spending capital and mezzanine finance, which habits. In particular, in a country already was generally lower outside London. number of cash payments experiencing high levels of consumer The number of SMEs seeking and debt, we should be careful to avoid using external finance is also low. In the another credit-induced financial hangover. they received in the future 2017 survey, only two in five (39%) had sought external finance in the last three to decrease. years. And 27% of those who didn’t get all the finance they were looking for gave up, rather than looking elsewhere. This disinclination to seek external finance is confirmed by 42% of SMEs currently not using any form of finance, according to Smaller businesses are the backbone commitments to help them navigate the the survey. of the UK economy. Office for National myriad of challenges and opportunities Statistics (ONS) data showed an average they face on a daily basis and, ultimately, of 1,000 new businesses starting up every to support their growth.69 day in 2016.68 They drive growth, create Since 2014 the British Business Bank – a A lack of jobs, are seedbeds for innovation and state-owned economic development help make the UK more competitive. bank established by the UK Government confidence They have also shown resilience during – has commissioned a unique survey economic slowdowns. Younger smaller among small and medium enterprises businesses, however, tend to face more (SMEs, with under 250 staff) to better The survey points to several reasons barriers, including cash flow, employee understand their awareness of different for this. Many business owners avoid skills gaps, red tape and access to types of external finance and experience borrowing to avoid debt and because finance. Recognising the importance of raising finance. The survey, conducted of fear of rejection. Distrust in banks of smaller businesses to the economy, by Ipsos MORI, has consistently shown and financial institutions also appears the UK Government has made several that smaller businesses face bigger to be a concern, with 32% of those that

38. 39. Ipsos MORI – Understanding Society November 2018 The credit they deserve – How can we improve access to finance for UK SMEs?

Distrust in banks and

SMEs are hesitant to trust alternative providers financial had a need for external finance in the do not seek advice when applying for expert guides, checklists and articles last 12 months citing this as one of the finance. Our 2017 survey reported fewer from finance providers to help make their Figure TWENTY TWO: Confidence in ability to … institutions also main reasons for not applying for it. The than half of all SMEs saying they would application a success. The new site also negative attitude of businesses towards seek advice if they needed external features case studies from real businesses, finance was also highlighted in the 2016 finance in the future (43%) – although, to guide businesses through the process … assess finance appears to be survey when over four times as many encouragingly, the survey reveals a small of applying for growth finance. products offered 67 13 16 3 by own bank businesses assumed obtaining finance increase in the last three years (from 13% Addressing the challenge to drive a concern, with from a bank was difficult, rather than easy of businesses that have sought finance demand for finance is vital. Improving … assess finance (56% compared to 13%). taking advice in 2016, to 18% in 2017). the growth and productivity of smaller products offered by other 49 17 28 6 There remains a lack of confidence Just 43% of all SMEs think that finance businesses is central to improving the providers 32% of those among smaller businesses to assess the providers give them enough information economy as a whole which makes it appropriateness of alternative sources of about their products, to be able to judge even more important that they are given % confident % neither confident nor unconfident that had a need finance. The 2017 survey shows (in Figure if they are suitable or not – and this lack the credit they deserve. % unconfident % don't know or refused TWENTY ONE) that, while almost seven of agreement may help explain the in ten SMEs are confident in assessing unwillingness to seek advice. The future for external finance products offered by their own success of a young business depends on bank (67%), this falls to only half of SMEs them being able to access information finance in the when it comes to assessing products they trust about their finance options. offered by other providers (49%). Moreover, small businesses need to This is corroborated by those who be aware of the positive impact of Established relationships can trump better deals last 12 months have sought finance in the last three borrowing, and the range of options and years. For these businesses, their usual providers, in order to feel more assured Figure TWENTY THREE: Top unprompted reasons for only approaching one finance citing this as bank is still their preferred port of call they will have the support they need provider when last seeking finance for finance. The majority do not even when seeking finance. research other suppliers, and could Building smaller businesses’ confidence one of the main be missing out on a better deal as and awareness of their finance options, Had an established relationship a consequence. Already having an so they are encouraged and enabled with that provider 55% reasons for not established relationship is by far the to seek the finance best suited to their Lowest cost/offered most common reason for sticking with needs, is a key objective of the British the best deal 15% applying for it. the familiar (cited by 55% of those who Business Bank. To help fulfil that objective, My only/most obvious option 14% contacted only one provider, as Figure the British Business Bank has for several TWENTY TWO shows). However, a range years provided the Business Finance First provider had what I wanted 9% of other factors are at play, including: Guide, published in both hardcopy and the cost of finance, and perceptions of online, in partnership with the Institute of Too much hassle contacting the hassle and time making contact with Chartered Accountants in England and more than one provider 7% alternative providers. Wales (ICAEW) and a further 21 leading Had the specific type of finance business and finance organisations.70 The I wanted 6% guide impartially sets out the range of Fresh solutions finance options available to businesses at all stages, from start-ups to SMEs, and growing mid-sized companies. In a significant step-up, this summer So what does all this mean for the the Bank launched its new online Finance future of small businesses? Given the lack Hub, specifically designed for high- of understanding of products available growth businesses.71 The digital hub and the low confidence in assessing provides everything a business looking products, taking advice would appear to scale up might need to know about to be a solution. However, most SMEs their finance options, featuring short films, 40. 41. Ipsos MORI – Understanding Society November 2018 References

REFERENCES

1. https://www.ipsos.com/ipsos-mori/en-uk/ 18. https://www.ncsc.gov.uk/smallbusiness 36. https://theodi.org/article/what-is-a-data-trust/ 55. http://www.nrs.co.uk/nrs-print/lifestyle-and-classification- search?search=Issues%20Index data/social-grade/ 19. https://www.ncsc.gov.uk/charity 37. https://www.ft.com/content/1c57dcb0-aa89-11e7-ab55- 2. https://tradingeconomics.com/european-union/ 27219df83c97 56. 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42. 43. Ipsos MORI – Understanding Society November 2018 References

11. Source: Ipsos MORI | Bases: 1,002 UK adults aged 18 to 65; FIGURE References 528 who think automation will lead to net job losses (data are weighted) | 8 to 15 September 2017

1. Source: European Investment Bank/Ipsos MORI | Base: 12. Source: Ipsos MORI | Base: 94 MPs | Fieldwork: 21 June to 12,338 EU businesses (data are weighted) | Fieldwork: 28 25 August 2017 April to 1 September 2017 13. Source: Ipsos MORI | Base: 94 MPs | Fieldwork: 21 June to 2. Source: Invest Europe/Ipsos MORI | Base: 360 investors 25 August 2017 from China, France, Germany, the UK, and the US | Fieldwork: September to October 2017 14. Source: BCG GAMMA/Ipsos MORI | Bases (all for adults aged 18+): 1,009 in UK; 1,011 in China; 1,010 in US (all data 3. Sources: British Social Attitudes (2003 and 2013); NatCen are weighted) | Fieldwork: 18 May to 6 June 2018 Panel (2017) | Bases: 873 British adults aged 18+ in 2003; 904 in 2013; 2,169 in 2017 (all data are weighted) | 15. Source: Wellcome Trust/Ipsos MORI (https://www.ipsos. Fieldwork: August 2017 (NatCen Panel) com/ipsos-mori/en-uk/commercial-access-health-data)

4. Sources: Ipsos MORI (perceived rankings); World Bank 16. Source: Office for National Statistics (https://www.ons. (actual rankings; https://wits.worldbank.org/countrystats. gov.uk/employmentandlabourmarket/peoplenotinwork/ aspx) | Base (Ipsos MORI): 1,129 UK adults aged 16 to 75 unemployment/datasets/vacanciesbyindustryvacs02) (data are weighted) | Fieldwork (Ipsos MORI): 18 to 21 17. Source: Ipsos MORI | Base: 1,129 UK adults aged 16+ (data September 2018 are weighted) | Fieldwork: 18 to 21 September 2018

5. Sources: Ipsos MORI (perceived rankings); Office for 18. Ibid. National Statistics (actual rankings; https://www.ons.gov. uk/businessindustryandtrade/internationaltrade/articles/ 19. Source: Ipsos MORI | Bases: 1,129 UK adults aged 16+;845 whodoestheuktradewith/2017-02-21) | Base (Ipsos MORI): UK adults who think there will be a labour shortage with 1,129 UK adults aged 16 to 75 (data are weighted) | the UK leaves the European Union; 150 UK adults who Fieldwork (Ipsos MORI): 18 to 21 September 2018 think there will not be a shortage (data are weighted) | Fieldwork: 18 to 21 September 2018 6. Source: Ipsos MORI | Base: 1,129 UK adults aged 16 to 75 (data are weighted) | Fieldwork: 18 to 21 September 2018 20. Source: UK Finance (https://www.ukfinance.org.uk/ uk-payment-markets-2018-summary/) 7. Source: Home Office | Bases: c.150-450 business establishments per sector (data are weighted) | 21. Source: British Retail Consortium (https://brc.org.uk/ Fieldwork: 2014-2017 media/179489/payment-survey-2016_final.pdf)

8. Source: Ipsos MORI | Bases: 96 Ipsos MORI Reputation 22. Source: British Business Bank/Ipsos MORI | Base: 2,070 UK Council members; 81 UK business or finance journalists | small and medium enterprises (with 1 to 249 employees) Fieldwork: April-August 2016 (Reputation Council) and 1 (data are weighted) | Fieldwork: 30 August to 7 June to 5 July 2016 (business or finance journalists) November 2017

9. Source: Department for Digital, Culture, Media and Sport/ 23. Source: British Business Bank/Ipsos MORI | Base: 469 UK Ipsos MORI | Bases: 1,519 businesses, excluding small and medium enterprises (with 1 to 249 employees) agriculture, forestry or fishing businesses; 569 charities (all that contacted only one finance provider (data are data are weighted) | Fieldwork: 9 October to 14 weighted) | Fieldwork: 30 August to 7 November 2017 December 2017

10. Source: Ipsos MORI | Bases: 1,002 UK adults aged 18 to 65 (data are weighted); 94 MPs | Fieldwork: 8 to 15 September 2017; 21 June to 25 August 2017 (MPs) 44. 45. Ipsos MORI – Understanding Society November 2018

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