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The Great British Breakthrough the GREAT BRITISH BREAKTHROUGH Driving Productivity Growth in the UK

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The Great British Breakthrough the GREAT BRITISH BREAKTHROUGH Driving Productivity Growth in the UK The Great British Breakthrough THE GREAT BRITISH BREAKTHROUGH Driving productivity growth in the UK September 2017 The Centre for Social Justice The Great British Breakthrough © The Centre for Social Justice, 2017 Published by the Centre for Social Justice, The Centre for Social Justice, 34a Queen Anne’s Gate, London, SW1H 9AB @CSJthinktank Designed by Soapbox, www.soapbox.co.uk contents Contents About the Centre for Social Justice 2 Chairman’s foreword 3 Working group 4 Executive summary 6 Aims 9 Introduction 10 Part 1: History of productivity 13 1 Miracle or mirage: UK productivity performance from the ‘70s to today 15 2 Literature review 27 Part 2: Drivers of productivity 33 3 Investment and innovation 35 4 Human capital and the bottom 20 per cent 51 5 Regional divide – how productivity is driven by geography 71 Part 3: Policy for productivity 87 6 Better measurement 89 7 Creating an innovation nation 91 8 Skills, education and employment 97 9 Place 113 Conclusion 123 Bibliography 125 The Great British Breakthrough | Contents 1 About the Centre for Social Justice Established in 2004, the Centre for Social Justice (CSJ) is an independent think-tank that studies the root causes of Britain’s social problems and addresses them by recommending practical, workable policy interventions. The CSJ’s vision is to give people in the UK who are experiencing the worst disadvantage and injustice every possible opportunity to reach their full potential. Since its inception, the CSJ has changed the landscape of our political discourse by putting social justice at the heart of British politics. This has led to a transformation in government thinking and policy. The majority of the CSJ’s work is organised around five ‘pathways to poverty’, first identified in our ground-breaking 2007 report, Breakthrough Britain. These are: family breakdown; educational failure; economic dependency and worklessness; addiction to drugs and alcohol; and severe personal debt. In March 2013, the CSJ report It Happens Here, shone a light on the horrific reality of human trafficking and modern slavery in the UK. As a direct result of this report, the government passed the Modern Slavery Act 2015, one of the first pieces of legislation in the world to address slavery and trafficking in the 21st century. The CSJ delivers empirical, practical, fully-funded policy solutions to address the scale of the social justice problems facing the UK. Our research is informed by expert working groups comprising prominent academics, practitioners, and policy-makers. Further, the CSJ Alliance is a unique group of charities, social enterprises, and other grass-roots organisations that have a proven track-record of reversing social breakdown across the UK. The 13 years since the CSJ was founded has brought with it much success. But the social justice challenges facing Britain remain serious. Our response, therefore, must be equally serious. In 2017 and beyond, we will continue to advance the cause of social justice in this nation. 2 The Centre for Social Justice foreword Chairman’s foreword The CSJ’s remit has always been to approach a subject with a blank slate, research the root causes of a problem, and build a significant body of evidence to support a programme for change. We have done just that with this report, and what is presented here is a programme that will radically change the shape of our economy, putting us back on a growth path that delivers improved living standards for the British people. There is no doubt that the stagnation in productivity poses a serious threat to our economy. If productivity had continued to grow at 2 per cent, the pre-crisis rate, our economy would be a fifth larger. Our debt burden would be smaller, our budget deficit would have become a surplus, wages would be higher, and poverty levels would be even lower. This report sets out to counter the claim that productivity stagnation began in 2008. We argue it has been going on for up to two decades, and has been most damaging for those at the bottom of the income scale. The report sets out three main drivers of productivity; innovation across British business, human capital and regional dynamics. We set out 51 recommendations that, if enacted promptly and properly, will help boost British productivity growth. The message in this report is simple; investing in transport infrastructure, digital networks and technical skills is important, but unless you target policy to support the least advantaged in society, we cannot return productivity growth to pre-crisis levels. More must be done to support children who drop out of school without any qualifications and boost opportunities for students in STEM education. We must re-invest in our Further Education sector as an alternative to Higher Education. Better support for entrepreneurs from disadvantaged backgrounds is essential. We can no longer let people languish on low paid and low skilled work, without any access to training for up-skilling, and no opportunity for progression. Finally, the Government needs to take seriously the gap between London and the rest of the country, and recognise that too often productivity growth has been at the expense of employment and poverty. I would like to thank members of the working group, whose contributions to this report have been invaluable. They brought with them experience from across the British economy that helped mould our understanding of the productivity problem and make recommendations which will help change our country. Rt Hon. Iain Duncan Smith MP The Great British Breakthrough | Chairman’s foreword 3 Working group Rt. Hon Iain Duncan Smith MP (Chairman) Iain Duncan Smith served as Secretary of State for Work and Pensions from 2010 to 2016, during which time he led the reform of the welfare and pensions systems. He is founder of the Centre for Social Justice, and led much of the work into setting up Universal Credit. Iain was elected Member of Parliament for Chingford in 1992, and held positions of Shadow Secretary of State for Social Security and Shadow Secretary of State for Defence. Sir Ian Cheshire Sir Ian is one of Britain’s most prominent businessmen. He is currently Chairman of Barclays UK, Debenhams plc, and Maisons du Monde; a senior independent director at Whitbread plc; and is a lead non-executive director for the government. He was previously Chairman of the British Retail Consortium, Chairman of the Prince of Wales Corporate Leaders Group on Climate Change and President of the Business Disability Forum President’s Group. Andrew Churchill Andrew is Managing Director of JJ Churchill Ltd, a 79-year-old family owned precision engineering firm based in the West Midlands. He sits on the board of EEF The Manufacturers Organisation, is a member of the IET Manufacturing Policy Panel, remains a fellow of the IET, and has been part of the All Party Parliamentary Groups for both Manufacturing and Trade & Investment. Andrew read chemistry at Oxford University. Dr Gerard Lyons Dr Lyons is one of Britain’s most celebrated economists. Currently Chief Economic Strategist at Netwealth Investments, he was previously Chief Economic Advisor to Mayor of London Boris Johnson, Chief Economist at Policy Exchange and held senior roles at Standard Chartered Bank, Swiss Bank and DKB International. He sits on the advisory boards at Warwick Business School and the Grantham Institute. Gerard has recently published a book entitled ‘Clean Brexit’. 4 The Centre for Social Justice group Dr Sarah Main Dr Main is the Executive Director of the Campaign for Science and Engineering (CaSE). A molecular biologist by training, Sarah has worked for Cancer Research UK and the Medical Research Council. She also completed a secondment to the Department for Business, Innovation and Skills where she wrote a report on the leveraging power of public investment in science and research for the UK economy. John Mills John Mills is Chairman of JML ltd, one of the largest import-export distributors in the UK. Other roles include the Chairman of the Economic Research Council and Chairman of the Pound Campaign. John is an economist by training, and has over 50 years’ experience as a commentator on British economic policy making. Author of nine books, he is also a Labour Party member, and played a significant role on the board of Vote Leave during the EU referendum. Carole Willis Carole is the Chief Executive of the National Foundation for Educational Research (NFER). One of the countries most respected voices on education, she was previously Director of research at the Department for Education, and the Department’s Chief Scientific Adviser. She worked on productivity growth at the Department of Trade and Industry, has helped deliver pension reform at the Department for Work and Pensions and worked on poverty reduction programmes at the World Bank. Patrick Spencer (CSJ Researcher) Patrick Spencer is Head of the Work and Welfare Unit at the Centre for Social Justice where he conducts research into the most effective policies that increase employment and reduce welfare dependency across Britain. Prior to working at the Centre for Social Justice, he worked in financial services and stood as the Conservative Party candidate in West Ham during the 2017 general election. With thanks to our sponsors. Disclaimer – Participation in the working group does not indicate that each participant agrees with all recommendations in the final report. The Great British Breakthrough | Working group 5 Executive summary Britain’s productivity problem is well known, if little understood, in Westminster and across the UK. In August 2017, Office for National Statistics (ONS) data showed output per hour (the most commonly used term for productivity) had declined by 0.1 per cent in the second quarter of 2017, after a 0.5 per cent decline in the first quarter of 2017 leaving the UK economy half a per cent less productive than it was in 2007.
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