One Nation Toryism #2: Treating the sick man of Europe
How can One Nation economics fix the UK's woes?
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Catch up on the first piece in this series here
“Managed decline, Britain going backwards, the sick man of Europe once again” was how Labour leader Sir Keir Starmer chose to summarise Britain’s economic standing in the recent Budget debate. Unfortunately for the Tories, Sir Keir was right.
But this assessment is nothing new. Britain has repeatedly been dubbed the “sick man of Europe”. With chronically low productivity growth and a trade deficit that only gets larger, Britain is a persistent laggard on the world stage.
And this is a self-imposed sickness, with governments of all colours ignoring – and often actively working against – the vital signs of a healthy economy. Most importantly of all, Britain has taken a wrecking ball to its manufacturing base, overseen some of the lowest levels of national investment in the OECD, and repeatedly neglected vocational training and skills.
However, it is precisely because our malady is self-imposed that its causes can be reversed and a cure developed. That cure lies in the pragmatic stewardship of One Nation conservatism and the recognition of the good that government can do. In this second article in my series on One Nation conservatism, I explore how the Tories can reverse the tide of managed decline and build an economy fit for One Nation.
Manufacturing and the economic divide
The post-1979 neoliberal consensus has devastated the UK economy, particularly in the manufacturing sector. The obsession with financial services and deindustrialisation has led to a decline in manufacturing output and employment, resulting in a loss of skills and expertise in the UK workforce. This decline in manufacturing has contributed to the UK's persistent trade deficit and has made the country more vulnerable to global economic shocks, including the COVID-19 pandemic, which exposed the fragility of the UK services-based economy.
In 1981, manufacturing accounted for 23.4 per cent of employment in the UK but fell to just 8.1 per cent in 2018. And yet, outside London, wages in manufacturing are higher than the wider economy, with a consistent wage premium of over £1 an hour for the UK as a whole and an even higher premium in some regions. In 2018, median earners in manufacturing earned 22 per cent more in the North East and 19 per cent more in the North West – a premium of over £2 an hour.
As Miriam Cates MP, Conservative Member of Parliament for Penistone and Stocksbridge, put it, we cannot level up without a manufacturing revival. Although the steelworks in her constituency employs far fewer people than it once did, these jobs are still some of the most well-paid and highly skilled in the area. According to Cates, “reversing the manufacturing decline” is “so important to restore productivity – and pride – to our industrial heartlands”.
But increases in productivity and wage growth do not just benefit some regions; they benefit the nation as a whole. If underperforming areas were levelled up towards the UK average, this could boost aggregate UK GDP by tens of billions of pounds each year – meaning more money for public goods like schools and the NHS. Moreover, by extending opportunities across the UK, people would not feel forced to leave their hometowns in search of a better life in the big cities – relieving pressure on their overstretched public services, housing stock and transportation networks.
Following the Spring Budget, the introduction of full expensing – which allows companies to claim 100 per cent capital allowances on qualifying plant and machinery investments – is a step in the right direction. But the Government needs to go further if the UK is to be globally competitive in the long term. Full expensing is far less generous than the previous “super-deduction” – which allowed companies to cut their tax bill by up to 25p for every £1 they invested – and it is only in place until 2026. The Government must commit long-term funding to support the growth of manufacturing, particularly in sectors where the UK already has an advantage, and overhaul our tax system so that it favours sectors with high investment costs.
None of this is to say that we should neglect our world-leading services industry. On the contrary, we should be proud that the UK is home to the greatest concentration of finance, technology, and professional services on the planet – a testament to our willingness to take risks, innovate and shake up the market. Services also include our creative industry, another British success story that has given rise to the Beatles, Queen, Elton John, Adele, and Harry Styles, to name a few.
But not everyone can be the next hotshot investment banker or high-flying human rights lawyer. These professions are often the reserve of the highly educated and mobile, who have no qualms about leaving their hometown and local community behind in search of a better life in the big cities – a group of people dubbed the “Anywheres” by author David Goodhart (2016, Road to Somewhere). A blinkered focus on the services industry offers countless opportunities for the Anywheres but very little for those who do not go to university, have a strong sense of local identity and community, and who do not find life in a large city hundreds of miles away particularly appealing – whom Goodhart terms the “Somewheres”.
Skills and net zero
For Somewheres, reviving the manufacturing sector is crucial, because it provides higher wages for less-qualified workers. Indeed, the largest manufacturing wage premium is seen for those with mid-level qualifications and those in the low-to-middle part of the earnings distribution. According to research conducted by the Onward UK think tank, those with only A-level equivalent qualifications see a 20 per cent hourly earning premium in the manufacturing sector.
But with the hollowing out of manufacturing, Somewheres are too often forced into the precarious and low-paid work of the gig economy or bogus self-employment, the horror stories of which abound – fines for taking a day off sick, overly long hours, missing medical appointments, not speaking out for fear of being sacked – a Victorian system that should have died out with the workhouses. Alongside its immense economic benefits, then, the revival of manufacturing would also restore prestige and pride to employment in our left-behind regions.
If we are to usher in a renaissance in British manufacturing, we must urgently rethink our education system. The focus on academic qualifications and university education has resulted in a neglect of vocational training and apprenticeships, creating a skills gap in the UK workforce. This gap has made it harder for UK firms to compete in the global market. The Government’s Lifelong Loan Entitlement (LLE), which will help people receive flexible loan funding to train, retrain and upskill throughout their working lives, could be the biggest transformation in skills of the past decade. The Government must prioritise this legislation and implement the LLE as quickly as possible.
Addressing the skills gap is also necessary for meeting our net zero commitments. According to Onward, the average skill level of net zero jobs is 26 per cent higher than the current average occupational skill level in the UK, meaning around 3.2 million workers require a skills boost if they are to bring about the promise of a ‘Green Industrial Revolution’. Alongside the LLE, the Government should encourage the creation of more apprenticeship routes into net zero industries as well as devolve more powers to local areas, which understand best both the skill level of their communities and the needs of local industries and stakeholders. As is the case for manufacturing, wages in net zero jobs boast a considerable pay premium relative to the national average. The average pay for a net zero job is £37,195 a year, a premium of 18 per cent compared to the national average – or 30 per cent compared to carbon-intensive jobs.
A new Britain
As has hopefully become clear, manufacturing, skills, net zero and devolution are not stand-alone issues; they all join up to form a comprehensive, growth-focused industrial strategy. A renaissance in manufacturing is crucial for British productivity and economic growth, and as a world leader in decarbonisation, it makes sense for us to focus on net zero industries. Importantly, with large industrial players like China and Russia showing little to no interest in net zero, this presents a significant opportunity for Britain. And the revival of our manufacturing base depends on the long-term prioritisation of vocational training, with devolution able to play a vital role in targeting investment towards specific industries and skills. If the Government gets it right on these issues, it can get Britain firing on all cylinders, end our productivity problem, restore pride of place to left-behind areas, and nurse the sick man of Europe back to health.
The post-1979 neoliberal order was a response to the economic challenges of the time, but it has failed to deliver the promised benefits. Instead, it has created a two-tier economy that benefits the few, primarily those with university degrees who live in the big cities and work in services. By investing in manufacturing, vocational training and regional development, the One Nation approach addresses this imbalance and creates an economy that works for all.
Ethan Dodds is an Adviser at the Pooled Research Facility based in the Houses of Parliament, and also a contributing writer for TPI. Follow him on Twitter @DoddsEthan
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Really interesting piece on One Nation Tory economics, particularly around integration of net zero, manufacturing and skills. What would be your take on how the Conservatives integrates these ideas into their policies or manifesto? Or is this really a opportunity for the Conservatives to reinvent themselves in opposition / after 2024?