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Government’s Industrial Strategy ‘in danger of missing the point’ in productivity push

Small and medium sized businesses which are certified as ‘good jobs employers’ should get a 1% cut in their corporation tax, argues a new report on industrial strategy by the progressive think tank the IPPR today. Citing academic evidence that better job design is the key to raising productivity and wages, the report calls for the creation of a ‘good jobs standard’ under which firms would be accredited for providing jobs with decent pay and conditions, including opportunities for training, career progression and employee involvement in decision making.

As well as the tax cut, firms would be incentivised to achieve the standard by making it a condition for those bidding for public procurement contracts. The report suggests that one of the assessment tests could be a survey of employees on whether the standard had been achieved.

The report argues that the Government’s White Paper on Industrial Strategy, must focus on what it calls the ‘everyday economy’ of ordinary firms where productivity and wages are low. (Government unveils Industrial Strategy to boost productivity and earning power of people across the UK)

The report argues for the creation of a new body, Productivity UK, to drive productivity improvement in the ‘everyday economy’. This would work with sector bodies and Local Enterprise Partnerships to provide training, advice, guidance and grants to businesses to help them adopt new digital technologies and better management practices. It would work with and scale up the new ‘Be the Business’ initiative of the Productivity Leadership Group.

To improve the nation’s skills base, the report calls for the current Apprenticeship Levy to be converted into a ‘Productivity and Skills Levy’ which could be used for wider range of skills training and job redesign aimed at raising productivity.

Michael Jacobs, Director of the IPPR Commission on Economic Justice and co-author of the report, said:

“The Government is in danger of missing the point in its industrial strategy. Its focus so far has been on sectors engaged in technological innovation, like automotive and pharmaceuticals. But productivity in these sectors is already high. The UK’s productivity problem lies in the vast majority of ordinary firms, in sectors such as retail, light manufacturing, tourism, hospitality and social care. Unless the White Paper includes a plan to raise productivity in these sectors, it will simply not be addressing the real issue.”

The report urges the government to make ‘good jobs’ a national goal of the industrial strategy.

Michael Jacobs added:

“Good employers - of whom there are many - know that high quality job design not only improves job satisfaction. It raises productivity and thereby enables higher wages. We need a national campaign to get firms focused on how they can help themselves become more competitive in this way.”

The wide-ranging report, Industrial Strategy: Steering Structural Change in the UK Economy, is being published for the IPPR Commission on Economic Justice. It also recommends:

• An increase in annual public investment spending of at least £20 billion by 2021–22, or around 1% of GDP. Of this at least £10 billion a year should go towards industrial strategy, including infrastructure, housing, research and development and business growth. This would take total public sector investment in the economy to around 3% of GDP, the average for OECD countries. The report argues that, at negative real interest rates, the government should borrow to fund the additional spending.
• The creation of a new National Investment Bank with a specific mandate to invest in infrastructure, housing, business growth and innovation, with a strong focus on geographic rebalancing of the economy. Modelled on successful public development banks in other countries, such as Germany’s KfW and the European Investment Bank, the NIB it would seek to ‘co-invest’ with businesses, leveraging in private sector finance.
• Phasing down and ultimately largely abolishing the R&D tax credit and Patent Box scheme. Together these cost around £3.6 billion annually. The report estimates that between 57 and 80 per cent of R&D tax credits are deadweight, subsidising spending which would have happened anyway, at an annual cost of £1.8–1.9 billion. It argues for the savings from phasing down these schemes (R&D tax credit should be available only to firms under 5 years old, it suggest) should be redirected for direct support to R&D through Innovate UK and the National Investment Bank.
• Key ‘missions’ should be identified to drive the direction of growth and innovation, providing public policy goals to address some of the key challenges faced by the UK and global economy over the next 20 years. We propose three core missions:
  • green growth – to reduce make the UK’s environmental footprint to levels consistent with global sustainability the lowest of any developed country by 2040
  • responding to demographic change – to make the UK’s population the healthiest and best cared for in the world by 2040
  • accelerating the digital economy – to make the UK the most digitally advanced society in the world by 2040.
• New legislation to be drafted for an Industrial Strategy Act to provide a new legal framework. This would clarify the UK’s rules on state aid after we leave the European Union, and provide a robust structure for policy design and evaluation.

Contact

Sofie Jenkinson, 07981023031, s.jenkinson@ippr.org

Michael Jacobs 07795 333473 m.jacobs@ippr.org

Notes to Editors

The report, Industrial Strategy: Steering Structural Change in the UK Economy is available at https://ippr.org/research/publications/industrial-strategy-steering-structural-change-in-the-uk-economy. 

The report is being produced for the IPPR Commission on Economic Justice, which brings together leading figures from across society to examine the challenges facing the UK economy and make recommendations for reform. The Commission’s Interim Report, Time for Change: A New Vision for the British Economy, was published in September.

IPPR is an independent registered charity and Britain’s leading progressive think tank. It is dedicated to the better country that Britain can be. With nearly 40 staff across four offices throughout the UK, IPPR is Britain’s only national think tank with a truly national presence. Our independent research covers the economy, work, housing, education, health, migration, energy, transport, devolution and democracy among other areas. www.ippr.org