In 2019 the Conservatives were elected with a majority of 80 based on two key promises: delivery of the people’s vote to leave the European Union in 2016, and a pledge to “level up” those parts of this country that for too long felt the political class had left them behind. The electoral pressure for both the Conservative and Labour parties to deliver for the needs of those voters is clear – but the moral imperative is even stronger.
The UK is one of the most inter-regionally unequal countries in the industrialised world, and since the 1970s the disparities between different parts of our country have only widened. The Prime Minister has rightly identified the root cause of this disparity in the UK’s enormous productivity gap: in Berkshire, productivity as measured by Gross Value Added (GVA) per head was £41,727 in 2017. Meanwhile in East Derbyshire it was just £18,527. And with annual growth in GVA per head in London nearly double that in Yorkshire and the Humber, the gap in incomes and living standards between the richest parts of the country and the poorest will only continue to grow.
In this new CSJ Discussions paper, economist and businessman John Mills argues that the only way to boost productivity in places that have experienced stalled growth and stagnant wages for so long is through a restored dynamic manufacturing sector. While London and the South East have grown through high-value services, many of our post-industrial heartlands have been left without productive industries, and fewer and fewer good quality jobs.
In the 1970s, manufacturing accounted for 30 per cent of our national income, when Britain was the “workshop of the world”. Now, it contributes just 9 per cent. And without manufacturing, Mills argues, it is almost impossible to achieve the rising incomes and living standards that come from economic growth. While the South East accelerates away, the rest of the UK risks being left behind.
Mills argues that Britain’s manufacturers – unlike those in Germany or Japan – face a unique challenge: the exchange rate. The relatively high value of sterling means our industries cannot export at competitive prices, since the strong pound prices them out of the global market. This has nothing to do with the underlying quality or capabilities of our manufacturers. And with our lack of supply chain resiliency exposed by our national experience during Covid-19, the need to reconsider our level of support for manufacturing is clearer than ever before.
The CSJ welcomes this piece of thought leadership and will be launching a major report on levelling up and the manufacturing sector later in the year. We believe it is essential to make the case to policymakers that without better jobs and restored economic growth there can be no meaningful levelling up – this is an essential contribution in the debate on how this could be achieved.