MPs say productivity should be at the top of the Government’s “to-do” list if it’s serious about levelling up
Credit: University of Manchester
A new report examining the UK’s “productivity gap” suggests that the Government must decentralise the UK’s decision-making structures and invest in skills if it is to heal the North-South divide, with support from MPs.
“Levelling up” may be a key priority of the current Prime Minister, but the desire to bridge the gap between North and South is nothing new. In fact, successive governments over the past 25 years have worked to close the economic gap between London and the South East and other regions, with flagship strategies such as the Northern Powerhouse agenda offering hope to areas left behind by economic growth concentrated in the South.
So which policies have worked and which ones haven’t – and how can further progress be achieved? Those are questions explored in a new report investigating the national productivity gap and its inextricable link to inequality. The report, called On Productivity, was compiled and released by Policy@Manchester, the University of Manchester’s policy engagement institute, whose aim it is to improve life for people around the world through influencing and challenging policymakers with robust, research-informed evidence and ideas.
Its findings cover not just the implications of the productivity gap, but its causes too – and they cover interlinking themes as diverse as climate change, gender equality and procurement.
“We absolutely need to campaign for more spending across the North,” said Conservative MP for Thirsk and Malton, Kevin Hollinrake, after reading On Productivity. “The key is greater public investment in infrastructure, government investment in skills and incentives, coupled with private sector investment.”
A crucial output of the report is a series of policy recommendations that the authors say would level up UK productivity by ensuring the right infrastructure is in place everywhere; not just the South.
Some of these recommendations build on data from a 2018 report funded through the Northern Health Science Alliance, which found that reducing regional differences in health would result in higher productivity and economic benefits in the north of England. A healthier workforce contributes more to the labour market, taking less sick leave and working more productively, due to greater wellbeing and happiness. In the north of England, where people’s health is worse than the national average, there is a £4 per-person-per-hour “productivity gap” (measured using average Gross Value Added; GVA according to the ONS), 30% of which is directly attributable to lower levels of health. Levelling up health could add a further £13.2 billion to UK GDP each year.
Since that NHSA report was published, one major global event has severely impacted both the individual physical health and the collective economic health of every part of the UK: the pandemic. In On Productivity, Dr Luke Munford and Professor Clare Bambra reveal that the North was hit harder by the pandemic than other regions of England, with Covid-19 mortality rates 17% higher in the North as a whole, and 59% higher in Manchester.
“We estimated that over two-thirds of the excess northern mortality – or about 100 deaths per 100,000 population, equivalent to around 15,500 deaths in total in the North – could potentially have been prevented if pre-pandemic health and deprivation was the same in the North as in the rest of the country,” they write. “The prevalence of mental health conditions also rose sharply in the North, in part explained by more exposure to stricter localised lockdown measures.”
Unsurprisingly, the northern economy was also harder hit, with higher unemployment rates that also rose faster and wages that fell further. Estimating that increased mortality in the north of England could cost the national economy up to £7.3 billion in lost productivity, the report recommends that the Government invests in place-based public health and local spending in northern NHS trusts, and that it works with employers to increase labour market participation and job retention among people with health conditions in the north.
The UK also suffers from stark regional differences in productivity growth, according to Bart van Ark, professor in productivity studies and Managing Director of The Productivity Institute.
“While UK productivity growth was a meagre 0.5% per year nation-wide, it increased at only half of that in the North East, it stalled in the North West, and declined in Yorkshire and the Humber over the past decade,” he writes in the report.
“The strong productivity performance of the London metropolitan area plays an important role in understanding the regional inequalities, but there are also concerns about the unusual weak productivity record of second tier cities, including Manchester but also Birmingham, Sheffield and Leeds relative to comparable cities in other countries. For example, the level of output per hour in both Greater Manchester and Birmingham was not only just 68% of that in London, but also almost a quarter or more below peer cities in Western Europe.”
Van Ark argues that the north-west’s industrial decline is undoubtedly one explanation why the region has been trapped for so long in what he calls “a low-investment, low-skill, low-productivity equilibrium”.
“When the region’s economy slowly recovered during the 1990s it was built on weak fundamentals,” he adds. “De-industrialisation had caused an exodus of young and skilled people, a closure of financial and commercial firms, high unemployment, ill-health and deprivation. This has been further compounded by the UK’s centralised and functionally fragmented decision-making structures which do not recognise local circumstances and stifle regional and local initiatives.”
He calls for digital transformation to be made a priority, to help Manchester play a greater role in the technological “fourth industrial revolution”. Leveraging digital technologies and data across the UK, as well as strengthening within-region digital connectivity, will “help revive the economies of Manchester and beyond”, he says.
But increasing productivity in the UK and ensuring productivity parity across the regions is not a black-and-white issue, the report warns.
The importance of increasing productivity in the British economy has never been higher
“Casting a gender lens on the productivity debate reveals that a simple focus on productivity will not meet the needs of women or those of poor households,” writes Professor Jill Rubery in On Productivity, where she notes the lack of discussion about gender equality in the Government’s Levelling Up whitepaper.
For example, work that tends to be undertaken by more women than men, such as frontline service work, is often categorised as “low productivity” simply because it is poorly paid. Recognising this work whilst also acknowledging that more high-productivity jobs are needed in left-behind areas is a difficult balance to strike.
“Focusing solely on maximising measured productivity-per-hour does not automatically improve living standards and security for women or for low-income households,” explains Rubery. “Admittedly, increasing high productivity jobs in left-behind areas would have some indirect positive demand effect on services that would draw more women into employment.
“Yet, real progress in levelling up by both gender and local area requires more emphasis on ‘soft infrastructure’ investment such as childcare and more efforts to end insecure contracts than is present in current plans.”
Affordable childcare is one area of this social infrastructure where Government legislation could make a real difference, along with flexible working options offered by the organisations people work for.
“Employers should make flexible working available from day one, rather than after six months employment under current regulations, to enable women to re-enter employment and also to change jobs to pursue their careers and develop and utilise their talents to the full,” Rubery argues.
She also points to “hard infrastructure” issues, such as transport, writing: “A gender lens also requires that within standard investment areas such as local transport that bus transport – the most common mode for women – is given as much attention as road and rail. There are indicators of improvements in bus services in the Levelling Up whitepaper under mission 3 but without any recognition of the importance of this transport mode for women.”
Echoing many of her sentiments is Richard Holden, Conservative MP for North West Durham and Chair of the Local Government APPG, who notes that “true levelling up covers everything from transport to education and skills.”
“Levelling up is as transformative as it is broad,” he says. “An agenda too narrow will worsen the regional disparities we see in our British villages, towns, and cities through a systematic programme for the future.
“Increasing productivity is at the core of delivering significant, advantageous and lasting levelling up. It is off the back of productivity growth that wage growth can subsequently follow – providing higher incomes and narrowing economic disparity. People in good, well-paid jobs serve as the main tool to bring people out of poverty in the long term; not benefits.”
Another MP from the North East, Labour’s Mary Glindon, who represents North Tyneside, summarised the dilemma faced by many of her constituents.
“We often hear much talk about ‘place’ in proposals to improve productivity across the country and to level up so that long-run regional inequalities are plugged,” she said. “Strip out all the technical language and it boils down to a very simple goal – that people, for instance, born in the North East don’t feel they have to move to secure opportunity elsewhere.
“Our region needlessly loses talents that can better sustain our communities. We need a smart state that invests in infrastructure, mobilises private enterprise and boosts social justice in all parts of the UK.”
Andrew Lewer MBE, Conservative MP for Northampton South, added: “At a time when taxation levels in the economy are at their highest for several generations and with global challenges now adding to pressures and uncertainties still further, the importance of increasing productivity in the British economy has never been higher. As a result, tensions over regional disparities have never been brought into sharper focus.
“On Productivity contains some essays that try to look beyond ‘tax and spend’ banalities (almost always expressed in the 21st century as ‘tax and invest’) to deeper and longer term analysis. Policy recommendations on skills are especially key and feature prominently in the report. This is a worthwhile read, both in terms of policy ideas, but also as an insight into the mindset of academics researching these issues.”
Read the digital version of On Productivity here.
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