Select Committee on Work and Pensions Minutes of Evidence

Examination of Witness (Questions 1-19)




  1. May I call the Committee to order and welcome our guest from the British Retail Consortium, Bridget Rosewell, who is the Chief Economic Adviser. We are really grateful to you for your appearance this morning. We know a little bit about the British Retail Consortium but it might help us if you said a little bit about the organisation and the work it is involved in. Perhaps the best way to proceed would be to spend a moment or two looking at how the general economic situation looks to you. One of the things in the inquiry that we are doing on the impact of economic slow down on the Government's employment strategy is beginning to focus on the difference between the performance of the service sector, in which you are deeply involved in the Consortium, where we have got—from the latest figures—increases in the last quarter of GDP of 0.1 per cent which shows a steady state of perhaps a small increase in the performance of the economy as a whole. But that masks the last quarter two per cent decline in GDP for manufacturing production and that is an issue that I think is beginning to emerge together with localised problems that have got a geographical impact on the labour market and some of the clients groups which are hardest to help, people who are furthest away from the labour market. Why do you not just make a short opening statement to help us understand better the British Retail Consortium and the work it is doing and then we can go to questions from there, if we may.

  (Ms Rosewell) Okay. The British Retail Consortium is essentially a trade organisation for retailers. It has in membership both directly individual retailers and also trade associations representing smaller retailers. We probably cover in one way or another up to about 90 per cent of all retailing activity. We conduct regular surveys of what is going on in the retail sector, both on prices and employment and on sales and, of course, in the usual trade association way, we represent the interests of our members to bodies such as yourselves or, indeed, any other Government or other organisation where it is relevant. We do a lot of work, for example, for the Food Standards Agency as far as food retailing is concerned, a lot of work on waste and recycling issues at the moment as well as more general economic issues. As I said, we conduct every month surveys of retail business and that survey covers around half of all retailing activity, it is not necessarily just members it is a group of individual retailers and associations who are interested in receiving very detailed results, and we publish the headline results. Those indicators have been showing that over the period really since about May last year, in other words coming up for a year, there has been pretty steady and quite good growth in sales. This is the value of sales, it is the money that is going through retailers' tills. In fact it has been the steadiest period of expansion that the survey has seen since it began in 1995, quite surprising really. After a period of quite weak growth in the year 2000, it picked up through 2001, as I said, and has been reasonably steady since. I expect there to begin to be now some signs of a declining rate of growth. Now that is for two reasons. One is that since growth accelerated a year ago, even if improvement is the same month on month then still year on year you will get a deceleration in that standard of performance. Secondly, the spurs to some of that expansion that we saw, particularly towards the end of the year, have slowed down. In other words, we had a two per cent cut in interest rates last year, I do not expect—I do forecasting so this is always very scary to say I definitely do not expect—there to be a further two point cut in interest rates this year, indeed most commentators are expecting the next change in interest rates to be upwards. We have a steady and relatively slow rate of increase in wages, for example, maybe good for job creation but certainly it does not accelerate the increase in consumer spending. Finally, although unemployment on the claimant count measure has been slowing, continuing to tick downwards, if you look at the ILO measure there are some ticks downwards there too but they are very slow. There is not a spur there from falling unemployment either. On all those grounds we do not expect consumers to be increasing spending in 2002 at the same rate as they did in 2001. Indeed, I believe that we are beginning to see the first indicators of that. We have seen already the deceleration as far as the volume measures from the Retail Sales Index is concerned—the Government's official figures—and in our own survey, if you look at the month of March, you would have expected quite a spike in sales in March because Easter was in March this year and it was in April last year and Easter is a spur to sales, people go shopping because they are on holiday, there is a bit of a spike but it is not really very marked, in fact you would be hard pressed really to identify it. That to me at any rate is the first indicator that this slow down in sales growth is indeed happening. The third thing I would like to mention in that context is the impact of the Budget. Now admittedly changes in National Insurance contributions do not in fact take place until April of next year, on the other hand announcement effects can be quite important as far as confidence and willingness to spend is concerned. That is going to buttress any slow down which is in the pipeline in any case. If people are feeling optimistic and their spending is increasing you can shrug off things which you do not think are going to happen. If it is already moving downwards then you are more likely to think "Well, perhaps we should be a bit more careful". How does that impact then on the position of retailers? Well, I think perhaps there are three points I want to make about that, particularly in the context of job creation. Although sales growth has been rapid, the pressure on prices has not abated as a result. If you look at what has been happening to the prices of goods in the shops, they do not go up. There is a stylised fact about inflation in shops, it is that it does not exist, indeed, if anything, prices are falling. Even if people go shopping, they go and buy things, they do not expect to pay more than they did last time or the time before, indeed they are looking for price reduction. An increase in sales does not necessarily mean that prices go up as well. I think there has been a complete sea change in the way that consumers think when they go shopping. This means that margins remain tight. You can shift the volumes but you have to be careful on the cost side and that inevitably puts pressure on all aspects of costs, whether that is distribution costs or staff costs or refurbishment costs, investment and so on. Retailers are under competitive pressure. In many markets there has been a huge expansion of shops and floor space and so on and in many markets or sub-markets of retail that means that people look more and more carefully at their cost structure. The second point is that, of course, retail is a fairly labour intensive industry. It employs ten per cent of the workforce, about 2.6 million people, and represents seven per cent of value added in the total economy, therefore there are relatively more people than output compared with the rest of the economy. Moreover, although many of these jobs are part-time, it has a high representation of part-time people, nonetheless over the last three years in fact one of the interesting things about retail is that it has been on balance a creator of full-time jobs rather than part-time jobs. We have seen some shifts going on there. From 1998 to 2001, December to December, the sector created 200,000 jobs net and that represented an increase of 600,000 roughly speaking in full-time jobs and a fall of 400,000 in part-time jobs. So the stylised fact that retailer workers are all part-time is only partially true. Of course that means that things like the impact of changes in National Insurance rates are increasingly important. There is a smaller and smaller proportion of people below the lower earnings limit in the retail sector than used to be the case. The third point I think is about the places in which retailers create jobs. Obviously they create them in shops and shops are very often at the centre of communities and in particular are very important, certainly retailers see them as being very important, to deprived communities. A community which loses its shopping centre has much greater difficulty, if you like, in bouncing back than one which has not. One of the things that we believe is important is to recognise the importance of a retailer and retail contribution to regeneration and re-employment in communities. Generally speaking, such jobs are near to where people live, they are cheap to get to. They are flexible, they may or may not be full-time or part-time but they tend to have flexible hours so they can be fitted in around other commitments. Of course they employ relatively equal proportions of men and women so they offer opportunities across the whole range. Retailers have been working on training schemes and have been part of the CBI/TUC initiative on extending the training credits and so on, and we are very keen on that. Again, the stylised view of retailersis that training is not terribly important and certainly it is true that many retail functions do not need extensive training but that is not to say they do not need some training. So, again, they offer access into the world of work on a flexible basis. We are concerned that not enough attention is paid to the retail sector as part of that impetus towards regeneration of local communities in particular. I think that probably covers some initial points so I would suggest that you ask me questions and I will try and answer them, though I do not guarantee to be able to.

  2. That is very helpful. Can I ask you this—the answer to this question is probably no—do you have a view about the way that the employment support services that have been deployed at the national and local level are co-ordinated by central and local Government? It may be that is not a part of your experience and if so that is fine. Do you have any perspective of whether there is a co-ordination between the supply side employment policies which have been deployed for the last five years and some of the activity that has taken place in local authorities and some of the other Departments? Do you have anything to say about that?
  (Ms Rosewell) Yes. I think we would say that our experience is mixed. There are places and occasions where co-ordination appears to work well and there are places where co-ordination appears to be sometimes almost negative in the sense that the things required to fit one set of criteria are entirely different from the things required to fit another set of criteria. You almost feel that policies are working in opposite directions. It does depend very much on the location and the local authority, what the Regional Development Agency is like and so on. You cannot generalise in the sense that it is very place specific but certainly it does not always work well.

  3. Okay. Secondly, would you accept the proposition that the kind of work, part-time or full-time, that your members are able to offer is vulnerable and perhaps more vulnerable to economic swings than other kinds of employment?
  (Ms Rosewell) It is hard to point to direct evidence on that proposition because on the whole swings in retail activity have been less strong than swings in other kinds of activity. In other words, even when there is a downturn in the economy, some level of consumer activity goes on, people go shopping still, at least for food if not for all other things. Retail is a very broad church in that respect. Indeed, since it takes supplies from all other aspects of the economy, then it has backward linkages into a whole variety of different parts of the situation. For example, if you get a turndown in the economy, certainly you will see that consumers' willingness to buy big ticket items is more quickly and more strongly affected than their willingness to go and buy food. So some parts of the activity will continue and possibly do quite well and not be very vulnerable to cyclical activity whereas other parts will be so vulnerable: electricals, household goods and so on. There you can see quite strong swings in employment but that will be masked at the level of the sector as a whole since so much of economic activity actually goes through the retail sector. For example, I did some calculations recently on the National Insurance change that is proposed. If you take a one per cent increase on National Insurance, its impact on the retail sector, that costs something between 100 and 150 million for the sector as a whole, depending on the proportions in and out of the lower earnings limit. If all of that is absorbed as a cost and passed through in terms of reductions in output, I am not saying it would be but if it was so passed through, over time that would cost about 10,000 retail jobs and a further 25,000 jobs in other parts of the economy because what retailing is doing, after all, what retail is is a method of bundling things which have been bought from a whole variety of other businesses, not just in the UK but a lot in the UK. So retail is vulnerable in the same way and for the same reasons as other parts of the economy are vulnerable. That is a rather long semi-answer to your question.

  4. That is fine. Finally, from me, using your skills as an experienced forecaster, in the middle term do you think the service sector will be able to continue to be able to provide job opportunities in the way it has in the recent past?
  (Ms Rosewell) I think that different parts of the service sector may be able to. I believe that all sectors have periods where they grow faster and periods where they grow slower. Certainly over the medium term I would expect the baton of employment growth to be taken up by different industries than in the past, indeed even if you look over relatively short periods you can see that. For example, if you take the period between 1995 and 1998, the biggest growth in net jobs was in things like banking, finance, business services, all of those sorts of sectors, whereas the period between 1998 and 2001, the biggest growth was in public administration, education and health, that tells us something about where the sources of expansion are coming from. Even within the service sector which is, after all, already three quarters of the economy, we are going to see very different patterns going forward over the medium term. As far as retail is concerned, we do expect retailers to continue to provide increasing employment but we expect that also probably to slow down as far as the rate of growth is concerned. Some sectors of retail I think are undoubtedly reaching, if you like, what might be termed the status of a mature industry rather than a growth industry in the context of that kind of terminology.

Mr Dismore

  5. You have particularly focused on retail which is understandable. What is your assessment of the growth prospect of the economy as a whole based on the first quarter?
  (Ms Rosewell) I think that the first quarter results were more or less as I expected them to be, so it is not out of line with the view that I am taking which is that I think that growth in 2002 will be no faster than last year and probably slower because I think there is more weakness on the consumer side of the economy as it happens, I think that is the key to the situation. I think there is more weakness on the consumer side of the economy than most commentators think that there is, I think we will see that as we go forward into the summer. I am not expecting to see really a pick up in the economy until the back end of this year, and indeed I am putting some probability—maybe 10 or 15 per cent—on the need for a further interest rate cut before we get any more increases.

  6. Do you see regional variations in that trend?
  (Ms Rosewell) Yes. I think this is the period where, if you like, the South East begins to bear the brunt. When you do begin to get a downturn of this sort of variety then it will begin to affect the service sector and it does not look like 1991 but it looks like 1991 in the sense that regional imbalance which we saw in 1999-2000 begins to unwind itself at least somewhat.

  7. You have talked a lot about the prospects for retail, what other industry occupational sectors do you see having a strong growth potential? How job intensive is that economic growth likely to be?
  (Ms Rosewell) I think there are two sectors that I would like to focus on there. One is there are after all considerable sums of money and investment being put into public services, and those must be candidates, therefore, for creating jobs. Some of them require quite a lot of specialist skills, so that may be more difficult than we think, nurses, obviously, and doctors and so on spring to mind or even teachers. The other area is business services or business to business services where I think there is still scope as new specialisms really begin to emerge. Those jobs and occupations will range from, if you like, the technical and the technological through to the support. Things like specialist call centres, support, software support, all of these businesses I think still offer considerable opportunities really on the basis of more specialisms and more support for those specialisms.

  8. What sort of things do you think could risk the economic outlook in the medium term? Do you see any differential there between retail and any other sectors of the regions?
  (Ms Rosewell) From an employer's point of view and the willingness to create jobs, I do think there are problems and certainly our members experience problems with what can be called the red tape issues: regulation, lack of flexibility. Really that is a deterrent to making people redundant, sure, but also a deterrent for taking people on in the first place. I think lack of flexibility is an increasing concern particularly to smaller members, people like hardware, newsagents, all of these sorts of retailers who find that a very considerable burden and a deterrent. I think that would be one of the main considerations. I think also rises in National Insurance are a deterrent, there is no doubt about it.

  9. How sensitive do you think the economic cycle is to job entry rate of welfare-to-work programmes?
  (Ms Rosewell) I think the economic cycle in general is not very responsive to that. We see those sorts of programmes as operating in areas where people do not have the right motivations perhaps and therefore it is solving problems for individuals rather than making a macro economic contribution.

  10. You do not really see the welfare-to-work programmes as having any major effect then?
  (Ms Rosewell) At the macro economic level, no I do not. At the micro economic level, the level of those individuals so affected then obviously it does have an effect.

  11. What sectors do you think demonstrate the best potential for generating entry-level jobs?
  (Ms Rosewell) Generally retail certainly does; distribution more generally also and many of what I would call support services, which are particular occupations which might cut across a whole variety of different industries. Essentially entry-level jobs are those in which people can gain good habits of work and some skills while not having to acquire a whole lot of technological and technical expertise before they enter them.

  12. What do you think the Government could do to make people more attractive to employers and to make sure that prospective employees are equipped to fill these vacancies?
  (Ms Rosewell) How long have we got? I think the big issue as far as employers are concerned is willingness very often. It is not easy to say exactly how any programme or any Government can alter people's motivation and willingness. Anything, any policy that can be produced which affects that must be a good thing but, it seems to me, individual employers cannot say exactly what those programmes might look like. I do not think I am in a position actually to answer your question definitively.

  13. Willingness obviously is a two way street. If the job is not attractive then people are not going to be willing to take it on. There are questions about what industry can do to make their jobs more attractive to people. I suppose things like the minimum wage makes jobs more attractive because it makes the pay better than might otherwise be the case and things like Working Families Tax Credit and similar in work benefits also make the financial aspects of jobs more attractive. What else do you think the Government could do? If willingness is your prime answer to the question about what can make people more equipped to take on those jobs, what else do you think the Government could do to make them more willing that is not done already?
  (Ms Rosewell) I think most of that comes down to the right mix of policies in local areas. I do not think there is a macro answer to that question, there might be micro local answers to those questions, ways of enabling communities to work more effectively together but there is no "one-stop-shop" answer to the question.

Mr Stewart

  14. Could I ask a question about the composition of the workforce. Do you see any future changes or trends which would affect the supply of vacancies suitable for entrants or re-entrants to the labour market? For example, issues about the future birth rate, number of women in the work place, early retirement rates, brain drain, graduate trends or unemployed people who are not registered to join the workforce?
  (Ms Rosewell) The activity rates in the UK are reasonably high in international terms. I suspect that as far as the activity rates of women are concerned, for example, the increases at any rate are tailing off and we reach a point where it would be hard to move them forward much more, indeed most of the projections supplied by what used to be the Employment Department and is now the Department for Work and Pensions, I guess, shows that kind of phenomenon happening. Indeed, one of the reasons why the Chancellor announced an increase in the underlying rate of growth that he is now planning for in the economy is based not on more entrants to the labour force from the existing population but essentially more immigration and to some extent a slightly higher birth rate. Yes, the underlying view at the moment at any rate is that there will be more people available to work so that the supply side constraint is not a binding one. I think on the whole that I agree with that argument. Obviously policy changes can affect willingness or ability to immigrate into the country so there are questions about how strongly you can make that an underlying assumption but certainly based on recent past projections and the history of immigration and hence the projections it seems a reasonable hypothesis.

  15. Do you have any worries about tabloid headlines about the brain drain or is that something invented, for example, for the people with great technological skills or scientific skills? Is there a genuine worry about the loss of skilled technical people from a workforce to, say, the USA?
  (Ms Rosewell) Yes, I think there is such a worry. I think it is very hard to quantify because you are not talking about very large numbers of people, it is what is the quality of these people. Certainly from my experience of academic life and universities, I would say that certainly I would not wish to be an academic in a UK university, indeed I chose not to be an academic in a UK university some years ago but my recent experiences of the US universities suggests that these would be eminently pleasant places to be employed where I would have better working conditions, better support and certainly a much better salary than would ever be available to me in a UK university. On a personal note, I just spent a trip with a friend of mine in some of the north-eastern universities of the United States, and in comparison with the UK universities they are astonishingly good, from a student point of view as much as from an academic point of view. Yes, I think we must be concerned about those sorts of issues and the status and standing that we give to people at that level.

  16. In your view has general economic growth created employment in disadvantaged communities and areas that have undergone industrial restructuring and job losses? We were hearing from the last session we had about concerns about high unemployment still, for example, in Inner London and in some of the Glasgow constituencies.
  (Ms Rosewell) I know very little about the particular Glasgow issues, I know rather more about some of the London issues from some of the other things that I have done in the past. Some of these issues have been intransigent problems over many years both in periods when growth has been strong and in periods when growth has not been so strong. Some of it comes back to this rather unclear definition of willingness. For example, I undertook a study not so long ago for the City Corporation on a City Skills Audit looking at skills needed in the City and ability to supply those skills and with some reference to increasing the employment of people from such fringe areas, deprived parts of London and so on. One of the things that we established was not just that there was sometimes an unwillingness or a lack of recognition that you could look for employees in these places but also a complete lack of willingness to consider that you might be employed in a city institution in some capacity or other, even where people had relevant qualifications and sometimes experience.

  17. You think there is a stigma.
  (Ms Rosewell) If you lived in Islington you did not work in the City unless you were a fat cat person. There was quite an embedded attitude/issue there and it was very unclear how you could undermine it except in the very, very long term. That is why I think these are much more fundamental than cyclical issues, these are much more about structural attitudes which become embedded over time. One piece of research that we did looked at network effects in job search, for example, a theoretical piece of work which one of my colleagues did in my consultancy company, which showed essentially that if your main source of information about new jobs is other people's employment characteristics in the vicinity then who you know can have a quite out of proportion effect on the kind of jobs that you look for and indeed the kind of jobs that you get than would be the case if networks are more random. In other words if you know the people who live near you, the jobs that you will find out about are the jobs that they have got and therefore changing those patterns requires much more than just one or two people having different jobs, you have to change the way those networks work in order to change the habits of employment that people have.

  18. There is a simplistic stigma effect about where you live and the chance of employment. There is also the issue about the number of jobs which are not advertised that you hear about through the networks and communities.
  (Ms Rosewell) Possibly stigma but it is your internal stigma, if you like, I think a lot of it. It is what you expect of yourself as well as or as much as what an employer thinks about a particular place, though obviously I am not saying that is not important too.

  19. Finally, what appears to be the effect of demand and supply side measures that result in jobs growth in areas that currently have low employment rates?
  (Ms Rosewell) I am sorry, can you repeat that?

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