Supplementary memorandum submitted by
the TUC
Thank you for inviting the TUC to submit
supplementary evidence to the Business and Enterprise Committee
inquiry into "Creating a Higher Value Added Economy".
This follows written evidence that we submitted to that inquiry
in November 2007.
In our view, recent developments in the world economy
make this inquiry even more important. It is quite right that
policymakers' attention, in recent weeks, has been fully focused
on the developing economic crisis and the measures needed to ensure
that the UK is able to weather the storm. In quieter times, no
doubt commentators will wish to consider how this happened. Most
important of all, in our opinion, is to ensure that it never happens
again.
Let us be clear. The UK and world economies
are set for very turbulent times. Things will get worse, possibly
much worse, before they get better. A sharp upturn in unemployment
is almost certain. An increase in poverty could be the result.
It is difficult, in these circumstances,
to imagine that there may be some small silver lining to this
cloud. Yet the TUC believes the financial collapse offers us a
once-in-a-generation opportunity to rebuild the UK's economic
system around principles of social and economic fairness. It also
provides a chance to think about how we make money in our society.
To debate what we mean by high value and how we create it, invest
in it and share it. We must grasp this opportunity with both hands.
A MODERN INDUSTRIAL
STRATEGY
In our earlier submission, we set out
our belief in the need for a modern industrial strategy. We described
the changes taking place in the nature of the world economy, especially
regarding the rise of China and India. Recent news reports, which
highlight that Chinese growth has been hit much harder by the
economic downturn than previously envisaged, and has therefore
fallen to nine%, show the phenomenal growth rate that has been
experienced by that country. We have argued that, if the UK is
to rise to the challenge of a new world economic order, we must
focus more directly on areas of economic strength. The UK has
introduced horizontal industrial support mechanisms, covering
skills, research and development, innovation etc. The TUC is happy
to support these, yet in our view, a more targeted focus is necessary
on those industries and sectors that are or could be competitive
in the era of globalisation, and could remain competitive in the
decades to come.
Our criticism of the UK's industrial approach in
recent years has been twofold: first, it has focused too narrowly
on financial services and the housing boom, at the expense of
a wider range of industries; and second, industrial support has
been rather "scattergun", refusing to identify growth
sectors for fear of being seen to "pick winners", in
a prevailing economic orthodoxy that values the role of the market
in identifying successful sectors.
In our earlier submission to this inquiry,
we highlighted "The Race to the Top", Lord Sainsbury's
report into science and innovation. This report specifies sectors
where the UK could succeed in the future, including aerospace,
pharmaceuticals, biotechnology, regenerative medicine, telemedicine,
nanotechnology, the space industry, intelligent transport systems,
new sources of energy, creative industries, computer games, the
instrumentation sector, business and financial services, computer
services and education.
The TUC believes that, if the Sainsbury
report was important in October 2007, when it was first published,
it is absolutely vital one year on. So many of its recommendations
are valuable. We particularly highlight the importance of science,
technology, engineering and mathematical (STEM) skills at school,
college and university level.
Last month's Ofsted report, highlighting
that nearly half of all maths lessons are not good enough, was
a cause for concern. The insight that children are being taught
to pass exams, but are not equipped with the mathematical skills
or knowledge needed for their future, is a carbon copy of criticisms
made about wider STEM education, not least in the TUC policy document,
"Hybrid Cars and Shooting Stars". And, of course,
Lord Sainsbury told us that we are looking at a 20-year decline
in the number of children taking physics to A-Level. The TUC welcomes
this week's better news, showing increases in students taking
degrees in maths and chemistry, with a small increase in physics,
as highlighted by the Higher Education Funding Council for England,
but we still have some way to go to match the levels of STEM education
and training that we need.
The TUC has called for better pay to
attract science graduates into teaching and better careers advice
to ensure that a scientific career is considered to be a viable
option by children and young adults with an aptitude for science.
We have also called for steps to eradicate stereotyping and gender
sensitive teaching methods to attract more girls and young women
into scientific disciplines and to keep them there.
However, it is now time to go further.
The TUC believes that skills policy must dovetail with industrial
policy. Once we have highlighted the key sectors for our industrial
future, we should ensure that centres of learning are geared to
deliver the skills required by those sectors. Of course, all skills
are valuable, yet if we are serious about focusing on key growth
sectors, we cannot afford a scattergun approach to skills which
may deliver some, but not all of the skills necessary for our
targeted sectors to succeed.
PROCUREMENT POLICY
The TUC has long championed the role
that public sector procurement could play in support of a modern
industrial strategy. We welcomed the publication of the Treasury/Office
of Government Commerce booklet, "Buy and make a difference",
which was launched at the TUC in June. This booklet describes
the ways in which social, economic and employment objectives can
be included in public sector contracts, in accordance with EU
law.
In the current economic circumstances, we would urge
public sector bodies, including central government, to make full
use of the opportunities provided by procurement law. For example,
it would be possible to include contract clauses that provide
for employment creation in areas of social and economic deprivation,
which are particularly likely to feel the pain of a recession.
Procurement can also be used to promote skills training, innovation
and sustainability. These will be much needed practices as we
seek to build a higher value-added economy after the financial
crisis has subsided.
THE ROLE
OF EMPLOYMENT
IN INDUSTRIAL
POLICY
The TUC believes that a central target
for any successful economic and industrial strategy must be a
specific level and quality of job creation. What we mean by this
is that, since 1979, governments have taken the view that economic
policy should be designed to promote steady growth, low inflation
and low interest rates. If these objectives are achieved, it is
believed, job creation will take care of itself.
That is a questionable assumption to begin with.
However, in the current climate, we have CPI inflation at 5.2%,
with many commentators believing it has peaked, while unemployment
is expected to reach two million by Christmas and is moving in
an upward trajectory. No serious economic thinker expects falling
inflation to result in falling unemployment in the short or medium
term.
In other countries, industrial strategies
are designed with a number of objectives in mind, one of which
is job creation. The TUC calls for a similar approach here.
Does this work? To answer that question,
the TUC has looked at statistics from Eurostat, which show all
those working in manufacturing, aged 15 years and over, across
Europe, between the second quarter of 1998 to the second quarter
of 2008. These figures tell us the following:
— Manufacturing employment in
the EU15 ("old" Europe) fell by 1,712,200 between 1998
and 2008 (In 1998 it stood at 28,994,000. By 2008, it was 27,281,800).
— Manufacturing employment in
the UK fell by 1,432,500 during that time. This means that 84%
of the net loss of manufacturing jobs in the EU15 can be accounted
for by the UK.
— The UK has seen a loss of
manufacturing employment year-on-year. Germany has lost just 143,500
jobs in those ten years, from a total of 8,127,100 in 1998, but
saw manufacturing employment increase in 1999, 2000, 2006 and
2007.
— Italy and Spain saw net gains
in their manufacturing employment over this time, in Italy by
118,400 and in Spain by 379,900.
Of course, there are other industries
apart from manufacturing. However, we quote these figures because
it is often presented as a truism that, with the growth of Asian
producers and their abundance of cheap labour, together with the
lower labour costs of Eastern Europe, manufacturing employment
in richer Western European states will inevitably fall. The TUC
believes there is no inevitability about this, but also that targeted
industrial strategies, with a major focus on jobs created, are
necessary.
POTENTIAL GROWTH
SECTORS
In support of our belief in a modern
industrial policy built around strategic sectors, the TUC has
commissioned research that identifies growing sectors and considers
the policy mix necessary to help them develop further. We looked
in detail at a number of industries which have particular potential.
Those sectors included: telecoms; films; civil engineering; and
technical testing and analysis.
The telecoms sector drives at least 3% of UK gross
value added (GVA). It has grown more than twice the speed of the
overall economy in recent years and achieved productivity growth
of more than three times that of the overall economy. Because
of its knock-on effect on the whole value chain, it has the prospects
of having a considerable multiplier effect on the economy. Studies
have shown that maximising the success of this sector alone could
boost growth in the UK economy over the next ten years by 0.3%
per annum.
The film sector is currently relatively
small, accounting for 0.2% of GVA and 0.1% of employment. However,
its recent growth and productivity performance have been spectacular,
both exceeding 20% per annum. Continued growth at anything approaching
this rate will rapidly lead the sector into being a major contributor
to the economy.
Civil engineering accounts for 3.7% of
UK GVA and 2.0% of employment. It has recently achieved growth
of 5.7% and productivity growth of 7.0%. Technical testing and
analysis is an emerging sector, but is generating explosive growth,
with 18.7% GVA growth and 13.3% productivity growth. On this trajectory,
this sector is also likely to become a major contributor to the
UK economy.
A number of cross-cutting themes have
emerged in terms of government policy to support these growing
sectors. Unsurprisingly, skills are a major issue, giving further
weight to our argument for skills policy to dovetail with industrial
policy, as described above. Other issues include risk and uncertainty
affecting funding, and the increasing importance of intellectual
property, its legislative protection and the enforcement of that
protection.
IMMEDIATE MEASURES
The policies set out above describe how
a high value-added economy might be nurtured in the medium to
longer term. The TUC believes, however, that there are immediate
measures that can be put in place to support the economy and provide
much needed employment in the short term. The Chief Secretary
to the Treasury, Yvette Cooper, is surely correct when, as quoted
in The Observer, 19 October 2008, she praises "the
power of government" as the only force equal to banks worth
more than the GDP of some small countries. We welcome newspaper
reports that the Treasury will use the forthcoming Pre Budget
Report to fast-track targeted spending on large infrastructure
projects. The TUC has been calling for such action and we are
pleased that pressure from trade unions and other actors has paid
off. The Chancellor, Alistair Darling, is reported as highlighting
housing and energy as classic examples where people are feeling
squeezed. In construction, medical buildings, social housing and
leisure centres might be built more quickly. Other projects, including
the £16bn Crossrail development and the 2012 Olympic Games
offer potential.
The TUC warmly welcomes the news that the Energy
Bill will now include a feed-in tariff for small scale power generation.
This could help to kick-start a new microgeneration industry,
which might form a part of a green answer to the economic slowdown.
This is a major shift in Government policy. We now ask the major
power utilities to drop their opposition. Germany has implemented
a renewable energy tariff. This has led directly to the installation
of 130,000 solar power units in 2007 alone and the creation of
a renewable energy sector employing 249,000 people, compared to
7,000 people in the UK. The German renewable energy sector now
has a turnover of 24 billion euros.
Also significant was Gordon Brown's announcement
that thousands of loft insulators will be trained to help stop
homes from leaking heat. This win-win solution will both help
to create jobs and meet a social need. Some have sought to trivialise
it, yet initiatives such as this are particularly welcome at this
time.
Housing is another sector in which fast-track,
targeted spending could be effective. The Government set a target
of building three million more homes by 2020 in the 2007 White
Paper "Homes for the Future: More Affordable, More Sustainable".
The proposed eco-towns offer an opportunity to develop new skills
in the building industry, which will be a vital prerequisite for
meeting the target of making house building a zero-carbon industry
by 2016. Providing a sufficient stock of housing is not only a
desirable end in itself, it is also a necessary to ensure the
well-being and mobility of labour.
Clearly plans to increase the rate of
house building will suffer a serious reversal unless further action
is taken as a matter of urgency. The private sector is currently
finding it impossible to deliver on the housing targets, so we
must rely on the public sector to take up the slack. The Government
has recently made a further £13 million available for local
authorities to buy surplus private build for use as social housing.
This is welcome, but a much larger intervention will be needed
in order to deliver the planned homes and the skills development
and labour mobility that is needed. With private housing in the
doldrums, the provision of more social housing must be the highest
priority.
All of these initiatives will cost money,
of course. However, in the current situation, additional borrowing
is both justified and possible. Public sector net debt, at 43%,
is low by international standards. Furthermore, the TUC recognises
that, as the economy enters a recession, any tax increases would
reduce demand and are therefore undesirable. Over the medium to
longer term, we maintain that a fairer tax system, based on ability
to pay and with tax loopholes closed, is necessary.
21 October 2008
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