Inclusive growth: the new challenge

By Ben Lucas

At the Core Cities Summit last week, city leaders were understandably frustrated by the suggestion that inclusive growth is on the agenda because of the EU referendum.They didn’t need Brexit to tell them that the economy is not delivering for their residents. But, as chief market strategist for Britain and Europe at JP Morgan Asset Management, Stephanie Flanders, said to those leaders, Brexit has created a unique opportunity to change our economic model

Prime minister Theresa May has said her number one priority is to develop an ‘economy that works for everyone’. In her speech on becoming prime minister she asked to be judged on the extent to which she succeeds in this.

She has already committed to economic reform, a new industrial strategy and a renewed focus on productivity. And we await an Autumn Statement in which the Government will set out a new fiscal and economic framework.

It was due to these changed circumstances that the RSA Inclusive Growth Commission decided to publish an interim report last week.

If there is a debate going on about economic priorities and the new framework for policy, then we want to do what we can to influence this.

Of course, the commission was launched before the EU referendum and the issues we are looking at have a global as well as national dimension. That is why the Organization for Economic Cooperation and Development (OECD) has also recently embarked on an Inclusive Growth project.

But the circumstances of Brexit create a specifically British opportunity to rethink our economic model. The starting point for this is the recognition that growth is not working for millions of our citizens.

Average earnings have stagnated since the early 2000s. Employment may be at record levels, but so is in-work poverty.

Research by the Joseph Rowntree Foundation shows the majority of those in poverty are now in work.

In former single-industry towns, too many relatively well-paid, high status jobs have been replaced by jobs which do not provide a basic threshold of decency and respect, let alone pay.

At our evidence session in Sheffield, we were told that what is needed is not just jobs, but quality jobs. This, against the backdrop of the growing concern about terms and conditions at Sports Direct, which has a big facility on the edge of the city region.

The scale of the challenge is huge. Such is the difference between poorer and better off areas in the UK that if all our towns and cities were to have gross value added per capita at the rate of the national average this would add another £192bn to the economy.

So it is not one or two shiny new policies we need, but a sustained and substantial long-term strategy to improve economic outcomes for those who have been left behind.

In our interim report we argue for a different approach to social and economic policy.

We need better, more employment-focused skills and training, but we also need stronger business demand for high value jobs in less prosperous areas.

We need urban environments which are attractive to live and work in and we need social policies which support families and enable children to be schooled and then work-ready.

We need better education standards, particularly in stem subjects, just as we also need affordable, quality housing.

Where social and economic policy can effectively be brought together is in towns and cities and around functional labour markets and population-based public services.

The Government’s re-affirmation of its commitment to devolution and its emphasis on supporting all cities to succeed is, of course, welcome. But in the Autumn Statement there should be a clear commitment to ‘grown-up devolution’.

We need to see more innovation in the way in which social policy and public service reform are linked with local economic growth.

That means bringing into scope the programmes and functions of departments like the Department for Work and Pensions and Department for Education, which have so far been the most devolution-resistant.

To finance this, we will look at the case for treating spending on social infrastructure as a form of investment, on similar terms to those which apply to physical infrastructure.

To paraphrase Barack Obama’s former chief of staff, Brexit is too good a crisis to waste.

The Inclusive Growth Commission will maintain the momentum with ideas which can spread prosperity across our towns and cities. What we need is for local government to rise to the challenge with us.

This article originally appeared at the MJ.