Covid-19 has caused significant economic damage. As well as triggering the deepest recession on record in the UK, it has led to unemployment increasing by 1.3 million people up to November 2020. It also brought to a halt a six-year ‘jobs miracle’ in the UK, which saw more than 2.7 million net new private sector jobs created between 2013 and 2019, with cities accounting for 63.9 per cent of these.
This research looks at that period to see what it tells us about how new jobs are likely to be generated as the Government looks to ‘build back better’. If the patterns of the past persist, it is likely that job creation in the coming years will be characterised by the following trends:
- The UK economy will need to create an estimated 9.4 million jobs to get 1.3 million people back into work. To generate 2.7 million net private sector roles between 2013 and 2019, the economy created 19.3 million positions and lost 16.6 million. This meant that seven were needed for each net new job.
- New businesses are likely to deliver these jobs. These businesses created more than 3.7 million more jobs than they lost between 2013 and 2019, while private sector existing businesses lost just short of a million more than they created.
- Many of these jobs are likely to be generated by industries hit hardest by Covid-19. ‘Local services’ businesses in sectors such as construction, hospitality and accommodation were the main generators of new roles. Given how significantly they have been affected by the pandemic, their recovery is likely to have a big impact on how many jobs are created.
The need to create jobs across the entire country is clearly pressing, but building back better cannot just focus on doing this in, for instance, cafés, bars and construction sites. While the jobs miracle was happening, UK productivity growth was extremely disappointing. According to official OECD statistics, productivity was just 2.3 per cent higher in 2019 than in 2013. This is bad for wages (which rose by just 4.1 per cent in real terms over that period) and for longer-term prosperity in the UK.
The businesses behind this poor performance were not the job-generating local services companies, but more export-focused industries, such as car manufacturing, pharmaceuticals and IT. They have traditionally driven productivity improvements because of their ability to absorb new innovations, but have struggled since the financial crisis.
The geography of where these exporting industries are located is important for two reasons. Firstly, these sectors in cities and large towns outside of the Greater South East have underperformed for a number of years, which is why there is a divide in overall economic performance across the country. If the Government is to level up, it needs to rectify this.
Secondly, in the aftermath of the global financial crisis, a further productivity headache has emerged – the faltering of previously strongly performing cities in the Greater South East (and most notably London), which are home to some of the UK’s most productive companies. This weakening helps explain the UK’s recent ‘productivity puzzle’. It needs to be addressed urgently if the national economy is going to see faster productivity growth in the 2020s than it did in the 2010s.
The challenge for the Government as it looks to build back better is to put policies in place that create jobs to offset the impact of Covid-19, and to boost productivity to improve long-term prosperity. This will be done by recognising the varying roles that different parts of the economy play, both in terms of sectors and geography. To do this, this report recommends:
To create jobs
- Supporting high street businesses and the hospitality sector with a ‘Spend out to help out’ voucher if consumer demand does not return post-lockdown.
- Supporting labour intensive industries particularly where they contribute to other government ambitions, such as home insulation.
- Increasing skills by supporting the Lifelong Learning Entitlement laid out in the Further Education White Paper, as well as the lifetime skills guarantee to make it easier for people to move between jobs and industries.
To boost productivity
- Supporting research and development (R&D), particularly in the private sector, by increasing the generosity of R&D grants and tax credits.
- Creating a £5 billion City Centre Productivity Fund to make city centres more attractive to high-skilled businesses.
- Removing the business rates liability from plants and machinery to encourage business investment.
- Setting out the specific remit of the newly created Office for Investment. This includes how it will work with cities and large towns across the country to attract investment from international companies in exporting sectors.
- Reforming the planning system by removing the current discretionary and uncertain granting of planning permissions and moving towards a flexible yet rules-based system, where proposals that comply with the local plan must be approved.
- Reforming local government structures, building stronger institutions through reorganisation and devolving powers to these institutions to put them on a par with London and give them greater freedom over how they raise and spend their money.