Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science.
Behind last week’s Budget and the Prime Minister’s conference speech there are deep questions about how Britain is going to pay its way – and hence pay ourselves well too.
In the 16 years leading up to 2008, average earnings grew by 36 per cent. In the next 16 years up to the end of the period covered by the Budget, it is forecast they will have risen by just 2.4 per cent. One reason for the anger and frustration in our public discourse is quite simply that we have stopped delivering the great promise of capitalism – of increasing prosperity for us and our children.
The only viable way to get us back on the path to higher living standards is by boosting our productivity. GDP per hour worked is now about a quarter higher in France and Germany than ours. We ought to be able to catch them up: that is the challenge we should set ourselves.
There is a clear agenda for it in the Budget. Invest in human capital at all stages of our lives. Invest in physical capital with public spend on infrastructure at record levels. And invest in science and innovation where increased public spending should crowd in more private spending too. And, crucially, get business investment growing again.
That is an excellent agenda. But it may not on its own get to the deeper reason for the decline in performance of the British economy: we are not dynamic enough.
The rate of economic change has been declining. Our research at Resolution Foundation shows that over the decade before Covid struck, the rate at which labour moved from one broad economic sector to another was at a post-War low. Similarly, the rate of voluntary job moves in 2019 was a third lower than in 2001. Labour mobility, geographical mobility and social mobility are all linked. We are quite simply not moving enough.
We are anyway going to have change forced upon us, thanks to the need to decarbonise and advances in technology. We ought to be able to use these drivers of change to boost our performance rather than trying to hide from it. That is why we at Resolution Foundation have set up an inquiry in partnership with the LSE into the future of Britain’s economic model.
The health advice during Covid – “stay home” – in a way summarises what has been happening to our economy for two decades. It is a striking contrast with the 1980s when Norman Tebbit famously told us to “get on your bike”. We had record rates of creation of new jobs (and the painful loss of old ones) and record shifts between different industrial sectors.
One clear signal about which jobs to move to was larger pay gaps between jobs. Nowadays, the places with higher pay also have higher rents and as fewer people are owner-occupiers this directly reduces their incentive to move. The 1980s did see rising inequality but, at the same time, there were record increases in absolute incomes – including for the less affluent half of the population.
This poses acute dilemmas for any Conservative. We are the party of freedom, mobility, and enterprise. But we are also the party of community, belonging, and tradition. What is it to be – roots or wings? These are tensions we all feel within ourselves. And we may reach different views at different stages of our lives. Young people need their chance to fly the nest but this is getting harder – with the move to independent adulthood slower and harder.
The mood in the Party and perhaps in the country seems to favour the ties of place. If you were still living in the county of your birth you were 10 per cent more likely to vote Brexit. In this sense, rather paradoxically, it is the remainers who were the Brexiteers. The balance is tilting in the endless debate on whether people should move to the jobs or jobs to the people.
This is why universities – a crucial means of detaching us from the family home and giving us the chance to move on and move up – appear to have fallen out of favour. But the higher education route has long been used by the more affluent for whom the residential university served as a natural successor to boarding school. It is still the case that the more affluent a student’s family, the further their university is likely to be from their hometown.
The Conservative Party owes its long political success to its skill in balancing these conflicting instincts – leave or stay – and needs to find a way to do it now. One way of reconciling them over the past 20 years – migration – is now diminishing. If we didn’t want to move but there were new requirements for new jobs, some of them unappealing ones, then the new migrant came in to plug the gap. We brought them in to the places and occupations which were short of people, so we didn’t have to retrain or move around ourselves. Reduced reliance on them means we have to be more flexible and mobile.
There are other smart ways of resolving these conflicts without forcing people to face anything like the disruption of the 1980s. Birmingham and Lyons are cities of roughly similar size. But many more people can get to the centre of Lyons in half an hour because local transport is so much better. It creates a bigger labour market. There are towns stranded on the edge of major cities outside London which would really benefit from such investment. So this sort of transport spend really makes sense and we got some of it in the Budget.
Next, social housing is a real barrier to mobility. I remember from my time as an MP the appalling bureaucratic hassle if you are a tenant of one association and trying to move to another social tenancy in a different area. Easier and standardised rules for easier transfers would make a big difference. Meanwhile, stamp duty acts as a disincentive for home owners to move as well.
Then if we are to boost the prestige and values of vocational qualifications, we could also provide some maintenance loans for residential training courses. The original idea of the apprenticeship was that the apprentice left home to live with his or her new master. Conscription and apprenticeships have both declined as ways of semi-supervised living away from home. Instead, the university has become the dominant model. Rather than trying to suppress demand for university places we should try to enable other forms of vocational training to offer that residential experience as well.
The 2020s can a decade of renewed dynamism and mobility. Our Economic Inquiry is already identifying some reasons for optimism too. In the week of COP26, the happy accident that our renewable energy in wind and tide are distributed across the country will attract economic growth to those areas. Carbon capture and storage means ingenious repurposing of ageing industrial plant.
There is also a surge of young people into the labour market – the baby boom of the first decade of the new millennium will drive economic change just as Thatcherism rode an earlier tide of incoming young people born in the 1960s. Lots of new workers is a fantastic opportunity to move into new jobs in new sectors with higher productivity and higher earnings. The Conservative Party needs an agenda for dynamism and change. It is what the economy needs too.