Whose growth is it anyway?

In December, the government set a key milestone for its economic growth mission — raising living standards in every part of the UK by the end of the parliament. Achieving this will not be easy. Since 2009/​10, we have been living through a period of historically weak income growth and in 2022/​23 we saw the largest annual drop in living standards since the 1950s. In this context, and with the cost of living a key issue to voters, progress on this is something the government seems eager to differentiate itself by.

To achieve its target of economic growth, the government has published proposals for a 10-year industrial strategy. At the same time, it has instructed mayors to prepare local growth plans to drive regional and national economic growth. In both of these initiatives there has been a heavy emphasis on framing growth as an increase in productivity, often defined as gross value added (GVA).

In its industrial strategy green paper, the government selected eight sectors with high productivity growth potential which it wants to be the focus of investment and growth. But the question we should be asking ourselves, is who is going to benefit from this growth? The evidence suggests it certainly won’t be the majority of us.

For broad living standards to increase, profit (and broader benefits) from growth need to feed into local wages and communities. However, between the 1950s and mid 1990s worker income as a share of national income in the UK fell steadily, and has only increased slightly since then. This clearly needs addressing if we are to see a step change in living standards. Yet there is nothing in the green paper to encourage a move away from this level of profit extraction from local economies.

Most people are actually employed outside the eight priority sectors, in areas such as health, social care, education, retail and hospitality. These sectors are unlikely to see significant spillover benefits from growth in the areas the government is currently prioritising. Moreover, living standards go well beyond wages. They are affected by employment stability and conditions, people’s wellbeing and the availability of quality goods and services required for living.

“The question we should be asking ourselves, is who is going to benefit from this growth? The evidence suggests it certainly won’t be the majority of us.”

Evidence gathered by Reclaiming Our Regional Organisations (RORE) — a programme developed by NEF, the Centre for Local Economic Strategies (CLES), Co-operatives UK and the Centre for Thriving Places (CTP) — shows just how crucial the everyday economy is to helping people and places thrive. It is these sectors that provide for essential needs and consistently make up at least half of jobs in an economy.

Yet many everyday occupations suffer from poor job quality and they account for most of the jobs in ​“low-paying occupations” as defined by the Low Pay Commission. These occupations contain 71% of minimum wage earners and frequently provide very insecure forms of employment. Improving work in these areas is crucial to raise living standards for both those working in and relying on these industries.

However, if the government does want to improve conditions in the everyday economy, it would be a mistake to follow the traditional economic route of trying to attract private investment, which is inevitably hungry for financial returns.

Sectors vital to our wellbeing, such as care, should not be treated as a profit generating service. The extraction of profit in services like care homes, particularly those run for profit by big providers, is well-documented. In 2017 it was estimated that 10% of the sector’s income (£1.5bn) ​“leaked” out in various forms including rent, dividends, interest, debt repayments and management fees. This prevents funding from going to frontline care, in the form of investment or wages, which would raise working conditions and improve the quality of care provided.

RORE has shown there is a different way and that we can support local economies to become more efficient at converting investment and growth into better living standards. To limit profit extraction out of the care sector, commissioning and procurement practices such as social licensing can be effective. Newham Council have shaped their home care sector to disincentivise larger, more extractive providers from entering the market by putting various requirements on service providers. They now have locally-based small and medium enterprises (SMEs) delivering their home care who are required to operate there with a concern for the wider community and workers, alongside the pursuit of profit.

Alternative business models can also help reduce extraction from local economies and contribute to better living standards for employees and communities. More democratic forms of business like co-operatives and employee ownership have been shown to increase productivity, increase business resilience, improve employee engagement, and more consistently pay better wages. Combined authorities should do more to support this kind of business growth because of its multifaceted benefit to communities.

Good work is important for people’s wellbeing. Employers can help this by ensuring their practices support the health of their workers, and also enable people out of work to rejoin the labour market. For example, the I Can Project, delivered by the Birmingham Anchor Network, has enabled 550 unemployed people to find work in the NHS since 2021. There is also scope for workers in the everyday economy, who know their roles better than anyone, to actively reshape their own work to improve job quality and productivity. This approach has been successfully implemented by the Welsh housing association Merthyr Valleys Homes, to enable them to move to a 4‑day week without a reduction in pay.

“At a time of eroding trust in politics, this is a major problem for combined authorities elected to make the economy work better for people”

Unfortunately, the current framing of local growth plans and the industrial strategy presents regional authorities with a dilemma. They are being asked to write economic plans that make the regional economy more productive, within an extractive economic investment model. This will at best see living standards stagnate and at worst, worsen. At a time of eroding trust in politics, this is a major problem for combined authorities elected to make the economy work better for people.

The ability to ensure people tangibly feel better off will have big consequences over the coming years in local and national elections. As we saw in the US last year, how well-off people feel influences how they vote, more than whether the government can point to charts showing economic growth. As they write their local growth plans this year, combined authorities have a huge opportunity to shape their regions over the next 10 years. Surely their first question should be who do they want to benefit from growth?

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