Factory jobs critical to success of ministers’ ‘levelling up’ agenda, says CSJ

• UK manufacturing now 9 per cent of GDP – down from 25 per cent in 1970s 
• Government should set target of restoring it to 15 per cent of GDP 
• Manufacturing’s share of UK economy has dropped faster than that of any other major economy 
• Former Business Secretary Greg Clark says it is “mystifying” why Boris Johnson abandoned May’s industrial strategy 
• Three quarters of British adults believe the UK has become too dependent on foreign imports 
• Half of voters believe manufacturing decline is a reason to be less proud of Britain 

A revival of manufacturing industry in the UK is essential if the Government is to achieve its flagship ambition of “levelling up” the poorest parts of the country, according to a major new study by the Centre for Social Justice (CSJ). 

The report, backed by former Business Secretary Greg Clark MP, identifies low and stagnant productivity – output per worker – as the underlying reason why living standards have barely improved over the past 15 years and are now on the slide. 

It also points out that manufacturing jobs typically pay one pound an hour more than those in the service sector and – crucially – offer much more scope for productivity gains and hence higher wages. This is because the installation of new plant and machinery can raise output rapidly whereas this option is rarely available in service jobs. 

Manufacturing accounts for 9 per cent of the UK economy, far less than the 25 per cent it comprised in the 1970s. The report Making the Change: A plan to reboot British manufacturing and restore growth urges ministers to set a target of raising it from its current levels to 15 per cent. 

The report calls for a new programme of tax breaks to encourage manufacturing investment in under-performing regions and far better training of workers in technical skills. 

In a foreword to the report, Mr Clark says the decision by the Boris Johnson administration to abandon Theresa May’s industrial strategy was a mistake. He writes: “It is mystifying that, at the very moment a longer-term perspective was proved to be beneficial, the previous administration abandoned the Industrial Strategy.” 

Gavin Rice, CSJ Policy Director, said:

“The reality is productivity growth is much more readily achievable in manufacturing industries than in services, perhaps with the exception of very high-value services such as the financial sector. 

“It is very difficult to achieve productivity rises that lead to better wages and higher living standards in sectors such as retail and hospitality. With the UK shifting ever more heavily towards a services-dominated economy, with a large number of low-value-added services, opportunities for well-paid non-graduate work have diminished. Manufacturing decline has contributed to regional inequality in this country, and we have not offered British manufacturers the same support other economies have. 

“The average job in manufacturing pays around one pound more per hour worked, and this remains true across the qualification spectrum. Manufacturing jobs pay 12 per cent more than the UK national average, and this is more acutely true in the UK’s less affluent regions. This is due to the productivity premium available in manufacturing.” 

The report also finds strong public support for a manufacturing revival, citing polling conducted for the CSJ by Opinium. For instance, the survey found that: 

• 47 per cent of British adults think UK economic development should be more focused on creating manufacturing jobs over service sector jobs (compared to 34 per cent disagreeing).   
• Similarly, 46 per cent think of the general public the UK Government should aim to boost manufacturing sector jobs because that is what the UK has to offer in today’s global economy, rising to 53 per cent in manufacturing constituencies. 
• 77 per cent of British adults believe the UK has become too dependent on foreign imports.    

But its central message is that only by solving the productivity puzzle can levelling up be achieved and regional inequalities reduced. 

It says: “Britain has experienced a deep and intractable productivity problem since 2008. In fact, average annual productivity growth was only 0.3 per cent per year in the decade after the crisis. This is a period of growth stagnation more prolonged than any since the 1890s. This lack of growth has profound implications for overall UK living standards and wages. 

“Growth in output per hour has remained stubbornly below 2 per cent since the crash. This stands in stark contrast to the average growth levels that prevailed between 1998 and 2008, which were most commonly between 2 and 4 per cent per year… 

“The UK was the highest European economy for productivity in 1960. Since then, it has fallen behind rival economies. In 2016, GDP per hour worked was an astonishing 35 per cent higher in Germany than in Britain. Moreover, productivity in the UK would be 25 per cent higher if it had continued on its pre-crisis trend. Output per hour was no higher in 2020 than it was in 2008.” 

Recommendations by the CSJ to boost the UK’s manufacturing output include: 

• A Government aim to increase UK manufacturing as a percentage of national output from 9 to 15 per cent. A UK modern Industrial Strategy should be established.  
• A manufacturer’s tax credit to be deducted against corporation tax for manufacturers who import less than 50 per cent of their component parts. 
• Allowing Apprenticeship Levy funds to be available for the purposes of a wage subsidy for 16-24 year olds on a time limited basis. 
• The Chancellor should maintain the current Super-Deduction capital allowance beyond its current end date of March 2023 for plant and machinery investment, targeted at manufacturing companies, and consider regional targeting as necessary.  

Mr Clark says in his foreword: 

“Manufacturing is a practical means to increase our national productivity, to create jobs that are much higher paid than average, to increase opportunities across all parts of the UK and to upgrade our security and international competitiveness.  

“It is mystifying that, at the very moment a longer-term perspective was proved to be beneficial, the previous administration abandoned the Industrial Strategy. 

“We have learned at first hand that having a dependable manufacturing capability can be crucial at a time when global supply chains have proved more fragile than previously thought. 

“I predict that in the year ahead having a serious forward view as to how we can prepare for the future; how we can make ourselves more resilient to future threats to supply chains; and how we can increase productivity, employment and pay in all parts of the country will be a focus of intense political interest.”