LEVELLING UP

Making a Comeback

How a manufacturing renaissance can level up the country.
Will Holloway, James Blagden
August 12, 2021
Making a Comeback
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We can’t ‘Level Up’ without a manufacturing revival. In my constituency, the steelworks employs far fewer people than it once did, but these jobs are still some of the most well paid and highly skilled in the area. This report shows why reversing the manufacturing decline in some of our most deprived regions is so important to restore productivity – and pride – to our industrial heartlands.

Miriam Cates MP, Member of Parliament for Penistone and Stocksbridge

 

Manufacturing drives stronger productivity and higher wages, particularly in poorer regions

The UK has deindustrialised more than any other G7 country. In 1970 the UK had the sixth largest share of manufacturing in the economy in the G20. Today it is second from bottom. Many other rich countries have deindustrialised far less: manufacturing is about 10% GDP in the UK but about 23% in Germany.

In 1981, manufacturing accounted for 23.4% of employment. This fell to just 8.1% in 2018. The decline in manufacturing jobs hit some places much harder than others – especially the Tees Valley, Lancashire and the Black Country, but also Barking and Slough in the South.

While manufacturing is a bigger share of the economy in lagging areas, it also provides an outsized share of the better paid, high productivity jobs in those places:

  • Between 1979 and 2019 in the UK, output per job grew nearly twice as fast in manufacturing (0.64% a quarter) as it did in the economy as a whole (0.36% a quarter).
  • Productivity in manufacturing is also higher in poorer parts of the UK: outside London, output per hour was 20% higher in manufacturing than the economy as a whole in 2018.
  • Around 40% of productivity growth in the West Midlands, Wales and North West came from the manufacturing sector, between 1997 and 2017.

Outside London, wages in manufacturing are higher than the wider economy, with a consistent wage premium of over £1 an hour for the UK as a whole and an even higher wage premium in some regions.

In 2018, median earners in manufacturing earned 22% more in the North East, and 19% more in the North West, a premium of over £2 an hour.

In addition to boosting wages for poorer regions, manufacturing also has higher wages for less qualified workers. The largest manufacturing wage premium is seen for those with mid-level qualifications and those in the low-to-middle part of the earnings distribution. Those with only A-level equivalent qualifications see a 20% hourly earning premium.

Manufacturing is also more important to red wall seats. New analysis for the paper reveals that 12.2% of workers in seats gained by the Conservatives in 2019 work in manufacturing, compared to 9.3% in seats they held from the 2017 election and 7.8% among Labour seats. The SNP’s seats have on average only 7.8% of people working in manufacturing.

Nov 16
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Problems

Recommendations

The UK has deindustrialised faster and further than other advanced economies, which impacted communities across the country.

Deindustrialisation played a contributing factor in
exacerbating regional disparities in the long-term, in some ways
helping to create left-behind places.

Investment in manufacturing in the UK lags behind our competitor economies elsewhere in the world, which limits the growth of the sector. Our tax system favours sectors which are light on capital investment over manufacturing

The Government should set out a bold ambition to increase manufacturing as a share of the economy, within a National Manufacturing Plan to reverse the decline of manufacturing. This Plan should:

  1. Recognise the importance of key sectors and disproportionately beneficial to the UK economy. Ministers should incentivise manufacturing in critical industries.
  2. Reduce the operating costs of manufacturing compared to other sectors, and to signal to the market that the UK will remain a competitive place to make products in the long term.
  3. Broaden access to finance for manufacturing firms, particularly for SMEs, to match the dedicated funding streams and mechanisms for research and innovation and infrastructure.
  4. Support the industrial rollout of physical or digital infrastructure, like 5G deployment, to facilitate the growth in advanced manufacturing.
  5. Commit long-term funding to support the growth of key anchor institutions that would support the growth of manufacturing

Maintain the current Super-Deduction capital allowance beyond its current end date of 2023 for plant and machinery.

The Government should reform content and procurement rules to boost supply chain firms in the UK.

Problems

The UK has deindustrialised faster and further than other advanced economies, which impacted communities across the country.

Deindustrialisation played a contributing factor in
exacerbating regional disparities in the long-term, in some ways
helping to create left-behind places.

Investment in manufacturing in the UK lags behind our competitor economies elsewhere in the world, which limits the growth of the sector. Our tax system favours sectors which are light on capital investment over manufacturing

Recommendations

The Government should set out a bold ambition to increase manufacturing as a share of the economy, within a National Manufacturing Plan to reverse the decline of manufacturing. This Plan should:

  1. Recognise the importance of key sectors and disproportionately beneficial to the UK economy. Ministers should incentivise manufacturing in critical industries.
  2. Reduce the operating costs of manufacturing compared to other sectors, and to signal to the market that the UK will remain a competitive place to make products in the long term.
  3. Broaden access to finance for manufacturing firms, particularly for SMEs, to match the dedicated funding streams and mechanisms for research and innovation and infrastructure.
  4. Support the industrial rollout of physical or digital infrastructure, like 5G deployment, to facilitate the growth in advanced manufacturing.
  5. Commit long-term funding to support the growth of key anchor institutions that would support the growth of manufacturing

Maintain the current Super-Deduction capital allowance beyond its current end date of 2023 for plant and machinery.

The Government should reform content and procurement rules to boost supply chain firms in the UK.

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