Supporting business: let's follow northern Europe

The UK needs to raise its game.

As the UK economic recovery continues to stutter, calls for a return to an active industrial policy to restore the competitiveness of British business grow louder. We are increasingly looking to Germany and other northern European economies to understand how they have managed to weather the global recession more successfully than the UK.

One lesson that the UK could take from our northern European competitors is the way they support businesses to expand and innovate. Very little of this support has traditionally been available in Britain, with governments paying scant attention to the choices that employers make about how to compete, despite the impact this has on innovation, resilience, wages and the quality of goods and services. 

Labour’s Business Link service was designed to fill this gap but its impact was patchy, often lacking operational knowledge of local markets and a real understanding of how SMEs work. Instead of reforming Business Link into a service capable of promoting growth and innovation among British firms, the Coalition has simply reduced it to a generic website and phone line. This is in marked contrast to the tailored and practical business support available in a number of other European countries.

The failure of business support in the UK is rooted in the hands-off approach to industrial policy evident over the last three decades. Over this period, skills and training have been the only areas of business support deemed suitable for government intervention, an approach exemplified by the previous Labour government, which put adult skills policy centre-stage in its strategy for economic competitiveness and social inclusion. This was based on a misguided belief that a more highly qualified workforce would, by itself, drive innovation, competitiveness and resilience in the "knowledge economy". Substantial investment in adult skills coupled with targets to increase qualification rates among the adult population followed.

The impact of this new activity and funding was limited by Labour’s reluctance to consider how skills are used in the workplace, and what else drives innovation and competitiveness, like access to finance and market intelligence. As a result, a stubborn third of employers fail to invest in staff training and training rates have actually fallen over the last decade. Many UK firms have retained low-skilled, task-based production processes where training and workforce development are largely irrelevant to the bottom line. Studies suggest these kinds of business models are more prevalent in Britain than in many northern European countries. Such firms are profitable but could be less resilient to changing economic conditions. Levels of innovation also tend to be lower, and, for employees, the work is badly paid and repetitive. 

Countries like Germany, Finland, Norway and Australia have stolen a march on the UK by experimenting with different ways of supporting businesses to raise their game. Employers are supported to invest in new ways of working, access finance and develop new products, as well as to develop a well-skilled workforce. In one example in Finland, a local catering service was helped to restructure its business so that catering assistants took on a role in planning meals, budgeting and purchasing ingredients. Procurement costs fell and productivity improved, and the ability to use new skills raised motivation among staff. A simple training programme divorced from the need to reorganise the production process is unlikely to have delivered the same results.

Just like in welfare, extra support should be matched with extra conditions. To access public money for training and business support, employers would have to join local employer associations and commit to raising wages for trained staff or sharing the cost of training. But the specific deal would be left to local partners and employers to negotiate, taking skills policy and funding out of the hands of centralised quangos. In the UK, this kind of tailored business support delivered by people who know about business – whether in employer associations, professional bodies or local chambers of commerce – is the missing link that will ensure investment in skills delivers sustainable economic gains.

Kayte Lawton is Senior Research Fellow at IPPR. No Train, No Gain: Beyond free-market and state-led skills policy by Tess Lanning and Kayte Lawton is available here.

The Uk could take cue from Europe, Getty images.

Kayte Lawton is senior research fellow at IPPR.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.