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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Theresa May is paying the price for mismanaging Boris Johnson

The Foreign Secretary's bruised ego may end up destroying Theresa May. 

And to think that Theresa May scheduled her big speech for this Friday to make sure that Conservative party conference wouldn’t be dominated by the matter of Brexit. Now, thanks to Boris Johnson, it won’t just be her conference, but Labour’s, which is overshadowed by Brexit in general and Tory in-fighting in particular. (One imagines that the Labour leadership will find a way to cope somehow.)

May is paying the price for mismanaging Johnson during her period of political hegemony after she became leader. After he was betrayed by Michael Gove and lacking any particular faction in the parliamentary party, she brought him back from the brink of political death by making him Foreign Secretary, but also used her strength and his weakness to shrink his empire.

The Foreign Office had its responsibility for negotiating Brexit hived off to the newly-created Department for Exiting the European Union (Dexeu) and for navigating post-Brexit trade deals to the Department of International Trade. Johnson was given control of one of the great offices of state, but with no responsibility at all for the greatest foreign policy challenge since the Second World War.

Adding to his discomfort, the new Foreign Secretary was regularly the subject of jokes from the Prime Minister and cabinet colleagues. May likened him to a dog that had to be put down. Philip Hammond quipped about him during his joke-fuelled 2017 Budget. All of which gave Johnson’s allies the impression that Johnson-hunting was a licensed sport as far as Downing Street was concerned. He was then shut out of the election campaign and has continued to be a marginalised figure even as the disappointing election result forced May to involve the wider cabinet in policymaking.

His sense of exclusion from the discussions around May’s Florence speech only added to his sense of isolation. May forgot that if you aren’t going to kill, don’t wound: now, thanks to her lost majority, she can’t afford to put any of the Brexiteers out in the cold, and Johnson is once again where he wants to be: centre-stage. 

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