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6 December 2022

Building the business case for growth

CBI Economics can help you keep your eye on the size of the prize to overcome short-term challenges.

No one wants to read that we’re heading for a long recession. But to make it short and shallow, we need growth. No one wants to see tax rises or spending cuts, as we did in the Autumn Statement. But to avoid them for the long term, we need growth.

It’s the job of both businesses and the government to “go for growth” – which was the theme of the CBI Annual Conference last week. But when the government can’t spend any money on growth, and neither can the Bank of England, that task becomes harder than ever.

So how do we do it?

Nearly two years ago, CBI economists helped the CBI to formulate our “Seize the Moment” strategy, putting figures behind the kind of growth that is within our reach in a post-Brexit, post-Covid world. The opportunities totalled £700bn by 2030. Within that there were big, multimillion-pound wins broken down for what could be achieved by investing in our people, green growth, innovation and trade.

These prizes haven’t gone away. Hunkering down and waiting for the current climate to improve will only give our competitors the upper hand. So we all need to dig deep to make the most of the opportunities.

That means now, more than ever, we need to keep our eye on the size of the prize so we can bring our employees and our communities along with us – and give people hope that there is a way out of the cost-of-living crisis.

This is why CBI Economics continues to combine the CBI’s business insight, economic expertise and policy awareness to help firms, trade associations and think tanks understand the economic impact of policies, the economic importance of their sector, or the views of their peers or workforce on topical issues – in a way that resonates with government priorities, all in the pursuit of growth.

[See also: Tony Danker interview: “Business have complete reassessed their capitalism”]

Green growth

Let’s take green growth as an example. Quantifying the size of the prize – and using data to work out exactly what’s going on – will always help to speed up progress. But that’s not easy when the UK’s official classification system for economic activities (which is used to work out the importance of different sectors and to monitor trends) hasn’t been updated since 2007. It doesn’t provide detailed insight into the emergence of business activity in green and low-carbon sectors. And that’s just the kind of thing that would help businesses and the government see where the UK’s strengths lie.

So CBI Economics worked with the Leeds-based data consultancy The Data City to map the impact and activity of 16 key sectors that play a role within the UK’s net zero economy. It found 16,000 businesses already contributed £60bn a year to the UK economy, supporting 766,000 full-time equivalent jobs – just under 3 per cent of all UK jobs.

These businesses are attracting attention from plenty of investors who can see the potential. In 2021, venture funding into the net zero ecosystem stood at around £1.1bn and has almost doubled in size each year over the past five years.

But break down the numbers, by geographical area and by sector, and it’s the regions that could have most to gain. By demonstrating how green jobs pay better than many other sectors – and that London doesn’t dominate the economic opportunities – the CBI Economics and Data City analysis highlights how local authorities have every chance to embrace net zero activities to drive growth and raise living standards in their region.

The pressing issue of labour shortages

The CBI’s recent Employment Trends Survey found that nearly half of those who have faced labour shortages in the past 12 months have been unable to meet output demands, more than a third made changes to or reduced the products or services they offer, and a quarter reduced planned capital investment.

These findings build on CBI Economics research released over the summer – in partnership with the Recruitment and Employment Confederation (REC) – which showed exactly how much damage could be done to the economy if business and the government don’t step up.

The cost runs into billions of pounds – but the research didn’t just focus on the numbers. It also explored how the UK labour market and government policies compare with other G7 countries facing similar issues, and included interviews with UK businesses to uncover the difficulties they face when hiring. That provided REC with the evidence needed to shape policy solutions – and the firepower to get both businesses and governments to change behaviour, put people-planning at the top of their list, and get better at long-term strategy.

Our dependence on hard-pressed sectors

Right now, retailers and wholesalers are on the front line of inflation. Hour after hour, their staff come face to face with those experiencing cost-of-living pressures, at the same time as experiencing them themselves.

Businesses are stepping up in support, from freezing or delivering lower prices on essential products, to offering free meals to staff.

Those actions are important. But crunch the numbers, as the CBI Economics team has done, and the value of the sector runs far deeper.

For starters, retailers, their suppliers and the employees they support pay enough tax (£50bn) to build 110 new hospitals each year.

There are 5.7 million people are employed in the retail ecosystem – that’s a fifth of all UK jobs. The east Midlands and the north-west rely on it for a quarter of their employment. For some local authorities across the country, that proportion is higher still.

The sector spends £4bn every year to train its employees. A quarter of its apprenticeships are focused in the UK’s most deprived areas, giving many the skills to get into employment and get on in life.

And as it responds to technology developments, changing consumer habits and the push to go green – putting more than £17bn in investment behind these trends each year – retail is leading the charge on opportunities for economic growth.

Armed with figures like these, retailers are in a better place to speak up collectively on the issues that act as barriers for even greater growth, where the government could help smooth the way. For example, the inflexibility of the current Apprenticeship Levy misses valuable opportunities to upskill more people, limiting their lifelong earnings potential.

We’d like to think quantifying the sector’s importance has already played its part in influencing the Chancellor’s Autumn Statement decision to smooth over the looming hike in business rates, which would have, at best, limited retailers’ ability to invest, and threatened their very survival at worst.

At CBI Economics we have a team of dedicated economists with wide-ranging expertise of evidencing policy recommendations, with experience in areas including social and environmental impacts, decarbonisation, clean air, innovation and regional growth. We can help you calculate the fiscal costs of your policy ideas, demonstrate their economic impact, and even help you to best articulate the issues you face through economic evidence.

To find out more about how CBI Economics’s products and services can empower your business to succeed and grow, visit cbi.org.uk/economic-consultancy.

[See also: The next financial crisis is brewing in the UK’s corporate debt market]