The long shadow of industrial decline

Those living in the UK’s former industrial areas still pay the price for the decline of manufacturing. Christina Beatty and Steve Fothergill unveil new research on the impact on welfare, public finance and communities

The job loss in older industrial Britain, mostly now a generation ago, still has a big and clearly identifiable impact on present day benefit claimant rates and public spending. That is the conclusion we reach in a new open access article in the online journal Regional Studies, Regional Science.

The evidence trail starts with the distinctive geography of industrial job loss. Although manufacturing and mining employment fell just about everywhere in the UK, the biggest job losses were in parts of northern England, the Midlands, south Wales and the west of Scotland. London and its vast hinterland, and many rural areas, were less affected. In the hard-hit places the number of claimant unemployed soared initially but then fell back and, in 2017, remains at comparatively low levels.

But what has happened is that a great deal of the worklessness in older industrial Britain has become hidden on incapacity benefits (these days employment and support allowance (ESA)). There may be only 800,000 claimant unemployed in 2017, but there are 2.4 million out-of-work incapacity claimants of working age. The numbers on incapacity benefits spiralled upwards in the 1980s and 90s and, despite the efforts of government to bring them down, have barely fallen from peak levels in the early 2000s.

‘All this entails a vast cost to the Exchequer’

The geography of the incapacity claims is the clue to the underlying causes. The claimant rate in older industrial Britain – typically around 10 per cent of all adults between the ages of 16 and 64 – is far in excess of the rate in the fully-employed parts of southern England. We first logged these disparities twenty years ago but despite all that has subsequently happened the pattern remains fundamentally unchanged.

Of course, these days it is no longer the ex-miners, ex-steelworkers and the like who make up the big numbers – they have mostly now reached state pension age. But in difficult labour markets, in which employers can pick and choose, ill health or disability is one of the key factors determining exactly which men and women are able to hold on to work or find a new job if they are made redundant. When someone with health problems or disabilities is out-of-work they are then able to claim incapacity benefits instead of unemployment benefits.

All this entails a vast cost to the Exchequer. The DWP’s own data for 2015-16 tells us that £14.9bn a year was spent on working age incapacity-related benefits, these days nearly all ESA. To this needs to be added an estimated £7.2bn a year paid to the same claimants in the form of disability living allowance (or its replacement personal independence payment), £7bn a year in housing benefit and £3.2bn a year in tax credits. The grand total for the benefits received by incapacity claimants comes to just under £34bn a year.

The costs to the Exchequer of industrial job loss go still further. One of the defining features of the manufacturing and mining jobs that have been lost on such a grand scale is that they were often relatively high value-added, high wage jobs. In older industrial Britain there has been job growth in the wake of industrial decline but all too often it has been in low-productivity, low-wage activities. In the former coalfields for example, two of the prime sources of new jobs have been call centres and warehouses. Growth in consumer spending has also fuelled job growth in shops, hotels, pubs, restaurants and takeaways. Few of these new jobs are well paid, and many are part-time.

Low wages generate low tax returns. At least as importantly, low wages generate a high bill for in-work benefits, notably housing benefit, child tax credit and working tax credit. Wherever low wages are the norm, spending on in-work benefits is high. This applies in a number of rural areas, in several seaside towns and in the parts of London where less well-off residents are concentrated. But it also applies across most of older industrial Britain.

Faced with a budget deficit that is high and slow to bring down, successive governments have chosen to reduce spending on working-age welfare benefits. Inevitably, the cuts impact most in the places where claimants are concentrated. So it is no surprise that Britain’s older industrial areas figure prominently among the worst-hit places. Once more, it is south Wales, the industrial north and the west of Scotland that stand out, while large parts of southern England around London are much less affected.

It is not difficult to argue that communities in older industrial Britain now face punishment in the form of welfare cuts for the destruction wrought to their industrial base all those years ago.

• This article was written by professors Christina Beatty and Steve Fothergill from the Centre for Regional Economic and Social Research at Sheffield Hallam University