The economic benefit of poverty reduction
The political debate is already turning to next week’s autumn statement which is expected to contain more detail about the substantial new economic powers promised recently to Leeds and Sheffield by the deputy prime minister.
This follows the recent announcement of a major deal for Manchester, which will devolve to that city unprecedented control of its budgets for skills, transport, housebuilding and health and social care.
The moment has been long in the making. Two years ago the independently-led northern economic futures commission, of which I was a member, unveiled a unified strategy for growth. This aimed to place the region at the heart of the UK’s ‘rebalancing’ towards business investment and export performance, and reduce over-reliance on the performance of London and the south east.
In addition to a doubling of apprenticeships, new innovation funds and the creation of an investment and trade board, the commission recommended a significant devolution of skills budgets and welfare to work funding.
The logic behind this was simple – to maximise its potential the north required greater control over the drivers of growth (principally innovation, skills and infrastructure) as well as mechanisms for sharing its proceeds. That central message of needing to achieve the right type of growth (people-centred and inclusive) still holds.
Moving half of the region’s job seekers into living wage jobs
would yield an overall economic gain of just under £1bn each year.
Since the start of this year, JRF has been working with Leeds City Region to investigate new ways of connecting people in poverty to the job opportunities available through new growth initiatives. The City Region comprises ten local authority areas, spanning the whole of west Yorkshire and parts of the north and south of the county. They include economic hotspots as well as deep pockets of unemployment and deprivation.
This week we revealed new analysis showing the economic benefits that would accrue to the local economy from effectively tackling worklessness and low wages. Ahead of the autumn statement, we have sent the findings to local political and business leaders. It confirms that moving half of the region’s job seekers into living wage jobs would yield an overall economic gain of just under £1bn each year.
Nationally the UK economy has a higher proportion of low-paid, lower skilled jobs than other OECD countries. Leeds City Region also suffers from lower productivity than the UK average. The productivity gap partly helps to explain why wages for low earners have remained stagnant or even fallen.
However we know from the international evidence that if firms concentrate on improving their operations and seek to compete more on quality, drawing heavily on the skills of their employees, it is then possible to provide higher pay. Local economic development agencies potentially have a significant role to play here, by supporting businesses in the region to innovate gradually.
In addition to thinking harder about how additional powers and inward investment can be used to create opportunities for people and places in poverty, local leaders also must address the high costs, such as those around childcare, housing and transport which can act as barriers to people taking up the chances created by new jobs and growth.
Change of this kind will not happen overnight. It also remains true that many initiatives to reduce poverty through economic growth are more likely to benefit the Treasury than the region’s own institutions.
Our researchers estimate that for every £1 of public spending saved on tackling worklessness, 80p of the saving would go to central government and just 7p to the local authority.
But to be concerned about which agency benefits the most is to take a narrow view. We know that persisting with high levels of poverty will hamper the region’s growth.
This is not just because the region’s full human potential will continue to go to waste. It is also clear that whoever wins the next election will have to implement further cuts, both to social security and the public services upon which the poorest people disproportionately depend.
Reducing poverty is ultimately about reducing people’s vulnerability so they are better able to withstand external shocks. This will allow the region to deal better with whatever the future has in store.
This is a big agenda and it requires the involvement of everyone who can contribute, whether they are elected politicians, officials, local businesses and public sector employers.
A rising tide will not necessarily lift all boats unless we can devise credible plans for reducing poverty, harnessing both the new powers coming to the region, and the chance they represent to work in a different way.
