Stephanie Flanders: Britain needs to rise to the inclusive growth challenge

When I worked for Bill Clinton’s Treasury Department in the US, before I joined the BBC, we thought that raising employment was the best route to tackling deprivation and exclusion. A falling unemployment rate would cause our other big social and economic problems to decline as well. A generation of policy makers in the UK thought the same.

You only have to visit a handful of our cities to see that we have to think again. Despite record lows in unemployment and youth unemployment, 55 per cent of people in poverty in the UK live in households in work. They are just paid too little. Unlike some of our European counterparts, we don’t have a structural unemployment problem in the UK. We have a structural wage and productivity problem.

Over the last year I have chaired the RSA’s Inclusive Growth Commission, travelling across the country listening to the challenges local leaders face delivering a broader vision of economic success. Our first evidence session was in Sheffield, just after the EU referendum. But the flaws in the UK’s approach to growth have been building for a long time and do not have much to do with our membership of the EU.

We are publishing our recommendations tomorrow, but today in Bradford we will reflect on the specific nature of the inclusive growth challenge in cities across the UK and the world. Higher employment was meant to provide the answer to the problem of poverty and deprivation. But focusing on the quantity – rather than the quality – of jobs has led directly to a more divided economy, compounded by unprecedented changes in the labour market.

More than six million people work in insecure jobs that do not offer them standard employment protection rights. Despite headline growth and economic recovery, too many people in our cities, towns and suburbs feel left behind, trapped in a low productivity, low wage cycle, over-reliant on over-stretched public services.

If we don’t tackle this now, services will continue to struggle under the double bind of burgeoning demands and public sector cuts, dragging down the performance of our economy with it.

Despite devolution of certain powers and budgets to city-regions, the core challenge of city leaders is austerity – doing more with a lot less. In a time of hard fiscal choices, there has been less and less money spent on preventative programmes and social investments in early years, education, skills, childcare, health and mental health. We think Theresa May’s government should set out to reverse that pattern, and put social infrastructure on a par with physical investment in roads and transport.

The big point is that policy-makers at all levels of government need to recognise that public services and social policy can be a driver of productivity, not only a drain on the public purse. About 38 per cent of this productivity gap for the 10 biggest UK cities outside London (between their average and the UK average) is associated with deprivation. If we could just close that, we might add another £24.4bn to our national output.

Innovative leaders in our cities and towns are finding ways to foster inclusive growth by being more strategic – and by seeing economic and social policies as two sides of the same coin. Sheffield’s Working Well scheme, for example, brings together employment support with critical health interventions, such as tackling backache or depression, which can make an enormous difference to whether people can move into quality jobs.

Bradford’s SkillHouse scheme is a one-stop shop designed to help local people find jobs in the city’s retail, hospitality and visitor economy. Leeds Community Homes is a new mutual organisation designed to build a thousand affordable, energy efficient homes. No Silver Bullet is a joint project across West Yorkshire designed to increase the number of better-paid, more sustainable jobs.

These projects are examples of how places are moving towards inclusive growth despite, not necessarily because of central government government interventions and initiatives. Today we set out these and other examples are in our compendium of ideas, Putting Principles into Practice, launched at Bradford College.

There is a great deal going on at local level, and not just in Yorkshire. But the scale of the challenge demands that inclusive growth is a national effort – albeit designed and delivered locally. What we’re talking about is not wholesale, traditional devolution but a new kind of relationship between places and the centre, and a new kind of leadership that extends beyond the confines of government; business, civil society and citizens must be a part of the solution to inclusive growth.

I hope that our two reports offer a practical framework for inclusive growth and ensure we really can make the economy work for everyone. Britain is not alone in this challenge, but as we chart a new path outside the EU, the stakes for us today are especially high.

Stephanie Flanders is chair of the RSA’s Inclusive Growth Commission. She is a former economics editor of the BBC.