Why the UK needs its first ever economic strategy

We must not make the same mistakes as 2008, said CBI Director-General Tony Danker, in his first major speech of 2021. 

The triple shocks of Brexit, COVID-19 and climate change highlight the need for business and government to design an economic strategy for the next decade, rather than rely on a short-term response to the crisis, Danker explained to an invited Bloomberg virtual audience of business, political and civil society leaders.  

The CBI is embarking on a project to create an ambitious and detailed vision for a modern, dynamic and competitive UK economy in 2030. This speech fired the starting gun by issuing a call to business to “practice what we preach” and drive change from within their organisations. 

Full transcript below. 

Introduction 

Good afternoon everyone.  

Thank you for coming. I realise you’d rather not be in front of a screen again – when you could be outside walking in the pouring rain around the block. So, we’ll try and make it interesting. 

And thank you, Constantin and the team at Bloomberg for hosting today’s event. In the offline world, we are of course neighbours. In the online world, we are partners. 

These are the hardest times that most of us can remember.  

The virus has taken many lives and affected even more.  

Our children remain at home following a year’s disruption, the impact of which we are yet to fully comprehend.  

Businesses have folded – often overnight after years of endeavour – and many more, now face a tough battle to survive. We have hundreds of thousands more people left unemployed, and millions carrying the mental health strain of living and working in lockdown.   

For me, the CBI, and every business leader I speak to, we’re clear that our job – in the coming weeks – is to support the country in beating this virus and getting business back on its feet. 

It may seem, therefore, that to talk now of the decade ahead is misplaced. To show optimism and hope is to be tone-deaf. But I think it’s what the crisis demands.  

Build Back Better, is easy – in fact lovely – to say, but it is much harder to do. It needs a vision, a plan and a consensus as a nation to pursue it. 

I don’t think we did that after 2008.  

We stabilised the economic system immediately. Then for the long run, we stabilised the public finances. And we achieved modest economic growth.   

But our productivity growth flatlined. And our society divided rather than united.  

So, what will we take from this crisis? 

Well, there are better precedents to draw on. Where in our darkest times – we have made real shifts for the better.  

Most notably – of course – in the aftermath of the Second World War. When our post-war reconstruction gave birth to the NHS and the creation of the welfare state. 

The impact of shocks to the system 

Let’s be clear. The scale of the shocks we’re facing today – three coalescing all at once – Brexit, Covid, and the Climate imperative – demand a similarly dramatic moment of unity and foresight. 

They each demand a response. They also hold clues to what that response should be.  

First, Brexit.  

Brexit has delivered an economic hit. And divided business and government for four years.  

But we can use our new Brexit deal, as a jumping-off point — to put the politics behind us, grasp the opportunities ahead, and win more business in critical areas. 

There is more to do with Europe our largest trading partner.  

And – then - beyond Europe, to take advantage of opportunities, like our Free Trade Agreement with Japan — which is expected to boost trade by an estimated £15bn.1 Or in the future, the Trans-Pacific Partnership, which will increase the UK’s access to one of the world’s most dynamic regions. 

Then, of course, Covid.  

A crisis that’s forced us to reckon with the things that matter most: our health, our fellow citizens, our communities.   

 

The economic cost is so very great. With the UK expected to have seen its sharpest contraction in annual GDP since the early 1700s.2 Rising unemployment…collapse in demand…and ever-increasing cash flow pressures for firms. 

And yet – we’ve also seen the very best of what business can do. A decade’s worth of innovation and digital acceleration achieved in a year. And firms moving essential medical supplies, building ventilators at record speed, keeping food on shelves. And, of course, the vaccine – borne of a superb alliance between companies, government, and academia. The ultimate proof of what such alliances can achieve. 

Then, finally, climate change.  

Hardly a surprise of course – nor a one off. But we have now reached a tipping point, based on our renewed commitment to net-zero targets, that require a totally different metabolic rate of economic decision making, dynamism and collaboration. 

At current estimates from the Climate Change Committee, UK low carbon investment each year will need to increase from around £10bn in 2020 to around £50bn by 2030.3 

But isn’t that a route to power our recovery? Creating hundreds of thousands of green jobs and helping us succeed in high-value industries of the future. 

Our choice 

Each shock alone is enough to force fresh thinking. Taken together, they make 2021 as pivotal a year as any we can remember. So, what now? 

Do we act to shape the next decade? Learning lessons, seeing prizes, uniting to reach for them together? 

Or are we shaped by it? Accepting an economy scarred; resigned to deepening inequality. A return to business as usual – meagre growth, and more division.  

Grounds for optimism 

Well, let me show my hand now and reveal my punchline early. 

I am a total believer. A complete optimist. I share the Prime Minister’s enthusiasm for what lies ahead. I believe we must, and we will, come together to forge a better decade.   

More 1945 than 2008. 

Yet, I am also a pragmatist – a businessperson. I like honest assessments, built on evidence, of our performance; I like plans that inspire people to act; I like immediate action and measurable results. That doesn’t make me a fun guy – but it probably means I’m in the right job. 

Above all, I like governments and businesses working together. Something that our competitors do far better than us.  

And there are some huge grounds for optimism. For more than a century, our openness to people, capital, and ideas has been an enduring competitive strength. 

With less than 1% of the world’s population, the UK has six of the 30 top universities, 12% of Nobel Prizes, and 15% of the most cited research. The UK is recognised, globally as a magnet for international students, start-ups, and entrepreneurs.4 5 The World Bank consistently rates us as one of the best places in the world to do business, supported by a competitive tax regime, flexible workforce, and world-leading firms, big and small, including – valuably – in several, specialised high-knowledge manufacturing industries.

We have perhaps the best financial services cluster in the world and have shown our leadership in global science and life science industries. We also have a strong competitive edge in professional services, and our creative industries are the envy of the world.  

And our prospects could be even better.  

The future is filled with prizes for those who reach for them. To focus on just three… 

By 2030, the profit pool in the Indian education market will be over $100 billion, the US information and communications market over $500bn, and, in China, financial services alone will be – far in excess of a trillion dollars.7  

Share in these markets will be tough to crack. But the UK is better placed than many to achieve just that. 

And we have taken a hugely ambitious step forward on Net Zero. The UK leads the pack on some of the most challenging decarbonisation technologies like Carbon Capture and Storage. We have the largest potential negative emissions powerplant in the world at the Drax site in Yorkshire; and more offshore wind capacity than any other country. 

The Government has matched this, with a bold ten-point plan to deliver a ‘Green Industrial Revolution’. Its ambitions include achieving 40GW of offshore wind and racing to be one of the first countries to hit 5GW of hydrogen by 2030. And forging a whole new industry on home retrofits, installing 600k heat pumps per year – 20 times what happens today. 

Or take electric vehicles. Where the Faraday Institute estimates that, by 2040, UK demand could support seven gigafactories, creating 78,000 jobs.8 And BritishVolt are already leading the way with their plans for a £2.6bn Gigafactory in Blyth. 

But if you’d rather take the bus, consider this. Six years ago, the UK’s first hydrogen production and bus re-fuelling station was opened in Aberdeen. Today, Aberdeen is home to the world’s first hydrogen double-decker bus fleet, in full service, carrying passengers around the streets of the city.  

Long-term challenges 

So, we have much to draw on and much to reach for. But we also have some problems – longstanding and perhaps endemic. 

Regional inequality, persistently low levels of business investment, still no clear pathway on skills, and weak productivity growth – the semi-secret sauce of a nation’s economic success. 

Let me give you some numbers.  

The UK one of the most regionally unequal countries among our major competitors. Productivity in London is almost one third higher than the UK average, and over 50% higher than in Yorkshire & Humber – hitting living standards and wages.9 And while the Government’s levelling up approach has focused on public sector investment, there is little yet in place to tackle the business sector competitiveness of our regions. 

Based on the recent analysis from the ONS, the productivity gap between regions – when considering specific sectors – is particularly high in more knowledge-intensive services sectors. 

For example, the highest-value added activities within financial services, information and communications services, and professional, scientific and technical services are concentrated in our brilliant capital and the South East.10 

On business investment, for the last four decades, we’ve deteriorated from a peak of 14.7% of GDP in 1989 to a low of 8.9% in Q3 2020, putting us firmly at the bottom of the G7.11 

And where we do enjoy successful investment in R&D and innovation, we fail to drive successful adoption among the rest of our economy. According to WEF’s 2019 competitiveness rankings, while the UK ranked 9th overall, we were 31st in ICT adoption.12  

My three years at Be the Business gave me a front-row seat on this phenomenon. Travelling all around the country I started to see the truth in Andy Haldane’s conclusion – that the diffusion engine of the UK economy has stalled.  

Skills we know is a mixed picture. The share of Brits in education – staying on to high-level qualifications – has more than doubled since the ‘90s.13 But we need to keep learning, and evolving our skills, throughout our lifetimes as our economy changes. 

CBI data suggests that 9 out of 10 people in the current workforce will need to upskill or retrain by 2030 – in part to address an existing – and growing – shortfall in technology skills.14 

As for productivity – the story is well known. After a decade of continually forecasting a rebound to pre-crisis productivity growth in the UK, the OBR finally concluded in November 2017 that our poor performance was proving more enduring.15 

That was a red rag to a bull for me.  

And I have seen in firms, in sectors and in regions, stories of fantastic productivity - aerospace in the South West, chemicals in Cheshire, and whisky in the Highlands, to name just a few. I’ve seen productivity growth from architects, hairdressers and restaurant managers. 

Some commentators say productivity is a puzzle. Business people think it’s a project. 

So, I know this can be done. But I know we haven’t begun to make it so.   

Lack of joint action 

So, we have many strengths and some recurring weaknesses.   

But perhaps our greatest recurring weaknesses is this: 

Our inability since 1945 to unite around a shared vision and economic plan of where we want to be. 

For decades, we’ve oscillated between the view that either government should run the economy, or that government should just stay out of it. 

And then as industrial strategies have become more popular – they were each forged by politicians and officials with businesses added in later.  

We at the CBI have been active champions of them all. Yet they have never been co-created.  

For reasons I understand, governments fear capture. And so, mistrust and formal correspondence take the place of genuine collaboration and co-design. And ultimately the output is mostly alien to firms.    

And we have failed to sustain them. The turnover in economic ministers faster even than ever-decreasing CEO tenure — with five Business Secretaries and four Chancellors in the last five years. 

We have been short term – both sides. I will come to business shortly. We have sat on opposite sides of the table. And consequently, we have failed to unite around a shared plan to realise our potential.  

But does anyone really believe that something like climate change can be solved with the same old arms-length distance of the past?  

The vision & strategy 

Now is the time for something completely different.   

History will judge how we used this moment to map the path to get to 2030. So here’s what we propose: 

First, a national economic vision and strategy. A vision for the long term – no less than a decade – to overcome political cycles. And business ones too, by the way. Let’s admit that companies are often, no more long term in orientation than politicians.   

A vision, that is for growth but growth that’s shared. Growth for every region; and for every corner of our society.  

World-leading competitiveness in those sectors – internationally traded – where R&D, high skills, innovation, and trading prowess will enable the UK to win at home and abroad.   

And newly found dynamism, productivity and digital adoption in those foundational sectors like retail, hospitality, construction and social care – sectors that employ millions but often on lower wages, where we can and must grow opportunity once more after such damaging times.   

This growth plan must be tangible for firms – large and small – that create jobs and pay wages, and the individuals who work for them across the UK. 

Firms whose ingenuity, pace, and dynamism can turn a grand ten-point policy plan for green growth into new technologies, new markets, and new kinds of job.  

Firms whose managers, training staff and training programmes turn a Skills White Paper into a real weekly training programme for young people at work seeking to get better. 

Growth that’s shared also means growth that’s inclusive.   

However, you cut the data, diverse and inclusive firms come out stronger and more agile. McKinsey analysis shows that the most ethnically and gender diverse companies are 36% and 25% more likely to outperform peers, respectively.16 Let’s be first to see how inclusion here can give us not only more justice but also more competitive advantage in the world.  

Second for this vision & strategy, let’s do this together – business and government in genuine partnership – with unions and civil society too. Let’s move from adversarial policy making to genuine collaboration. As we saw in the design of the JRS; and in the writing of Covid safe-workplace guidance. And in the vaccine. 

Third and finally, its business with agency not just advocacy. Yes, government must let us in to help forge the vision and plan. But meanwhile, we uniquely can make things happen. 

Our political leaders can make compacts at COP26. But we can all take part in the race to the top. We can make the electric cars consumers will buy, and the gigafactories to enable them.  

The Chancellor can unlock public investment with real opportunity for our challenged construction companies, but they can lead in the use of sustainable materials and modern methods of construction.  

The Government can enact mandatory ethnicity pay gap reporting – but its businesses that need to ensure we’re hiring more employees from ethnic minorities and, then, supporting them on progression, promotion and pay.  

Role of the CBI 

We at the CBI will play our part. As the country’s largest business organisation, we are obliged to – and with a membership of SMEs, entrepreneurs, trade associations from every sector, and with large regional, national, and international members – we are able to.  

In the next few months, we will be working on identifying and seizing the prizes available for UK plc in the decade ahead.  

We will come forward with plans in the Spring to share with government and others on what the lofty goals I’ve talked of mean in concrete terms to sectors and firms across our economy.  

In May we will bring together our international partners in the B7 – which in turn feeds into June’s G7.  

We have set a three-part agenda – climate, trade and digital – where we intend to show political leaders that business across the globe is able to collaborate ever closer, despite a political climate where borders seem to be rising not falling. 

And in this year of COP26 we will launch the Goal 13 platform to kickstart this race to the top among firms who wish to learn from their peers and showcase their plans to make net zero – an economic goal – as much as a social one.  

And, across the year, led by our President Lord Bilimoria, we can drive up ethnic diversity at the leadership of business, through our Change the Race Ratio campaign.  

Conclusion 

To finish I should concede that some smart ass did tell me that 2020 is the start of the decade, not 2021.  

But that smart ass is wrong. 2020 was a year unto itself.  

I know the crisis is far from over, but I believe we have learnt enough already to know that we need a better decade than the last. 

But we have learnt something else very important in this latest crisis. 

In 2020, according to several now released surveys – trust in business went up. That’s not something you see very often! And, it definitely didn’t happen in 2008. 

I believe it’s because during this crisis, business has acted in the service of the nation – in the service of employees above all – especially in supporting their mental health – and also in the service of customers and communities.  

For years we have talked a lot about business and society. In 2020 we saw what this can look like at its best. A pivotal role in national wellbeing and resilience that we must sustain.   

Let me finish, therefore, with one ask for those of you listening who work in a business. We can ask government to do better – and we will. But we have it within ourselves to make a better decade.  

In our firms we can pursue growth, and growth that’s shared. We can make our companies and industries competitive, dynamic, inclusive and sustainable.  

We can practice what we preach. And we can start right now.  

Thank you. 

 

Watch the full video of Tony's speech