Why is the economic recovery faced by local government now different to the challenges of the 1980s?

The 1980s economy was typified by Thatcherism and Reaganomics, not just in the UK and North America but in nations across the developed world. Western economies were described as ”developed” because they had industry and the means of production and, therefore, wealth. Since, primary and secondary industries such as mining, heavy engineering and manufacturing could be done anywhere in the world and, often much cheaper than paying entitled British workers to work on a space-poor island. At the same time, oil-producing economic countries were realising the growing dependence these developed countries had on them. They were withholding their supply of oil thus increasing their incomes and increasing the costs of this industrial production of wealth. With this economy evolution as well as technology improving global communications, developed countries increasingly specialised in a global economy in services for which developing countries had little aptitude. Everything else they could just import.

Therefore, the 1980s recession was structural; a shift from secondary industry to tertiary. The structural shift of the economy was partly deliberately engineered by the Government with nationalised industries disbanded or sold to foreign investors such as energy mining and large-scale manufacturing including cars and ships. In Sheffield, an example of an industrial city, over 50% of the workforce was employed in the coal and steel industries in 1971 and the city boasted near full employment. By 1984, they employed just 24% and unemployment peaked at 15.5%. Balance of Trade reports, so important to the Government before the 1980s, are now largely forgotten as goods imported far outstrip exports by design. Workers union activities were illegalised, forcibly put down and dispersed as natural monopoly industries were dispersed. Advanced engineering and science, North Sea Oil and arms manufacture remained. These were promoted by the Government in funding for R&D, overseas diplomacy ventures and state bribery.

Physical infrastructure was developed for finance by the Government with the development of sectors in the City, Docklands and Manchester. Banking access to credit was relaxed in 1986 and the Bank of England was given the prime aim of protecting the value of sterling with which to both finance world trade and promote domestic consumerism. On occasion, the value of sterling was protected at great cost to the tax-payer such as Norman Lamont’s disastrous defence of the value of Sterling on Black Wednesday in 1992. To avoid such speculation in the future and to focus on the task of promoting consumerism, the Bank of England was made independent of the Government in 1997. Today, the base interest rate it at a historical low of 0.1% and quantitative easing a daily activity.

An economy grew up around finance such as professional services including insurance, auditing, legal and creative businesses including advertising. However, they were geographically dependent on each other and so settled in London at the expense of the rest of the country. IT also grew up around finance and professional jobs but was less geographically dependent on being in London but clustered together along the M4 corridor and Cambridgeshire. Legacy and the growth of London as a global city attracted foreign investment, multinational businesses, culture, speculation on the housing market and international demand for financial management and assets. Local and regional government and health administration jobs and the remnants of agriculture, advanced engineering, manufacturing and logistics industries, as well as a British obsession with home-ownership, maintained local economies in other areas. 

The economy and unemployment recovered through these new industries with subsequent and new retail, hospitality and construction sectors. Money earned through financial services exports created a new consumer economy which, in turn, created jobs and stimulated the economy for most. It was subsidised by cheap labour imported from abroad with immigration rules more lax than the rest of Western Europe. Without monopoly industries and unions, and with foreign labour, although there were more jobs in the 1990s and 2000s, there was a growing divide between those in professional jobs and those servicing consumerism with a growing gap in earnings. With a reserve army of workers and gig-style jobs a feature of delivering discrete services, lower-paid jobs became more precarious.

In the 1980s, at first, workers did not know how to do tertiary jobs such as hospitality, retail, experiences, knowledge economy and finance, and these parts of the economy were still nascent, especially in the northern, more industrialised parts of the country. Despite Government interventions to pay people to train in new service-sector jobs (images like that of young people training to become chefs under the Department of Health and Social Security’s Youth Training Scheme (YTS) still adorn job centre walls today), the structural unemployment emergency never recovered from the 1980s to the 1990s and 2000s but, instead, “unemployment” was redefined. Many people were moved off of unemployment statistics and instead paid sickness benefits and tax credits funded through the new tertiary industries and its immigration tax revenues as well as North Sea Oil. But, as workers evolved to fit into growing knowledge and hospitality industries through new skills, lower union rights and deregulated employment legislation, frictional unemployment fell. In 1997, Tony Blair introduced a “Third Way” to managing the economy. It catered for a laissez-faire economy fuelled by free movement of labour across Europe, including for eight Central and East European Accession states in 2004 that the other EU members didn’t allow to work in their countries until 2010. Legislation was passed protecting workers’ rights with a minimum wage, annual leave, sick pay and illegalising unfounded dismissals after a year of employment. This was coupled with a New Deal offering direct one-to-one employment support for anyone looking for a job. This last initiative was delivered by the Government’s Department of Work and Pensions (DWP) and their job centres, but also often commissioned out to private sector companies, all with mixed results. Many local authorities duplicated these initiatives converting traditional council and school careers advice services into employment support. However, without the scale of central government, and influence on employers, these were too small to make much economic impact and largely disbanded after austerity measures were applied to councils in 2010.

Other than an increase in the size of the welfare state, new tax revenue from economic growth was never reinvested in infrastructure or enforcement but used to keep taxes low and, subsequently, consumerism high. Eventually and inevitably, the credit bubble created through monetarism burst in 2008. With the UK dependent on financial services exports, the Government bailed out the finance sector by borrowing money. Causing soaring national debt, what followed was a policy of austerity. Taxes were still not raised (always politically unpopular) but public spending reduced, particularly on local government and public services to which many cities and boroughs outside of Central London were dependent on jobs. From 2010, Gordon Brown’s tentative experiment with “workfare”, the practice of making work a condition of claiming out-of-work “benefits”, was ramped up by George Osborne. To this end, he rolled out a new benefit, Universal Credit, that brought back in most of those unconditionally excused from the labour market during deindustrialisation in the 1980s and told they must now find a job on threat of having their tax credits and housing benefits, devolved to the DWP from HMRC and local authorities respectively, sanctioned. The aims were to reduce the cost of the social security safety net and demonstrate to those that were participating in an increasingly deregulated and unfair service-sector economy, at least your neighbours have to do it too. But with political resistance and incompetence agitated by ambivalence in the DWP, especially while led by Ian Duncan-Smith, Osborne’s new weapon against skivers was not fully launched before Universal Credit was flooded by claims during Lockdown meaning applying workfare conditions became impossible. 

At the same time, high street retail began to fail for both demand and structural reasons. But the habit created by a culture of consumerism dating back to the 1980s remained; people still explored other things to do with their time beyond buying and eating stuff and going on holiday. So, a decline in choice in town centres, the centre of communities, highlighted the link between the role of the market economy and promoting the social externalities required from government planning. But no solution to the decline of town centres was found before the Covid-19 outbreak.

Instead, Lockdown changed consumers’ habits. It reinforced that we do not need shops (other than groceries and hairdressers) putting the consumer sectors and many, already precarious jobs, at risk. With little Government investment in the NHS, care, local government services, housing, employment enforcement or physical infrastructure such as energy and transport (other than airports and motorways) since before the 1980s, it is unclear where most people in precarious jobs who have become unemployed or furloughed would work after Lockdown.

The economic recovery now is different from the 1980s because it is not just structural; the tertiary industries will remain. But, without growing consumerism and “spend”, the retail and hospitality sectors will not be able to support as many jobs, even with offering precarious employment. At the same time, there are many fewer jobs in government and health administration than before 2010. For example, in the mid-1980s, over 21,000 people were employed by Sheffield City Council. In 2018, there were 7,305. Subsequently, the Government has considered the following policies:

-         Infrastructure investment of ￡5.5bn announced by the Government with pre-Covid house-building targets on local authorities remaining: (Build Build Build) (borrowed from Keynesian/Roosevelt New Deal policy from the 1930s).

-         Central Government investment in the care industry to increase capacity and make care jobs less precarious (supply-side labour policy),

-         Kick-starting high street consumerism with half-price vouchers for restaurants if you go out out (demand-side fiscal policy/gimmick).

-         Business rates holidays for high street shops (not necessarily being applied by all local authorities) and an on-line shopping tax (supply-side fiscal policy).

-         Paying employers to employ young people with either wages paid for six months (“Kickstarters”) or offering unpaid work placements (“Traineeships”) (a return to 2000s New Labour “Third Way” policy).

-         Relaxing planning legislation to stimulate unregulated housing construction (a return to 1960s slum housing development policy).

The Government also considered investment in new secondary industry to complement government targets around environmental sustainability; the Green Sector (Build Back Better), but other countries such as in Europe and East Asia which didn’t engineer out their secondary industries in the 1980s and now have existing infrastructure and education for R&D and manufacture, are better placed than the UK to take advantage of this growing market. Nonetheless, the infrastructure investment plans by the Government do represent a structural shift in the economy and employment back towards secondary industry.

Simultaneously, a concern would be that the UK labour force does not have the skills to Build Build Build. For example, the Government-commissioned Farmer Report on the labour skills in construction, Modernise or Die, highlighted that the sector was dependent on older and east European workers; the industry in Britain was doing little to train new construction workers and doing little to get involved in government-led vocational education schemes for the construction sector. It concluded that, with Brexit and an ageing construction labour force, the industry is entering a recruitment crisis at a time when the Government has more ambitious plans for house-building and infrastructure development.

What can councils do to support economic recovery? Councils have three levers to promote employment:

1.     Employing and training residents,

2.     Applying conditions on businesses they commission to employ and train residents, and

3.     Applying conditions on major planning applicants to employ and train residents.

Some councils might try to promote economic development through inward investment and town centre regeneration. However, council strategies have historically been limited to marketing an area. Alternatively, inward investment, whether it be for low-density secondary industry, or high-density third-sector knowledge economy businesses, can be promoted by constructing buildings for them. But speculative build is risky. Following the success of Michael Heseltine attracting international banks to London Docklands, Sheffield Development Corporation’s foray into high-tech office and music venue building in the Don Valley in the 1990s demonstrated that, if you build it, they do not necessarily come. Alternatively, building residential homes is low risk, especially in the South East’s buoyant housing market, and it raises Council Tax. 

Where a local authority does not own a town centre complex, it has little say in how it is used other than changing the public highways around it. The only change that can be made is to make it more shopper-friendly and reduce car usage but, like raising taxes, this is always politically unpopular.

Councils run schools and can affect the education of children. But schools and Further Education (FE) colleges are dependent on private industry to teach vocational skills. The recent University Technical College experiment linking up post-option school children with industry-led education has been a failure with a lack of take-up by both parents and industry. The new Apprenticeship Levy is also largely failing because of a disconnect and/or time lag in changes between industry practices and what colleges teach. At the same time, private industry does not teach employees. There were many initiatives under New Labour to fund employers to train their own staff but none gained traction with private sector businesses.

Councils can use their Apprenticeship Levy to pay to train young people to give them the skills and confidence to retain non-precarious jobs for their whole career. The average age of a council officer outside of Central London is 42 and recruitment practices are geared to giving jobs to people who are already council officers. Once at interview stage, competing applicants’ work experience and qualifications are disregarded and interviewees are on a level playing field. Interview panels eliminate any threat of being accused of showing favouritism by knowing as little about interviewees as possible and basing recruitment decisions solely on “competency-based” questions. No prompting or discussion can happen during an interview for fear that one candidate is asked a question that another is not. Similarly, to minimise subjectivity that might be tainted by prejudice, the panel pre-agrees criteria that an answer must cover requiring the successful candidate to already know, not just how the council already does the job, but how this panel understands the job is done. No flexibility, innovation, criticism or change is allowed into the council nor anyone who does not already intimately know how the council service is already run, not least younger candidates who still want to learn a new job and bring in external skills, experience and ideas.

More can be done to promote council jobs to younger people. For example, Lewisham Council announced recently creating 100 apprenticeships. Apprenticeships are traditionally the main routeway for new blood in councils but considering transferable skills in any more senior roles could benefit council services and give long-term economic opportunities to able but excluded residents. And apprentices in councils, seen as a decadence, have been one of the first victims of austerity.

But, more concerning from this stagnant approach to recruitment is when a council has a new service imposed on it. The Social Value Act 2012 means that officers must consider something new. And, where recruitment practice discourages innovation and new ideas, faced with a new role, it is too easy for service managers to employ more procurement officers and service delivery managers with the same old competencies rather than thinking about, never mind assessing, what new knowledge and skills they need. There are many published guides for local authorities to implement the inclusion of social value with slow uptake by local authority Procurement or Economic Development services.

The structure of job applications and interviews is unique to councils and not shared or considered by other government organisations or the private sector. In fact, recruiters in the private sector would likely be condemned by managers for being so passive, closed-minded and ill-informed about their own candidates.

Each council spends around ￡300m on externally-delivered services per year. The Social Value Act says, as well as considering price and quality, they must also consider social value contributions in large tenders. Social value contributions can include training and employing local people in delivering those public services. Most councils currently don’t. Most councils, despite the large amount of external guidance available to them, do not know how to apply social value requirements to tenders.

Planning legislation requires local planning authorities to obligate developers of major construction projects to commit jobs in construction and the end use of the development to local residents. Most councils outside of Central London where land value is much higher than in the rest of the UK, don’t. Most of these planning authorities do not know how to apply planning requirements to planning applications. The Government's new White Paper on planning proposes to take this responsibility of applying social value conditions to major planning applications away from local planning authorities. It implies they have a poor track record of doing so to the loss of the communities they serve.

Using planning powers, local authorities can significantly affect how construction companies interact with schools and FE colleges. Historically, local authorities have obligated developers to run events at schools to promote careers in the sector to school children, but this has had little impact. Instead, authorities can use planning powers to insist construction companies work with schools and FE colleges to design and steer vocational skills courses and the education of young people. Without this joined-up approach to central and local government policy, there is a danger that we will see a repeat of the largely avoidable frictional unemployment seen in the 1980s created by people having the wrong skills as industry shifted from secondary to tertiary. T-Levels, with a strong emphasis on construction skills, are starting this year with little historical involvement of industry in education and little appetite from local authorities to obligate developers or procured services such as the care sector.

With Government plans to spend ￡5.5bn on building, there is an opportunity, as well as a legal obligation, to use procurement powers to steer how commissioned developers train a new generation of workers. Many local authorities, too, have plans for major home-building schemes and subsequent infrastructure development.

There is a fear, though, amongst government officers about how to apply an economically viable level of employment and skills obligations on developers. At a time when governments are spending so much public money on promoting development, the last thing they want to do is stymie it by repelling developers and planning applications by imposing economically unviable commitments to design and pay for apprenticeships, recruit a labour force that they have to train first before being capable of building anything and being asked to make financial contributions to mitigate economic costs of development for which local planning authorities have demonstrably not known how to spend themselves. This may seem like short-term concerns about constructing an immediate development and not considering the long-term skills health of the industry in the UK by that industry but, regardless of how seemingly irrational, these were the findings of the Farmer Review.

In the short-term, developers have a lot of professional support and understand well, albeit with applying a “construction contingency fund” into the build cost as a matter course, how much it will cost to build something and the margin of profit they will make. With teams of quantity surveyors, accountants, planners, estate agents and lawyers, they understand well project management, work packages, cost flows, revenue potential and their rights. By contrast, major planning applications can be assigned by a senior planning officer in a local authority to a single planning officer. It is his or her job to apply planning policy, including national policy, regional plans, local plans, town masterplans, infrastructure plans, urban and building design requirements, building regulations as well as social value requirements. If, in the very unlikely circumstance that that planner knows all of this policy intimately enough to apply it, he or she has little support to understand their added cost to the development and whether the application of all policy requirements will tip the development into becoming unviable. Therefore, the application of planning policy becomes a negotiation.

In that negotiation, on one side of the table is a team of professionals from the developer. On the other side of the table is a planner with a large stack of policy documents and almost no support with how much the application of that policy might cost. With little ability to challenge them, it is too easy for planning applicants to dismiss social value policy such as employment and skills as “economically unviable”.

For planning policy to be applied as it was intended, planners must have better access to, firstly, the policy they are supposed to be applying, but also an estimate of how its application will affect the profit margin and, therefore, viability of the development. The planner cannot just be reliant on the assertion of the developer. Alternatively, conditions should be non-negotiable as the White Paper proposes.

Local government spending amounts to about 27% of all public spending. And it spends more on Adult Social Care than any other service: about 35% of all of its income. That is nearly 9.5% of all public money in the UK. It is understandable, then, that local authorities try to minimise costs faced with the double-whammy of reduced grants from the Government since austerity policy was applied to social care, and an ageing population. And it is not surprising, then, that councils have been hit by scandals such as being found to break the law by paying care workers below national minimum wage, questionable quality of care, abuse of patients by poorly-screened, trained and supervised care workers, and one of the highest churn rates of staff than in any other sector. The latest scandal that care homes were “thrown to the wolves” during the Covid-19 outbreak has been blamed by local authorities on Government policy. Even if this is true, it has been seen that councils paying such low pay to such a large sector of the labour-force compelled care workers to continue working during the pandemic. And the precarious nature of the work, largely through private care agencies promoted by local authorities, means that a lot of care workers’ contracts involve peripatetic work; being shifted between care homes. These council policies have arguably precipitated the spread of the disease.

Adult social care forms a large part of the economy in the UK in which many people are employed. If nearly 9.5% of all public spending in the UK is on Adult Social Care, there have been attempts by local authorities to combine with one another to create strategies to promote the economic development effects of such a large chunk of the economy and labour force. The “North Central London” boroughs of Camden, Islington, Haringey, Enfield and Barnet is an example. But many have shirked policy recommendations in favour of low-cost, low-quality services to maintain budgets rather than promote economic development. Recommendations have included recruiting local residents to local jobs to reduce movement between care homes, and training care workers to progress in a career in health and care. Councils’ Apprenticeship Levy can be used to train commissioned care workers, help them progress, reduce churn and improve the quality of care. However, almost every local authority in England, for the first round of clawback by HMRC for unspent Levy in 2019, paid back over a third of their budget for training staff. Most paid back over a half.

Cost was not an issue; training care workers and creating career paths simply did not occur to most councils or they did not know how to use their own money to implement it, even if it meant losing that unspent money. This is not because austerity has left HR departments bereft of resources; a typical London Borough HR service has retained a staff numbering 70 to 80 despite redundancies across their council more than halving the number of officers they service since 2010. Many of these HR officers are “strategic” consultants. Yet using the millions of pounds of money ring-fenced to them to support training workers in local businesses the council procures has not occurred to them.

Despite councils blaming Government for the Covid-19 disaster in care homes, an implication of this poor husbandry of such an important part of the UK economy and health is that the Government might remove the responsibility from local authorities and give it to the NHS. 

In the meantime, some other things might or might not happen. Consumerism in town centres might bounce back stronger than before Lockdown if we return to much-missed old habits saving councils from having to take any action. Alternatively, consumers might find something less facile and environmentally damaging to do with their lives than shop and going out to eat. If Universal Credit and sanctioning ever gets sorted out, a new breed of workless residents: imported, excluded and ignored for 40 years, will be dragged into the labour market, but not without some level of carnage. Climate protection policy will be too little, too late, superseded by rakish consumer demands, and subsequently, possibly ironically, global food production and consumerism will start to fail. Combined with Brexit, Kent ports will become a bottleneck and the supply and price of fresh food will be dramatically affected. Global pandemics and environmental crises will not be so rare and will be more deadly. Economic resilience will need to improve. And recent British history of the past four decades has taught us that local regions will need to develop this resilience themselves.