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Business services have replaced manufacturing as mainstay of UK economy but challenges remain

Tom Phillips

09 May 2011

George Osborne’s “March of the Makers” may have been leading the UK revival, however a report published tomorrow (10 May) by The Work Foundation argues that any strategy for growth must also harness the power of the business services sector, which has now replaced manufacturing as the mainstay of the UK economy. By itself, manufacturing is no longer big enough to sustain the recovery. And with the business services sector now twice the size of manufacturing, it is integral to the country’s prosperity over the coming decade.

The UK has one of the most competitive business services sectors in the world in terms of net exports and must build on this strength to help secure the economic recovery. However, with competition from overseas growing and the recession squeezing business investment, there is a danger that other nations could overtake the UK. The report outlines the actions that must be prioritised if the UK is to maximise the economic benefits of business services.

Britain’s quiet success story: business services in the knowledge economy demonstrates that so-called ‘knowledge based business services’ – which include such professions as law, engineering, accountancy and IT services – now account for over a fifth of UK GDP and 11% of employment. This makes the sector the largest area of the UK economy, reflecting its rapid growth since 1985. Having created 1.8m jobs and generated roughly 38% of all growth in the UK economy since 1970, the sector has been a far more significant and sustainable economic driver than either financial services or the property market. Despite this, it has received relatively little attention from commentators and policymakers.

Report author, Andrew Sissons, said, “As we’ve argued previously, manufacturing will continue to be hugely important for the economy, but it is unwise to pin all hopes for recovery on this sector to the detriment of the UK’s greatest economic strength. Like it or not, business services have become the lifeblood of the UK’s knowledge economy and now account for twice the output of the manufacturing sector.

“The business services sector goes far beyond simple service provision and is much more than a spin-off from other parts of the economy: it supplies the professional and technological support that businesses depend on for innovation and growth. Business services take ideas and technologies and make them useful to businesses across the economy.  

“But if the sector is to continue to thrive in the face of growing international competition, it needs stronger links with universities, greater numbers of highly skilled workers, a steady supply of graduates and a big push to increase service exports. The government must also ensure that the tax regime encourages businesses to invest in their knowledge base, or else we risk taking Britain back to a 1980s economy.

“So far there has been much government focus on high-speed rail and super-fast broadband, but this will not create jobs by itself. Business services are the real infrastructure of the knowledge economy – they create value by moving knowledge around the economy and create an environment in which other enterprises can thrive. Policymakers need to get to grips with this before it is too late.”

The report demonstrates that as the UK has moved towards an economy driven by knowledge and innovation, business services have been the quiet success story, with the sector now responsible for over £20 billion in net exports. However, in addition to competition from overseas, there is a danger that the turbulent economic climate may cause businesses to focus on cost control rather than investing in their knowledge base. This scenario risks neglecting the UK economy’s greatest strategic strength.

Sissons continued: “From the UK’s place as a destination for legal arbitration, to the architectural and engineering expertise it sells to companies around the world, the UK excels at providing knowledge based business services to the world. But far from being complacent about our success, we need to build on this advantage to move us towards a stronger economy.”
 

Ends


 
Notes to editors
  1. Britain’s quiet success story: Business services in the knowledge economy by Andrew Sissons is available at www.theworkfoundation.com on publication and from the media team in advance.
  2. Andrew Sissons is available for interviews, briefings or written commentary.
  3. The report is part of the Knowledge Economy research programme which is sponsored by BAE Systems, British Council, Design Council, EDF Energy, IPA, Microsoft, NESTA, Rolls-Royce and the Technology Strategy Board.
  4. The Work Foundation is the leading independent authority on work and its future. It aims to improve the quality of working life and the effectiveness of organisations by equipping leaders, policymakers and opinion-formers with evidence, advice, new thinking and networks. In October 2010, Lancaster University acquired The Work Foundation, forming a new alliance that will enable both organisations to further enhance their impact.