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Ian Brinkley
Economic Advisor
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Ian Brinkley

Pay, Progression and Productivity: A change of business for a Better Off Britain

Authors: Ian Brinkley

10 November 2014

The recent CBI report  'A Better off Britain' has grabbed the headlines with calls for tax cuts for the low paid and more free child care and for ways to be found to increase pay on a sustainable basis. That would be news in itself - employer organisations are not known for embracing policies more associated with centre - left political parties and trade unions. But the report itself is a remarkable piece of work both in terms of language and the recommendations.

CBI reports have long spoken about things that business feels are important – corporate taxation, regulation, innovation, infrastructure, skills. This report takes the employer organisation squarely into the big debates on tackling low wages, lack of progression and mobility, and reducing inequality. The section setting out why inclusive growth is important to business states: 'Business and society don’t operate in isolation: their fortunes depend on one another. Cohesive societies – where everyone has the opportunity to achieve their best – help create stable political and regulatory environments in which firms can do business.' I would guess that very few people would associate such a message with the CBI unless they were told who wrote it.

The proposed cut in national insurance is clearly a better policy for the low paid than the Coalition’s increases in personal tax allowances, as national insurance is still paid by many low wage workers who do not earn enough to pay income tax. The CBI is however less persuasive calling for cuts in employer national insurance to boost jobs. The experience to date with such schemes in the UK is not encouraging because either take up is low or deadweight and displacement effects are large.
The CBI is on more traditional ground in opposing further employment regulation and the proposal to set a fixed target for the National Minimum Wage, albeit it is broadly right on both points. It is also opposed to making the tax-benefit system more redistributive, which may be more debatable. However, the CBI is right is to say that further redistribution can only get you so far in addressing inequality.

The Chapter on productivity is critical – a common theme throughout the report is that attempts to raise pay without tackling productivity will mean fewer jobs, with some better off and others even worse off than before. There is a familiar policy agenda here covering support for SMEs, a more stable support infrastructure and business finance. But one new idea is to replicate some of the work of the Australian Productivity Commission. The Productivity Commission’s primary functions are to provide government with independent policy advice and a strong evidence base on productivity performance across all sectors of the economy.
The CBI suggests this new function should sit with the Office for Budget Responsibility (OBR). This seems misplaced. The OBR is unlikely to add much to resolving the measurement issues the Office for National Statistics is already grappling with, and has no role in influencing or developing policy.

A better focus would be on organisations in which employers are already embedded and which have strong expert insights into sectors and workplaces – ACAS, UKCES, and the Low Pay Commission immediately spring to mind. BIS could be asked to see how a shared resource could be created with some modest additional funding by bringing these institutions together and drawing on some of the work already being undertaken through the industrial and innovation strategies.
In the rest of the report there are strong chapters on skills and education with proposals that resonate with work The Work Foundation has undertaken on low pay and progression and the school to work transition.

Overall, this is a report which should be commended and followed up. Few people will agree with everything in it, but most will find common ground with some of the proposals . Developing a shared agenda that makes a difference in Britain’s workplaces on pay, progression, and productivity over the next five years should be a key priority for the new government.