No 7: Brexit won’t work without a new welfare state

Investing in apprenticeships is one way the the UK government can boost productivity post-Brexit, says Peter Taylor-Gooby.
An apprentice engineer learns on the job. (Institute for Apprenticeships/Flickr)

by Peter Taylor-Gooby

We stand on the brink of a new golden age of the welfare state. As the UK staggers towards Brexit, it is becoming increasingly obvious that separation from the EU, however accomplished, will confront our economy and our government with challenges we cannot overcome without more welfare spending. We know that Britain suffers from a weak balance of trade (a deficit of nearly 25 per cent) and low productivity. German workers are roughly 30 per cent more productive on average in GDP terms than are British workers, while French workers are some 25 per cent more productive, according to ONS data. We have had little success in recent years in addressing either problem.

A post-Brexit UK will have to find ways to compete successfully in international markets. We will, in any case, need to generate extra resources to maintain living standards as the less productive elderly proportion of our population rises. It is not altogether clear how we will achieve success, but it seems increasingly likely that a vigorous and innovative social policy will be a key element in any programme to attain it.

To produce more we need more workers or higher productivity from the same number of workers. We have disguised our productivity failure in recent years through immigration which brings more people of working age into the country. The EU is our biggest source of immigrants and there are indications that immigration may now be falling, but the position is not yet clear. Government, in any case, wishes to cut the number of immigrants. That leaves productivity.

How investments in the welfare state will raise productivity

Higher productivity can come from a number of factors, most importantly: improvements in the skill level and quality of workers; more hours of work (a longer working week); improved management; research and development to use the workforce more effectively; or investment in capital goods to multiply effort. All these developments require innovations in social policy. To improve skills we need to build on the current New Apprenticeships scheme. We also need to put more resources into the Cinderella of the education service, Further Education, which has the mission of providing post-school education and training for more than half the population, with a budget of less than a third per head compared with that spent on the more middle class group attending universities.

If we are to increase working hours we need to expand family support services, in particular, affordable childcare of adequate quality. Better management will require improved education throughout the workforce to enable more complex tasks to be carried out. It will also require stricter enforcement of equal rights legislation to ensure that the lost capacity of under-promoted women and black and minority ethnic groups is properly used. Research and development again rest on high levels of education and a research infrastructure to facilitate innovation. Capital investment in our kind of economy must come mainly from the private sector. Government must put improvements in social provision in place to convince investors that their outlay will show a return.

Brexit is just around the corner. There is a strong likelihood that severing links with the EU (far and away our largest trading partner, accounting for about half our exports) and leaving the free market in labour will damage us, at least in the short term. In some ways, the UK economy will be in a situation comparable to that at the close of the Second World War. GDP grew during the war (shown in the graph using a per capita measure in 2013 pounds, generated on, then fell sharply, by 13.5 per cent between 1944 and 1947, with the economic dislocation of peacetime, exacerbated by the refusal of US loans. It then rose with minor fluctuations. The only comparable collapse is the fall between 2007 and 2009 of 6.4 per cent.

Real UK GDP per capita, in 2013 pounds.The response of government to the immediate post-war contraction was to establish the modern Welfare State, which played its role in the subsequent long boom through mass education and housing and infrastructure programmes which improved skills and stimulated private and collective consumption. As Brexit generates a similar economic dislocation it will surely become increasingly obvious that a comparable welfare state package directed to improve productivity is essential to secure our future economic success. There will simply be no viable alternative.

Peter Taylor-Gooby is research professor of social policy at the University of Kent. His main interests lie in UK and European welfare, attitudes to welfare and the use of novels to explore how market systems shape emotions and social experience. Click here to learn more about Peter and his work.