Dr Peter O’Brien, Executive Director
With the Autumn Statement a couple of days away, there is still a lot for the Chancellor of the Exchequer, Jeremy Hunt, to ponder.
Although the Office for National Statistics (ONS) has now concluded that the UK’s economic recovery from the Covid pandemic was much stronger than previously thought, with GDP 1.8% above the final three months of 2019 figure than that published initially, there are concerns that the UK economy is ‘flatlining’, demonstrating the impact of inflation on consumer spending and business activity. Business surveys and financial market indicators are also pointing towards the UK entering recessionary territory. Rising interest rates – the UK saw fourteen consecutive ‘hikes’ in the Bank of England base rate up until September – are having a real impact amongst businesses carrying significant debt. Despite the fact that UK inflation fell in October to its lowest rate in two years, largely due to falling energy prices, commentators point towards prices having risen 16.2% over the past two years, plus food inflation is still rising at 10.1%, and is 30% above what it was in October 2021. These cost pressures are squeezing individuals, households, businesses, and many different parts of the public and voluntary sectors.
One of the fundamental, and systemic, challenges facing the Chancellor is the UK’s dismal productivity record. UK productivity has barely grown in sixteen years, according to the ONS. The Financial Times reports that ‘Total Factor Productivity’ – the measure of how efficiently resources are used in the economy – in 2022, was only 1.7% above the level recorded in 2007, around the time of the Global Financial Crisis. Figures published by the Organisation for Economic Co-operation and Development (OECD) show that labour productivity, in the UK, between 2007 and 2022, grew less than the OECD average. Whilst the Treasury has intimated that the Autumn Statement will propose new ‘supply-side’ actions, in regions, like Yorkshire, the importance of strengthening the ‘demand-side’ of the economy carries equal, if not more, weight.
Infrastructure can be a key component of demand-side investments in national and regional economies. The Government forecasts that public sector net investment will average around 2.5% of GDP, between 2023/24 and 2027/28. The Government was planning to spend more after 2024/25, but it scaled back funding in last year’s Autumn Statement. As higher interest rates bump up the cost of borrowing, attention has shifted towards how best to encourage pensions funds to invest in infrastructure and other projects to support business and growth. However, the challenge of persuading pension funds to invest more in infrastructure or business development was set out in a Financial Times article where a pension investment officer was quoted saying that “our job [as pension funds] is not to support levelling up. It is to build retirement funds.”
The second National Infrastructure Assessment (NIA), published in October by the National Infrastructure Commission (NIC), sounded a clear warning that the UK needed to invest significantly more in low carbon and in building more resilient infrastructure. Resilience is at the forefront of attention given the recent spate of flooding in the north of England, alongside major disruptions to transport caused by storm damage to rail infrastructure. From a ‘levelling up’ perspective, the NIA has restated that infrastructure is vital to achieving balanced regional growth, suggesting that “investment in mass transit is required in the largest regional cities to ensure they have the public transport capacity – on bus, trams and rail – they are likely to need in the future to support growth and quality of life.” The Government’s ‘Network North’ proposals have advocated that the ‘savings’ of £36 billion to be derived from the cancellation of HS2, from Birmingham to Manchester, will be diverted into new investments in local and regional transport schemes in the north of England. In Yorkshire, a new station for Bradford, alongside a West Yorkshire mass transit system, have been earmarked.
Another issue at the top of the pile in Jeremy Hunt’s in-tray, is how best to arrest and reverse the UK’s dip in attracting foreign direct investment (FDI). 2021 was the first year that the value of the UK’s annual inward investment flows was negative since 1984. Although the fall was, in part, a consequence of Covid, and the global recession and associated disruptions to investment activity, it did signify a continuation of a long-term and worrying trend. OECD data shows that the UK and Japan saw the largest declines in absolute terms in inward investment last year. This has sparked concerns about whether the UK’s falling FDI performance is linked to the Post-Brexit environment that the UK now finds itself operating within. In more positive news, at the regional level, the latest EY Attractiveness Survey found that, Yorkshire (and the Humber), in 2021, saw a 28% rise in FDI projects, and, on a jobs per project basis, Yorkshire was the UK’s leading region (with 89 jobs per project).
Universities UK is redoubling the umbrella group’s efforts to cement the higher education sector’s role within the heart of a new national growth agenda. This week’s Autumn Statement, and the measures that emerge subsequently from the fiscal event, should present an opportunity to strengthen the case to policymakers to use all the talent, capabilities, and assets, of all types of universities across the country to drive economic growth, innovation, creativity, and productivity. This approach aligns with the core mission and the over-arching Strategy of Yorkshire Universities, which we, and our members and partners, in the region and beyond, are committed to deliver upon.