The Government’s growth strategy should substantially raise the National Minimum Wage as the economy recovers and expand the role of Local Enterprise Partnerships to drive up quality in manufacturing, according to a new report launched today (28 February 2011) by the think tank the Social Market Foundation.
The report, Manufacturing Prosperity, argues that the familiar routine of tax breaks and centrally administered investment funds will not spur economic growth. Instead the Government’s growth strategy, due to be outlined in the Budget next month, should create the conditions for UK manufacturing to upgrade and compete in higher value export markets.
“Tinkering with taxes is not going to rebalance economic growth,” said Steve Coulter, the report’s author. “What the Government needs is a clear strategy that raises the National Minimum Wage over the coming decade alongside deep-rooted reform of the institutions that support industry, such as Local Enterprise Partnerships.”
Manufacturing Prosperity says that raising the National Minimum Wage would reduce low-quality manufacturers’ reliance on tax credits to keep them in business at the taxpayer’s expense. The report suggests that it is a myth that the low minimum wage saves jobs, drawing on international evidence that a higher minimum wage can boost workforce productivity.
Steve Coulter continued: “At the moment the taxpayer subsidises low wage employers, topping up pay packets with in-work tax credits. Reliance on a low-skill, low-cost workforce discourages manufacturers from entering the higher value export markets that the UK desperately needs for growth.”
In addition, the report recommends that:
- Smarter competition rules and beefed-up independent Local Enterprise Partnerships should foster greater cooperation between manufacturers on staff training and technology sharing;
- regional investment banks should be established channel longer-term, ‘patient’ finance to SMEs;
- there should be more advanced apprenticeships.
The report comes as the Government faces sharp criticism over the lack of ideas in its growth strategy and following news that the contraction in the economy in the last quarter was even worse than expected. Underpinning the SMF report is the view that economic growth depends on redesigning UK institutions to effect a move away from low-value, low-end manufacturing, and diversify the sources of economic growth.
Steve Coulter added: “Britain cannot hope to compete in the global marketplace on low price, low quality exports. Instead, a successful UK manufacturing revival depends upon moving into higher value markets. The Government’s growth strategy must contain real detail about how this can be supported through measures that ensure proper investment in the British workforce and a move away from short termism in industry.”