Levelling up will take years, be costly and likely cause job losses if not carefully prepared and managed 

By Professor Bernd Brandl, August 2022

Following on from our previous issue, Professor Bernd Brandl examines how the Conservatives’ plans to "level up" the UK post-Brexit could affect businesses and their employees. 

In the Conservatives’ 2019 manifesto, Boris Johnson stated that one of the party’s main focuses was to “level up” the UK. This is based on the idea that people and communities that feel they’ve been left behind should get a chance to catch up to other, more prosperous UK towns and cities. This pledge involved investing in towns, cities, and rural and coastal areas, giving those areas more control of how investment is made and levelling up skills using apprenticeships and a £3bn National Skills Fund.  

In principle, the levelling up agenda sounds promising, and one that may sway particular voters — especially those in areas deemed to be ‘left behind’. However, in reality, how likely is this to not only be effective, but actually even work? 

This move may be highly beneficial for businesses and workers in the long run, but without extreme planning, it’ll cause painful disruptions over the next few years. The change won’t be quick and could take years or even decades for some businesses. In the short run, many existing companies won’t be able to afford higher wages and go bust, causing job losses and industrial conflict. Yet in the long run, the economy could benefit as more productive, skill-driven and innovative companies would be able to succeed on the market. 

But, how do we know this? This area of focus is something I’ve researched for a number of years, with a particular look into the governance of wages, skills, and productivity in different countries, and what role interest organisations play in the governance that has examined the consequences of the government’s transition on the economy, businesses and workers. 

So, is a successful transition possible? It can only work if it’s accompanied by policies that support business and workers. A smooth transition will be costly for the government due to the need to invest in infrastructure and training facilities. 

Many British businesses have been running on a low-wage, low-skill, low-productivity business model, due to two main reasons. First, in the past few decades there was a constant influx of migrant workers willing to accept low(er) wages, and second, apart from the minimum wage, there was almost nothing in place that prevented companies from keeping wages low. Therefore, many businesses competed with each other by keeping wages and working conditions low and had little incentive to invest in the skills of their employees in order to gain a competitive advantage. 

Now, the PM’s new economic vision looks to replace mass immigration with higher wages and better working conditions to encourage people into key sectors under the guise of moving Britain "towards a high-wage, high-skill, high-productivity economy", in which "everyone can take pride in their work and the quality of their work". 

There are three key elements to make the transition work. The first is patience — the transition could take years for some sectors, and even decades for others. Secondly, the transition is costly and the government must be prepared to invest in infrastructure and training facilities. Thirdly, the process is likely to be painful for many businesses and workers since there’ll likely be job losses and social disruptions in the years ahead. 

However, in order to accelerate and facilitate the transition, the government should manage and coordinate the transition process. Preferably, they’d work together with representatives from employers and employees so that no one’s left out and the expertise of everyone is taken on board. The way the government manages the transition will also show how conflictual the years ahead will be since the transition could be socially and economically cushioned. 

In summary, the transition of the British economy "towards a high-wage, high-skill, high-productivity economy" isn’t as easy as it looks and might lead to substantial disruptions and conflicts in the years ahead. The transition process can be expected to be time-consuming, costly and likely to cause some damage in the short term. However, in the long run, it could be highly beneficial for businesses and workers. 

It'll take a lot of “guts” for the government to initiate this move, since voters in the next election might go to the ballots on basis of the short-term pain they already see instead of considering the long-term gains.   

More information on Professor Brandl's research interests.