While debate continues to rage about the referendum outcome and its potential impact, there is no escaping the conclusion that many Britons did not perceive the benefits of EU membership to be shared equally across the country. While London and the South East have experienced growth, too many of our regions and nations have been left behind, leaving a very real gulf in opportunities between people in different parts of the United Kingdom.
Some parts of the UK are almost three times more productive than others, and this regional disparity accounts for much of the country’s inequality. This inequality separates communities, with wages and opportunity varying widely.
While you might expect big gaps in productivity between regions, you might be surprised to hear that productivity differences within regions are almost as big.
In the West Midlands, for example, Solihull is a third more productive than Wolverhampton, just 20 miles away. Most of all, these productivity differences matter to people through their effect on wages and living standards. If you live in Wolverhampton, for example, you’ll earn on average £5,000 less than someone in Solihull. It’s the same story across much of the UK communities living side by side, divided by an invisible productivity gap.
So it is clear that productivity matters. It is the foundation of wages, living standards, and prosperity. And it needs to be shared more widely across these islands if we are to address the issues we face as a nation.
Many governments have tried to tackle this problem. But to improve our performance against our international peers, policy-makers cannot act alone. After all, regional productivity cannot be mandated from an armchair in SW1.
This was recognised by the Chancellor, who in his Autumn Statement set out a regionally-focused industrial strategy, fueled by investment in innovation and infrastructure, to be delivered in partnership with business. We have a golden opportunity to unlock higher productivity and growth across the regions and nations of the UK. As we move towards an exit from the EU, this becomes even more important.
For our part, the CBI’s Unlocking Regional Growth project has identified specific challenges to regional growth in every area of the UK, covering education and skills, transport links, better management practices and the importance of firms that innovate and export.
The size of the prize is huge – £208bn to the UK’s nominal gross value added (GVA) over the next decade and roughly equivalent to the combined GVA of Wales, Scotland and Northern Ireland. This would lead to more jobs and higher standards of living right across the UK.
From this data, we can see how business can – and does – spread prosperity by creating jobs that help lift people out of poverty. This must be done in partnership with government and also in partnership with society. And that relationship also needs to improve.
The bond between employers and communities is not broken, but it must be handled with care. Sadly, it remains the case that the poor behaviour of a few transgressors spoils the reputation of business overall, where the vast majority deliver for their employees and customers every day. One way to start turning this situation around is by working with the Government to ensure a sensible and effective evolution of UK corporate governance that enhances the UK’s already enviable reputation as a place to do business. The publication of a new Green Paper offers just that opportunity.
The Government should consider introducing a new ‘comply or explain’ requirement for businesses to assess the best route to improving employee representation, and introduce a binding vote on executive pay for companies that continually fail to satisfy shareholders with remuneration decisions.
Options could include placing an employee on the board, appointing a non-executive director with responsibility for representing staff views, or having an employee consultation committee.
And on Executive Pay, the CBI has called for new proposals to focus on tackling those few firms that persist in making payments that shareholders regard as excessive or out of step with company performance. Businesses shouldn’t award exceptional pay for poor performance and shareholders have a key role in ensuring sensible, sustainable and reasonable pay setting policies.
An escalation mechanism for companies could help. Based on the principles adopted in the Australia ‘two strikes’ system, shareholders would have the ability to issue ‘one strike’ through the advisory vote with a ‘second strike’ being a binding vote. This would strengthen the 2013 reforms to the Directors’ Remuneration Regulations and would work with the current corporate governance system.
But ultimately, changes to corporate governance are only a small part of the solution. Fair, even growth for all is the real prize. By powering productivity and pursuing truly progressive pay and people policies, supported by a vision shared with government of the economy we want to build, business will be a force for good and play its part in creating greater prosperity in every corner of the UK.