There is an alternative: progressive views on rebuilding post-pandemic Britain by H/Advisors Cicero

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There is an alternative: progressive views on rebuilding post-pandemic Britain

Contents Page Introduction Nicholas Smith & Tom Frackowiak

Foreword Rt Hon Pat McFadden MP

Something is stirring in Britain’s boardrooms John Fallon

5-6

We need resilience, rather than a quick fiscal fix Frances Coppola

7-8

Don’t rush, get it right Dean Turner

9 - 10

A new generation of investors want more values for their money Dr Matthew Killeya

11 - 12

How to break the public school grip on the City Lorraine Langham

13 - 14

The other levelling up Paul Riseborough

15 - 16

Building a just recovery for all of England’s regions Sarah Longlands

17 - 18

The City is a natural partner for policymakers - including Labour ones Huw Evans

19 - 20

Disclaimer: Labour in the City is an independent network for supporters of the Labour Party working in financial and related professional services throughout the UK. This document is not a Labour Party publication and is in no way connected to Labour Party policy. The views contained within are the authors’ own. Copyright: Labour in the City and contributors, March 2021.

Introduction Labour in the City and Cicero/AMO are delighted to present this collection of essays on the City and its relationship with the UK economy. We are grateful to all our contributors for providing such thought-provoking and original insights, taking in everything from Albert Camus to net zero, and hope you find them equally compelling. Nicholas Smith Chair, Labour in the City

Tom Frackowiak Managing Director, Cicero/AMO

The impact of the pandemic during the past twelve months is greater than anything seen for a political generation. One consequence of this is that we are all revisiting our priorities at work, at home and everything in between. The same can be said for the UK economy, with the pandemic illuminating in equal measure its strengths and weaknesses. It in this spirit that Labour in the City commissioned a group of business leaders, City economists and academics to share their ideas on how the UK can not only rebound from this shock, but do so in a way which promotes resilience and a broader base of wealth creation across the UK. It is our hope that this paper supports a stronger, more collaborative relationship between the Labour Party, the City and the broader business community. Labour in the City and Cicero/AMO do not take policy positions, and these essays will not necessarily reflect the views of our members and clients. What we both do support is thinking critically about some of the challenges we face as a country, and offering solutions rather than slogans. As our fantastic authors demonstrate, there is an alternative. The UK has begun to chart a new course in the world outside the EU, and the Labour Party, led by Keir Starmer, is now under new management. Things that seemed distant possibilities only a few years ago are now an everyday reality. We hope that in a few years we can say the same about at least some of the ideas in this pamphlet.

Foreword Any serious party of Government has to care as much about wealth creation as it does about fair wealth distribution. That means a focus of the economic strengths of the country and how they can be fostered alongside a concern for a properly funded public sphere which looks after us as citizens and challenges inequality.

The Right Honourable Pat McFadden MP Shadow City Minister

The experience of the Covid pandemic has reinforced the need for such an approach by exposing the inequalities in society and how many key workers are treated, as well as resulting in the biggest hit to economic growth in over 300 years. The contributions in this pamphlet are written by people who collectively have decades of experience in business. They discuss some of the key issues for all of us concerned with wealth creation and fair wealth distribution. The transition to net zero and the opportunities it represents, ESG investment, the challenges of regional inequality, the debate about resilience and globalisation, the charmed circles which are still prevalent at the top levels of business and the role that fiscal policy has to play in the recovery are all discussed. What unites these contributions is that twin concern for economic growth and social justice. Under new leadership, Labour seeks a new and positive relationship with business with wealth creation and a concern for the good society at its heart. As the Conservative party morphs ever more towards right wing nationalism there is an urgent need for a political voice that cares about family prosperity, living standards and how the UK succeeds in a world of rapid global and technological change. We want to build an inclusive recovery that results in strong economic growth and addresses the long term inequalities that have held back opportunity for far too long. As Keir Starmer said in his conference speech a few months ago, Labour is always at its most successful when it focusses on the future and tries to answer the problems of today and tomorrow, not when it tries to fight for a better yesterday. That is true of the all too rare moments of victory we have enjoyed – in 1945, 1964 and 1997. The issues raised in this pamphlet are at the heart of many of the challenges facing the country right now and they are a positive contribution to the debate we need.

Something is stirring in Britain’s boardrooms Business leaders are acknowledging that they have broader obligations than pure financial returns and can be allies in building a better post-pandemic Britain, writes John Fallon “What’s true of all the evils in the world is true of plague as well. It helps men (and women) rise above themselves.” Albert Camus, The Plague

John Fallon CEO, Pearson PLC (2013 - 2020)

In any list of the business winners and losers of Covid-19, the tripling of sales of Albert Camus’ The Plague makes for a quirky footnote. As we recover from a pandemic that has killed so many, the hopeful message within that book could inspire Labour to prove that it is unashamedly pro-business. Business leaders are ready to rise above themselves; to define the purpose of their companies in a more rounded way, and help a post Brexit, post pandemic Britain rise above itself, too. Perilously late in the day, business is tackling climate change, and we’ll see a slew of net zero commitments in the run up to the COP26 Glasgow summit. Blackrock’s Larry Fink, the biggest shareholder in the world’s biggest companies, states bluntly that climate risk is finance risk and we will see a fundamental reallocation of capital to sustainability. Meanwhile, the Black Lives Matter movement has prompted employees and customers to hold CEOs to account in ways that will, over time, make businesses, and their leadership, much more diverse and inclusive. Something is afoot. American capitalism has always been redder in tooth and claw than the British variant. But US corporate leaders are finally ditching the absolute focus on shareholder value popularised by General Electric’s Jack Welch in favour of a more rounded commitment to the needs of their consumers, communities and employees. Bill Gates recently identified what that something is. Measured by growth in GDP and life expectancy, life is better than ever. Yet increasing polarisation suggests capitalism is in some sort of crisis. There’s a spatial divide between thriving cities and struggling towns; and a class divide between those who have a college education and those who don’t. Both tensions are particularly acute in the UK. The pandemic has exposed these fault lines. UK graduates earn 60% more than non-graduates. They are better equipped to work from home, protecting their incomes and their health – and are better able to help home school their children. In parts of the country, only 20% of pupils who get free school meals go on to higher education – the same children whose education has suffered most from COVID-19. Boardrooms are waking up to these disparities. If a crisis of the “precariat” – an epidemic of low paid, insecure jobs – goes unchecked, then their own businesses are in peril. A Financial Times editorial recently concluded that with right wing populism unable to deliver on its promises, “it is just a matter of time before the pitchforks come out for capitalism, and for the wealth of 5

those who benefit from it”. This generation of leaders needs to respond with solutions as radical as those advocated by Roosevelt and Keynes before them. This Government is more interventionist than its Conservative predecessors – responding partly to “red wall” constituencies but primarily to mitigate Covid-19. Even as normality returns, the Government will need to be activist – fiscal stimulus to ensure recovery in consumer demand; helping business investment bounce back; ensuring company debt does not get in the way of a recovery. The temptation for Labour might be to meet this statist approach and “twist” - by ramping up its own interventionist policies towards long term investment, corporate governance and regulation. Whilst these might all have a role to play, Labour should be wary of its natural impulses. Better, first, to define the problem in a way that can excite and inspire business– and create a real sense of reciprocity between these firms and local communities. The UK’s extreme regional inequality is our inconvenient truth: the British economy can’t afford, culturally or economically, to fly on one regional engine. There is no way to build Britain back better without all parts of Britain being more productive and creating more wealth. In other words, Labour must be both unashamedly pro-business and unambiguously in the business of creating more wealth. This requires us to appreciate a new phase of globalisation. Covid-19 is the latest in a series of shocks to global supply chains, making “just in case” as important as “just in time”. And as incomes rise in emerging economies, the benefits of outsourcing globally diminish. According to McKinsey, up to a quarter of global trade could move across borders in the medium term - reverting to domestic production, “nearshoring” or choosing different offshore locations. Technology is transforming our ability to address unmet needs. We’re at the foothills of what’s possible in decarbonisation, biotech and life sciences, agri-tech, fintech, and the power of artificial intelligence to personalise healthcare and education. In this fourth industrial revolution, the right mix of venture capital, R&D and bold, entrepreneurial leadership can create whole new companies and sectors – and generate new wealth for regions– at lightning speed. Even before the pandemic, global companies were thinking about the future of work – and the importance of lifelong learning. Attributes that machines find hardest to learn –the ability to lead, to serve, to comfort, to adapt to change, to connect, to manage complexity and ambiguity – are as much about the hand and heart as they are the head. Jobs of the future will require combinations of all three. By digging into these trends, Labour can develop enterprise friendly policies in areas like taxation, research & development and infrastructure with a view to generating greater wealth for all. For example, this country desperately needs a new approach to education and training, finally burying the dichotomy of “academic” or “vocational”, moving beyond the degree as the primary signal of employability. All of us need to learn how to learn, go on learning and acquire new skills throughout our working lives. After thirty years in which economic and social trends have battered UK regions, global trends may now be shifting in ways that can help all of Britain create wealth. If progressive politicians can frame the challenge – and the opportunity – in these terms, they’ll find a generation of business leaders willing to rise above themselves - and find their wider purpose. John Fallon was Chief Executive of Pearson, the FTSE-100 publishing and education group, from 2013 to 2020. He is the chair of WarChild UK.

We need resilience, rather than a quick fiscal fix There can be no return to austerity, argues Frances Coppola. We must learn from the mistakes of the recent past to build a resilient economy to withstand the next shock, whenever it may come.

Frances Coppola Financial Economist

We are approaching a dangerous point. As Covid-19 vaccination is rolled out across the population, and the threat to life from the virus starts to recede, thoughts naturally turn to other dangers. Already, a narrative is starting to develop that the UK’s public finances are “unsustainable”, and there is talk of spending cuts and tax rises. We have played this scene before. After the global financial crisis of 2008, when the Bank of England had warded off a 1930s style Depression, the same narrative developed. The debt-driven conflagration enfolding Greece added fuel to the austerity flames: by May 2010, many people were convinced that if the UK’s public deficit wasn’t hacked back hard, the UK would walk the same path as Greece. Many of us, then as now, pointed out that Greece’s situation was hardly similar to the UK’s: it had a history of unstable finances and debt default, and was using a currency it didn’t issue. But the austerians won the day, and in 2010, the people of the UK elected a government whose manifesto was to “fix the public finances”. The Coalition government cut public spending and investment to the bone. By 2011 a promising recovery was derailed and the economy stagnated. When the deficit did not fall as fast as the austerians had hoped, the cuts continued. By the time the pandemic hit early in 2020, health and social services had been systematically underfunded for a decade. It is no surprise that at this point the Government’s overriding objective was prevent a hollowed out NHS from being overwhelmed. “Protect the NHS” should have been the mantra of previous governments. The aggressive program of public sector cuts and underinvestment has cost the UK dearly, both in lives and in economic destruction. The UK’s finances are now far worse than they were after the 2008 financial crisis and will take much longer to repair. It is essential that we do not make the same mistake again. There can be no return to “austerity” in any form. The priority must be to restore the economy, repair the damage done to health and social services and invest in infrastructure and skills development. This generation of young people has been hurt worse than any other group. Imposing austerity on them on top of the damage they have already suffered to their education and career prospects would be a moral injustice. Even if austerity is resisted, we could make a different mistake, namely to focus so much on restoring economic growth that we neglect resilience. The pandemic showed us how vulnerable we are to economic shocks, and how badly people can be hurt by them. When the next shock hits, people must be protected.

Measures such as a universal basic income to ensure that no-one loses their entire income overnight or is forced to work when ill; universal basic housing, so that no-one ends up homeless because of an economic downturn; job guarantees for people who have difficulty finding jobs in conventional workplaces; skills development schemes that support lifetime learning for all ages, so that people can transfer more easily to the jobs of the future; support schemes for small businesses temporarily disrupted by economic shocks. These are the basic requirements for a resilient economy in the 21st Century. Some similar measures already de facto exist, having been created in a hurry during the pandemic. These need to be converted into long-term support schemes rather than completely wound up as some are recommending. None of this will be cheap, and eventually we will need to have a national conversation about fair taxation. I believe that over the longer term, the burden of taxation needs to shift somewhat from income to capital. But raising taxes is itself a form of austerity, and therefore a mistake when the economy is so badly damaged. Better to wait until the economy is growing again. There are ways the government can build resilience in its own finances without raising taxes prematurely. Firstly, the government should lock in today’s very low interest rates for as long as possible by issuing debt of long tenors, even 50 years or more. This debt could be index-linked or even, more controversially, GDP-linked. Secondly, borrowing an idea from Keynes’s treatise “How to Pay for the War”, the government could take advantage of exceptionally high household savings by issuing Pandemic Bonds directly to the public. These would need to be at slightly above the interest rate on equivalent gilts and could be index-linked. Thirdly, the Government could establish a national development bank which would issue its own bonds to finance infrastructure, housing and skills development projects. The lesson of 2010 is that aggressive deficit reduction after a severe economic shock makes the economy less resilient and ultimately worsens the fiscal finances. So don’t let policy be dictated by short-term focus on the fiscal finances. Rather, focus on building a vibrant, resilient economy for the future, and let the fiscal finances fix themselves. Frances Coppola is a financial economist, author and blogger

Don’t rush, get it right Tread carefully, advises Dean Turner. There is plenty of time to fix the public finances without resorting to urgent tax rises or swingeing cuts in spending.

Dean Turner UK Economist, UBS Global Wealth Management

Arguments about what actions the government took to lessen the economic impact of the pandemic will rage for years. But it was right to allow spending to soar to fund the NHS and promote vaccine research. It was also right to support businesses small and large and, crucially, support the income of workers whose jobs ground to a halt as lockdowns hit. The largest peacetime budget deficit ever recorded is a small price to pay given the alternative. It would be wrong to think that this level of fiscal support can continue. With recent evidence suggesting the economy fared better than feared through the latest phase of lockdown, the worse has been avoided but a likely budget deficit of around 5% of GDP when the dust settles will still need tackling. The immediate options are clear: spend less, or tax more. Tomes have been written since the global financial crisis about the consequences of cutting spending, and its impact on the speed of economic recovery, investment, and job creation. What these well-versed arguments sometimes overlook is arguably a more concerning legacy of this period—rising inequality. Given of the hit to demand for goods and services, a legacy of rising inequality, and structural upheaval facing the economy from a fourth industrial revolution, further cuts to spending are not the solution. Which leaves taxes. The Chancellor is looking closely at this, but he needs to tread carefully, or he risks doing more harm than good. The UK tax revenue base is concentrated— just under two-thirds comes from income tax, national insurance, and VAT. Raising £5 billion is easily achieved by putting a penny on the basic rate of income tax; this rises to £6 billion if 1% is added to VAT. But this would have a direct hit on consumption at a time the economy needs it most. Modest raises to corporation tax by a small amount could be considered, although this accounts for less than 7% of total tax take. Beyond this, a greater emphasis is needed on levelling the playing field for individuals, businesses, and ensuring that online and overseas firms pay their fair share. The trends of the fourth industrial revolution are already well established— just look at how our working and shopping habits have changed over the past year. Distortions in the income tax system, where salaried employees end up paying more than self-employed workers, is one area. With selfemployed workers comprising roughly one-sixth of all employees and likely to grow, the case for this discrepancy is waning. Another area to look at is the way we tax digital companies, something that will require international coordination to remove the disadvantage that is currently placed on traditional businesses.

Wealth taxes, or property taxes, are another option, but can be a double-edged sword. Blanket levies on wealth will raise revenue, but they may hit some who can least afford it. For example, pensioners who have lived in their houses for 40 years or those who are cashflow poor If wealth taxes are set too high, they will also discourage entrepreneurs and starve the UK of much-needed investment. We need to raise more revenue to return the budget to a sustainable footing, but carefully, and gradually, with consideration for the long-term needs of the economy. It is not just the budget deficit that draws attention; so does total UK government borrowing which is almost certain to soar above 100% of GDP. Much like the budget deficit, the peak in debt/GDP is likely to occur this year before improving in 2022, largely driven by a growing economy. When debt is high, a common concern is the fear that investors will be less willing to, or will demand a higher price for, lending to the UK. This argument is valid. To be sure, if this ratio were to keep on growing, there could theoretically come a point where investors refuse to lend the UK money. However, nobody knows where this threshold is. In comparison to its peers, UK does not look particularly out of line here. More important than total borrowing is the cost of debt servicing. Interest rates globally have fallen, and there seems little prospect that they will rise dramatically soon. As a share of government revenues, the UK pays a little over 4% in interest costs, around the same as the decade before the financial crisis, when debt/GDP averaged around 40%. Therefore, there is little pressure on the government to reduce borrowing. It is better to instead focus on policies that can boost the denominator in this equation—nominal economic growth. Debt ratios rise and fall through every cycle, but rarely because governments repay debt. If a government enjoys a budget surplus, or one that is close to balance, it will borrow less as a share of GDP in the future as an when its existing liabilities come due. Put simply, for as long as the growth of new borrowing in nominal terms doesn’t exceed that of the economy, then the ratio falls. Although the state of the public purse is currently unsustainable, there should not be an immediate rush to fix it. Austerity is not the answer. Raising taxes in the future will help, but even here the message is to tread carefully. Arbitrarily raising taxes could reduce investment and spending in the UK; what is needed is a strategic focus on strengthening the tax base, making it more sustainable and fit for the future economy. The other key thing that is needed is time. The good news is that in a low interest rate world, there is an abundance of this. The shock to public finances we have seen over the last year is, we hope, a once-ina-generation event; repairing the situation should also be viewed in this context. Attempting to do so sooner risks creating further economic harm, making the job even harder. Dean Turner is UK Economist at UBS Global Wealth Management

A new generation of investors want more values for their money ESG or Sustainable Investing offers an opportunity for Labour and the financial sector to work together – an opportunity both must take, writes Matt Killeya Late last year Cambridge University Endowment Fund – one of the largest of its type in Europe – announced plans to “divest” from fossil fuels. The move meant it would remove investments in energy funds and all meaningful direct and indirect exposures such as investments in oil drilling and mining firms. Dr Matthew Killeya Mathematician, Writer & Investor

As Chief Investment Officer for an asset manager based in Cambridge, I followed the story closely. Students had pressurised the University to refocus the Endowment investment policies on more sustainable goals. At the same time, on a far broader level, I witnessed the emergence of the responsible investing movement, otherwise known as Environmental, Social and Governance (ESG) within my industry. Once a niche movement, the idea that individuals and institutions should align their investments with their values hit the mainstream. When I spoke with investors in my fund, it was rare that the topic of ESG investing wasn’t raised. What I noticed more than anything was that despite a desire for ESG investments, clients lacked a clear view about what this exactly meant. In other words, the demand was there but they wanted solutions from our side of the table - they would “know it when they saw it”. One investment bank told me it had commissioned research after noticing its private wealth division was losing customers. It discovered the clients heading for the door were often individuals who had recently inherited family wealth. The reason: the next generation was more focused on ESG and the bank simply didn’t have the products. These new investors voted with their feet and took their money elsewhere. Very quickly, a proliferation of ESG products has appeared. Trillions of pounds are now managed in sustainable funds. In principle this is a huge accomplishment. At the same time, there is scepticism from some quarters about “green-washing” – are these products really helping environmental and social enterprises? Or are we seeing crafty relabelling of existing products to fulfil investors’ desire for “something ESG”? While some of this proliferation is cynical, some of it –comes from a genuine desire to do something positive. Focusing on the “E” and the climate crisis in particular, we need to be sure those products achieve what they are designed to do. We can’t simply virtue-signal (even if it makes us feel better), given the scale of the crisis. During my time in the City, my career and my political interests have felt somewhat at odds. I’ve often joked that I worked in a reverse echo chamber it always felt like a pleasant surprise to discover a fellow Labour sympathiser.

On the other hand, one of the easiest ways to galvanise a crowd at a political rally is to throw in a slur about bankers. ESG investing presents an opportunity for collaboration between the City and the Labour party. Labour’s Green New Deal put climate change at the heart of the Party’s policy. Yet there are still pressing questions about how to achieve the ambitious changes needed in a short amount of time – most notably, to meet the net zero emissions target of the Paris agreement by 2050. The City can play a leading role in ESG - it is a talented, experienced and innovative industry with a huge amount of expertise. We need well-designed policy on emissions transparency, carbon taxes and tax breaks for green investments. We need to bolster the way in which ratings agencies classify ESG funds and firms. Company shares can be put to use – with funds investing in firms which make more efficient use of natural resources than their peers. The ESG industry needs to be cultivated to meet this challenge and Labour needs to engage with these businesses. On the other hand, ESG brings big “value” questions. In the Labour party we talk about a “just transition”. The need for fairness is the social “S” in ESG investing. For example, fossil fuel workers transitioning to new jobs in renewable energy shouldn’t find themselves on worse pay or conditions. The transition to net zero different requires that geographies’ economies be permitted different paths, with the global north doing much more of the heavy lifting. To solve the climate crisis, we need to act fast and at scale. Community wealth building and regional investment banks are promising ideas, but you can’t bring a knife to a gun fight. There are risks which only the sheer size of the global financial industry can effectively buffer, which smaller scale initiatives simply can’t – after all, no-one can or should invest their entire pension into a local wind farm. The Labour Party has a proud tradition of social justice as a core value and, in recent times, significant experience in mapping this to issues of climate change. This pool of knowledge is invaluable in making the value judgements we need to build ESG better. Both the City and Labour have a lot to gain by working together. Labour can ensure the huge capital investment and managed financial innovation that its plans require. At stake for the City is a leading role in solving the existential issue of our time and a renewed legitimacy as a result. Dr Matthew Killeya is a mathematician, writer and investor. Until recently he was a partner and Chief Investment Officer at Cantab Capital Partners, which was taken over by GAM in 2016.

How to break the public school grip on the City COVID-19 is a wake-up call that must be heeded on ensuring every child gets a fair chance to succeed, writes Lorraine Langham The Covid 19 pandemic has impacted upon everyone but one of the most depressing realities has been the discriminatory nature of the virus, on health and in education.

Lorraine Langham Chief Executive, Future First

For the 7% of pupils who attend independent schools, repeated lockdowns have had a relatively modest impact on their education. Their schools have ample resource to move to online education and their families typically have greater digital and online capacity, or physical space within the home. For the 93% of pupils in state education, the experience has been far less consistent. Poorer families struggle to access the technology, pay data charges, and provide the space needed to support learning at home. National Foundation for Educational Research data shows that the education of disadvantaged and BAME children went backwards compared with better-off peers during the first lockdown. Sadly, the scales are already heavily stacked in favour of those from privileged backgrounds within the City. Nine out of 10 senior roles in financial services are held by those from high socio-economic backgrounds, according to research by the Bridge Group, and people from less privileged backgrounds take 25% longer to progress, despite no evidence of poorer performance. Half of persistently disadvantaged young people do not even know anyone in a job they want to do. The pandemic has left too many young people feeling they won’t ever succeed. The moral argument for change is strong – and so is the business case. But what can be done? A young person’s start in life should not limit their future. The alumni opportunities offered by independent schools, often called ‘the old boys’ network’, make a huge difference to their students. We need to help state schools to establish the same thriving alumni networks, giving all pupils the information, tools and connections that can help them succeed. Relatable role models are crucial to motivating and inspiring young people - you can’t be what you can’t see. In her book, “Mirror Thinking: How Role Models Make Us Human”, the psychologist Fiona Murden discusses how the mirror neuron in the human brain shapes our lives. It defines us through the role models we observe and interact with. She found this was particularly true of adolescents. There is also a strong link between social and emotional development and ability to learn. Put another way, the ‘Covid generation’ needs role models to give them hope and self-belief, support them to engage in education, and a network to help them seize a brighter future. We can take heart that part of the solution is here. Alumni networks are a rich resource. They are inexpensive, sustainable, effective and under-used

providing relatable role models for young people. My organisation, Future First, provides a scalable model for closing the gap and releasing the grip of public schools on the City – working with 400 schools and over 70,000 pupils. Alumni networks work – that’s why all young people should be given the chance to connect with them. Supporting alumni networks is good for business too. The act of volunteering to be a role model improves well being, leading to better self-health ratings. So organisations get a more motivated workforce, with improved leadership skills and a greater understanding of how to motivate and engage others. For every student to benefit from the positive influence of alumni, role models and interactions with leading employers, proactive policy action by government is needed. This month, the Welsh Government published a toolkit for all state schools in Wales. It is the first example of a UK government putting alumni at the heart of education. City institutions can act today by helping to build alumni networks in state schools and provide opportunities for pupils to experience a wider world of work through insight days, work experience and personal connections. Imagine the transformative impact if every City business sponsored an alumni network in 10 state schools? Small investment, big impact, and sustainable long-term. The Covid crisis has created the opportunity to push ‘reset’ on our lives and on the economy. The CBI’s Director General, Tony Danker, says we need our response to be “more like 1945 than 2008”. To genuinely share prosperity and opportunity we must break the stranglehold of the privileged. It’s not enough to simply advertise roles wider – people need to see themselves in them and have a pathway to get there. Policy makers need to incentivise these connections and make alumni networks a fact of life for all state schools. If we don’t make change happen, it won’t. Lorraine Langham is Chief Executive of education charity Future First

The other levelling up The COVID-19 pandemic has worsened inequality between generations, which poses problems that urgently need to be addressed, writes Paul Riseborough Geographic inequalities are at the very top of this government’s agenda, for reasons of fairness and electoral calculus. On nearly any measure you care to look at – wealth, productivity, high quality jobs –the UK is one of the most geographically unequal societies in the developed world. Changing this will change lives for the better. Paul Riseborough Member of the Executive Board, Nationwide Building Society

Yet focusing on regional disparities risks masking other, just as important, inequalities: those between the generations. Covid-19 is the biggest global economic shock since the Second World War, but its effects have been asymmetric. Young people have been hit hardest: one in three young people aged 18-24 have been furloughed or let go - twice the rate of working age adults overall. Young people are more likely to rent. Citizens Advice suggest that 1 in 3 renters have lost income because of the pandemic, and that half a million are now behind on their rent (to an average of £730), with many fearing eviction. This is a precarious generation. This isn’t new. Pronounced intergenerational inequality existed long before the pandemic. The Resolution Foundation’s Intergenerational Commission’s 2018 report found that ‘boomers’ gain 20% more in benefits and tax breaks than they put into the welfare system. This is a generation that benefited from asset inflation, defined benefit pension schemes, free education and an unprecedented period of sustained economic growth. But the proceeds of this growth have not been distributed equally and the ladder has been removed for the next generation. How do we tackle this problem? The task of rebalancing between generations is complex. Robust policy interventions risk unintended consequences. Older generations tend to vote more than the young and are keen to hang on to what they have accumulated. Yet there are things we can do to tilt the board in favour of the young. First, we need to tackle social mobility, which is as much a generational challenge as a class one. Young people need access to high quality training in subjects that the economy of tomorrow will demand. The race is on to avoid a permanent scarring on younger generations of long-term early-career unemployment, scars that can overshadow a whole career. The financial services industry can help here by providing apprenticeship roles in a range of tech-related areas including cybersecurity, software development and DevOps. Closing the gap between what we teach and what the economy needs while ensuring access to training is equitably distributed will be vital. Second, we need to help young people save. More than 11 million people in the UK have less than £100 in savings and younger age groups score badly. This isn’t just about how much–– it is also about how often. Building

a savings habit is crucial to in building a degree of financial resilience. Even a small savings cushion can help individuals make better financial decisions. In 2020 Nationwide created Start to Save, a new savings account to help our members develop a savings habit. 86,090 of them who had less than £100 in savings with the Society previously now have £100 or more saved. This is the tip of the iceberg of course, but it shows progress can be made. Third, let’s tackle the pressure that finding somewhere to live exerts on the personal balance sheets and mental wellbeing of young people. For renters, let’s end Section 21 no-fault evictions, which allow landlords to evict tenants with as little as eight weeks’ notice without giving a reason, and introduce a tenant support financial package, including a raise to local housing allowance, tenant hardship grants and support for those in arrears. For home buyers, let’s make the process easier and more digital and support the market to provide more choice. Last year, the number of first-time buyers increased for the first time after a decade of decline but this was due to Help To Buy, creating a short-lived bubble. We need to reduce the need for young people to come up with vast deposits to buy property by offering mortgages with higher loan-tovalue ratios which provide up to 90% of the cost of a first home. If we are to come out of the pandemic stronger, more at ease with ourselves as a nation, more hopeful for the future, we need to put in place a policy framework that prioritises intergenerational fairness. It’s time to lower that ladder again. Paul Riseborough is a member of the Executive Board at Nationwide Building Society. He writes here in a personal capacity.

Building a just recovery for all of England’s regions Levelling up is too important to be left to Whitehall, says Sarah Longlands. It’s time to empower Britain’s regions to give themselves a leg up. For those of us who feel passionately about the potential of regions like the North and the importance of closing the gap between and within regions, the Government’s levelling up agenda is frustratingly thin and overly centralised.

Sarah Longlands Director, IPPR North

Initiatives like free ports will do little to put money into the pockets of low paid workers and the Government’s insistence on creating multiple pots of funding risks unnecessary bureaucracy for overworked local authority staff. Furthermore, most of what the Government has brought forward to date has been focused on short term survival with little if any vision for a longer-term recovery which works towards stronger, fairer economic justice for all. The main thrust of the Government’s approach to levelling up has been to make it broad and generic, with calls for a national plan as opposed to a regional approach – in other words, a retreat to the centre rather than further devolution. This is in line with the general tone of the Government’s response to the pandemic where a centralising reflex has kicked in with disastrous results for initiatives such as “test and trace”. While it is perhaps instinctive to pull up the drawbridge in a crisis, over centralisation means vital opportunities are lost to build on the expertise, experience and knowledge of local practitioners in favour of ‘big box - high cost’ solutions It’s true that the crisis is having a very serious national impact with consequences for every part of the UK, particularly for employment in sectors - such as hospitality, tourism and the arts. But the real challenge of levelling up is not measured by how your economy reacts to a crisis, but how it recovers. We know from previous recessions that recovery in regions like the North takes longer and that national economic indicators such as gross value added tend to mask a huge variation across the UK. Many of the so called “left behind” towns and cities that are the target for the Government’s levelling up efforts are still recovering from recession in the 1980s and 1990s. And successive Governments have attempted to deal with this crisis by an over reliance upon the effects of agglomeration1 and trickle down economies (Cox and Longlands 2016). Even before the pandemic, the UK was one of the most unequal countries in the OECD2 (Raikes 2020; UK2070). Underlying challenges such as long-term unemployment, poverty, lower jobs density and fewer skills mean that the ability to ‘bounce back’ as the Government would describe is constrained. In the North, for example, pay tends to be significantly lower than average with 40% of women in the north earning less than the Real Living Wage.3 Job 17

density has also been historically lower. There are still too few people with level 4 qualifications in the North, as well as 8.2% of the working age population with no qualifications at all. Perhaps most seriously, given the impact of Covid-19, is that the age at which people can expect to live to before becoming ill has fallen in a third of local authorities and is below the English average in the majority of northern areas and in parts of West Midlands. Not only do these figures speak to the many individual lives cut short and limited by years of under investment and exclusion but they also explain why productivity remains low. And these shaky foundations have been further undermined by more than a decade of austerity4 which saw 20% cuts to local authorities in the North (compared with 13% in the rest of the UK), equivalent to £347 per head of population. This isn’t just money lost to local councils but lost from local economies through fewer jobs and less money to spend. The ability to live a good life, free from poor health, with a decent income and access to education is the foundation of a just and fair recovery in the North. It is an ambition that cannot be left to Whitehall to deliver. The pandemic response in cities and towns across the country has shown just how creative and innovative local communities and councils can be in the face of enormous challenge. These are the people who know their areas best and we should properly resource and empower them to level up for themselves. Sarah Longlands is Director at IPPR North, based in Manchester Cox, E. Longlands, S. (2016) City Systems. The role of small and medium sized towns and cities in growing the northern powerhouse. https://www.ippr.org/files/publications/pdf/city-systems_June2016.pdf 1

Raikes (2020) The Devolution Parliament. Devolving Power to England’s Regions, Towns and Cities. IPPR North https://www. ippr.org/research/publications/the-devolution-parliament 2

All the figures in this paragraph originate from IPPR North (2020) State of the North 2020/21. Power Up, Level Up, Rise Up. IPPR North https://www.ippr.org/research/publications/state-of-the-north-2020-21 3

Johns (2020) Ten years of austerity. Eroding resilience in the North. https://www.ippr.org/research/publications/10-years-ofausterity 4

UK2070 (2020) Make No Little Plans. Acting at scale for a fairer and stronger future. http://uk2070.org.uk/2020/02/26/uk2070final-report-published/

The City is a natural partner for policymakers - including Labour ones The financial services industry can contribute both to levelling up and to a transition to a net zero carbon economy, says Huw Evans Labour in the City hasn’t had the easiest pitch to sell in recent years but, as Keir Starmer’s team develops its thinking, Labour has a vital role to play in nurturing new ideas and enabling financial services to contribute fully to public policy development. Huw Evans Director-General, Association of British Insurers

Although the next General Election may be four years away, there is never a bad time to seek cross-party support for some of the ways forward. Whether it wins the next election or not, Labour must turn its attention to the three huge challenges of post-pandemic economic recovery, transition to net zero and maximising the benefits of having left the EU. The last General Election was won with commitments of ‘levelling up’ across the UK. The COVID-19 crisis, and varied approach to local and regional restrictions, has amplified appeals for further devolution and investment in communities across the UK. As an industry that employs over 300,000 people, with two thirds employed outside of London, insurance and long-term savings providers have a substantial part to play in the economic recovery. The City of London’s value extends beyond the Square Mile. One in 14 people in the UK are employed in financial services and we are natural advocates for ‘levelling up’ across the UK. As providers of good quality jobs, providing mortgages, savings and insuring peoples’ homes and businesses, that is already what our sector has been doing for decades. It is at the heart of so much of our insurance market which began through mutual societies formed by working people to avoid poverty and develop financial resilience. COVID-19 has been a challenging time but across the economy, financial services have stepped up to the plate and delivered. From banks working with the Government to set up the Coronavirus Business Interruption Loan Scheme, to insurers working with Government on a trade credit re-insurance agreement to support businesses supply chains, the pandemic has shown the value of financial services and the state working together. While headlines for the insurance industry have often focused on disputes around business interruption insurance, the industry has also provided support for the NHS, expects to pay an estimated £3 billion in claims and came together to start the Covid-19 Support Fund, which has raised over £100 million in emergency funding for charities. We have much more work to do in communicating the benefits our sector brings to the economy and society. Customers do not trust our services as much as they should, and there is still more to do to embrace digital innovations. The more our customers trust us, the easier it will be to work with policymakers on economic recovery. Building a closer relationship on shared priorities will require maturity on both sides - most of the challenges we face lack simple causes or solutions. 19

Nowhere is this truer than in developing solutions to the climate crisis. Our sector is unique in that it both insures against climate risks and manages the assets that need to transition and adapt as part of reaching net zero. A key opportunity is the Solvency II review, the first major revision of UK financial services regulation, post-Brexit. KPMG has identified £95 billion of insurer-managed assets that can be unlocked for investment in green technology, socially useful infrastructure and support for the economic recovery without harming policyholder protection or deviating from robust international standards. Labour’s own Green Recovery consultation highlighted how the assets of long-term savings and insurance companies can play a key role in financing new jobs and technologies. We have to make it easier to invest insurer assets in a wind farm than a mining company. Solvency II reform is the way to do it. Solvency II is just one part of a better regulatory framework needed post-Brexit to attract capital into our sector and help it thrive. Whatever your view on Brexit, now we have left the EU we need a regulatory system that works for the UK. This needs to include a statutory objective on economic growth so our regulators have a stake in economic recovery. We also need proper parliamentary scrutiny of how our UK regulators use the many new powers that have been returned from Brussels. So, there is a vital challenge ahead for UK financial services. Pat McFadden is right to say the City needs to create wealth, not just distribute it. At our best, that is what we do. UK insurance and long-term savings providers stand ready to help develop economic recovery, invest in our transition to net zero and help create a regulatory framework that underpins a growing but stable financial services sector. We are natural partners for policymakers who share these goals and look forward to working constructively with Labour to help achieve them. Huw Evans is Director-General of the Association of British Insurers. He was a special advisor to Tony Blair and David Blunkett in the last Labour Government.

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