How to do inclusive growth - Step 5: encourage business to play their role in delivering inclusive growth

11 February 2019

By CPP

7 minute read

This post is the latest in our six-step inclusive growth series - here we look at the role of business at a local level. Following a lively debate at our Inclusive Growth Conference in October we are working on how we think business can best contribute to inclusive growth. We welcome you to join this discussion and provide feedback on your experiences of delivering on inclusive growth with businesses in your areas.

The objective here is to ensure employers play their part in delivering inclusive growth, by creating quality jobs, engaging and investing in local skills and working in the best, long term interests of their place. For business, this might include establishing opportunities for young people to access quality work experience, or better sharing of gains with local employees. For local government, support might range from encouraging certain business sizes or types to start up, to ensuring they are held to account for their business conduct through good work pledges. Here we discuss some examples.

Ensure training and skills are responsive to local business requirements

Many local areas are currently suffering from underemployment, meaning individuals are not fulfilling their earnings potential in their current roles. This can be due to businesses not using the talents of their workforce effectively (a problem identified by the Productivity Leadership Group) but also due to skills mismatch between the jobs on offer in a local area and the skills of those coming out of local educational institutions.

CPP’s first skills report in March 2018 made recommendations on how areas can determine their ‘skills mismatch’ and how learners can be provided with better information about the jobs available in their areas and the associated earnings potential. It requires education and training institutions to be responsive to the needs of local employers but also employers to provide forecasts of their skills needs. In order to facilitate this information exchange between skills providers and employers, the Department for Education is in the process of setting up Skills Advisory Panels at Local Enterprise Partnership level, which could, if linked to Local Industrial Strategies, play a critical role in realigning skills and jobs opportunities in areas. CPP has developed a skills mismatch tool which could be used exactly for this purpose.

Encourage small-scale, locally-owned enterprise

Enterprise can be a central pillar of inclusive growth. Across the UK, SMEs employ more people than larger businesses and can often be the engine of growth. Research in the Harvard Business Review (2010) found that “regional economic growth is highly correlated with the presence of many small, entrepreneurial employers—not a few big ones”. There was more support for this position from Economic Development Quarterly, which concluded that it is particularly ‘locally owned firms’ which drive per capita income growth. The implication of this research is that small companies matter very much in local economies for both creating and retaining wealth.

One way to encourage local, small start-ups, may be to foster the development of local lending infrastructure to complement national and global lending. Regional banks generally serve a specific geography with a focus on retail banking so are by design focused on the potential of local businesses and typically use trust and soft knowledge to allocate credit in a way that an algorithm applied at a global level may not. The network of regional banking mutuals, under construction by the Community Savings Bank Association (CSBA), with investment from a range of local authorities, including the GLA, looks promising. Tracking the credit availability for SMEs over time will be key in determining the need for localised banking.

Holding business to account

Local authorities are increasingly taking the path of Birmingham, with their Business Charter for Social Responsibility. Launched in 2014, it is a set of guiding principles, including paying the real living wage and employing locally, which the council commits itself to and asks its supply chain and other businesses to follow suit. Greater Manchester have just consulted on a Good Employer Charter with similar principles in mind. Charters can include commitments on the real living wage, in-work training and progression, stable contracts, or other metrics on social value.

The Social Value Act (2012) certainly facilitated this approach. As has the Preston model which, amongst a range of different structural economic approaches, uses procurement to ensure local businesses benefit from and can participate in local wealth building.

The question of how effective good job charters are will rely principally on who holds the employers to account and how. This can be done by asking business to self-report on a list of agreed criteria, or by bringing in third sector organisations with an interest to independently hold employers to account. How businesses are held to account will in part be dictated by what data is publicly available on business. Alternatively, charters can also be used to shape local procurement decisions, which would require business to report on the specified measures as part of a bidding process.

In 2017, the ONS published a one off data release on the percentage of good jobs by Local Authority and we call for its annual publication so that local areas can assess overall progress of their charters over time.

Potential pitfalls

We must not forget that SMEs are usually collectively the largest employer in a region. Sometimes though, they need help to get the basics right to thrive – so support may take the form of book keeping, line management and business development – as well as ensuring they can get the levels of funding they need.

Increasingly, good business charters are becoming used as a way local areas can keep check of business behaviour and champion those who commit. However, to ensure the reporting burden is not too much for the businesses or local areas, the ONS should consider facilitating inclusive growth at a local level by publishing good jobs data to underpin their local commitments.

Wrap up

Whilst there are a range of ways local areas can support new, small, innovative businesses to start, existing business can demonstrate their commitment to the agenda by working closely with educational institutions to better match education and job opportunities and opting into, and committing to, local initiatives and good work charters.