Core characteristics

The six core characteristics of an economy that works define the fundamental purpose of the economy:

High employment

High employment

WHY IT MATTERS

The UK can only benefit from having a large number of people in highly skilled, well paid jobs. High employment levels increase financial independence, wellbeing and personal satisfaction for individuals while improving equality across society and raising tax revenues for government.

Recent figures show an improvement in the number of people in work. While this is welcome, significant problems remain: the number of young people out of work remains high and job growth is distributed unevenly across the UK.

There are problems, too, around the issue of needing to work long hours just to make ends meet, lack of job security and wanting full-time work but only getting part-time jobs.

Addressing high employment means giving more people the opportunities to fulfil their potential and giving others the opportunity to reduce overwork.

More people in work: By the end of 2013 the UK’s employment rate was 72.1%. This is reasonably healthy, but still lags behind some of our European peers. Certain groups, including the long-term sick, the disabled and young people, struggle to find work. For example there are over one million young people who are so-called ‘NEETS’ (Not in Education, Employment or Training) for whom full-time work is a remote prospect, and this figure is rising as the chart below shows.

Fulfilling potential: Some demographic groups, such as women and ethnic minorities, are badly under-represented in leadership positions. This creates demographic imbalances, reducing the diversity of the UK’s talent pool and stifling innovation.

Work-life balance: Research shows that the relationship between income and wellbeing follows a classic bell curve: wellbeing rises as income rises to a certain point, beyond which wellbeing starts to decrease.

A similar correlation exists between working hours and wellbeing.17 Research by the New Economics Foundation shows that those who work over 55 hours a week experience higher anxiety and lower wellbeing.

WHAT SUCCESS LOOKS LIKE

An economy that works will provide higher levels of employment across the UK, creating new jobs and opportunities for groups such as school leavers, with the flexibility for people to work hours that match their aspirations.

 

WHAT IS IN IT FOR THE UK ECONOMY?

While the individual benefits of employment are clear, there are also substantial macro-economic rewards:

More productive economy: Increases in the productive capacity of the economy and higher spending power inevitably boost economic activity

Skills development: An economy that works will enable individuals to develop the skills that businesses are currently lacking

Healthier national budget: Rising income tax receipts and spending will contribute to the national budget

Higher quality of life: Reducing unemployment increases wellbeing and helps reduce social and economic deprivation

WHAT ABOUT BUSINESS?

Business is the main source of employment in the UK, with over 80% of jobs in the private sector. As such, its role in achieving high levels of employment is critical.

Business needs a stable and motivated workforce, leading the way in know-how and expertise and making the UK a more attractive place for investment.

Business can play its part by investing in skills and training, enabling the economy to compete. Initiatives such as the 5% Club and M&S’ ‘Make your Mark’ youth scheme are already helping younger workers make the move into employment. Shifting to high labour, low resource circular models will also boost employment, while support for flexible employment models will enable more people with outside commitments to enter the workplace.

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

Investment in job generation schemes to promote employment, make people job-ready, and to support small and medium-sized enterprises that account for over half the UK’s employment.

Promote skills development by providing strategic leadership and long-term direction, for instance through investment in training, supporting training institutions and driving demand for skills in a way that helps vulnerable groups.

Using tax policies to make it easier for employers to hire or train additional staff – particularly from those groups who struggle in the labour market.

Promote flexible/part-time work as job-sharing and part-time work can increase the number of jobs available while also improving wellbeing and spreading skills.

Provide education as continued investment in education will help school leavers acquire the skills and qualifications they need to find work.

Proportion of 16–24 year olds not in education, employment or training (NEET)

Source: Please download or view our Report online for a full list

 

 

Equality of opportunity

Equality of opportunity

WHY IT MATTERS

Equality of opportunity underpins many components of an economy that works, including the stability of the economy as a whole. With equal opportunities, citizens can compete fairly for limited resources ensuring a more effective society as achievement is based on merit and skill. It is closely correlated with equality. Specifically, it will contribute to:

Economic stability: An International Monetary Fund (IMF) study found that income inequality has a higher correlation with economic instability and crises than most other factors, whereas more equal societies tend to have longer periods of sustained growth.

According to another IMF study, “lower net inequality is robustly correlated with faster and more durable growth”.

Reduced household debt: Research has shown a correlation between inequality and levels of personal and institutional debt.

Increased wellbeing: Further research highlights the correlation between a range of health and social problems and inequality. These include reduced life expectancy, poor math and literacy skills, high infant mortality, as well as increased homicides, imprisonment, teenage births, obesity, mental illness (including drug and alcohol addiction) and poor social mobility.

According to the OECD, the UK has one of the highest levels of income inequality amongst its members. This polarisation of income has been increasing since the mid 1990s.

WHAT SUCCESS LOOKS LIKE

A society characterised by increased equality of opportunity would enjoy more social and economic mobility for all population groups through improved access to jobs, healthcare, education, finance and democratic representation. Such a society is characterised by meritocracy, inclusivity and non-discrimination.

WHAT IS IN IT FOR THE UK ECONOMY?

Greater equality of opportunity would bring with it a range of tangible economic benefits, from greater innovation and productivity to lower costs through fewer wasted human resources.

According to research by Wilkinson and Pickett, higher equality can lead to enhanced wellbeing, less social unrest and fewer health problems. Improvements could be expected in crime, mental illness and obesity, while the Women & Work Commission found that realising women’s full economic potential could be worth £23 bn a year to the Exchequer.

WHAT ABOUT BUSINESS?

Increasing equality of opportunity will directly benefit British business. It will ensure UK companies have the skilled workforce they need in order to thrive in the long term. It will boost productivity by increasing staff loyalty. And it will mean more people have more disposable income to buy the products and services business produces. In short, by increasing equality of opportunity everyone wins.

What can business do to increase equality of opportunity?

  • Support the development of skills across all levels
  • Offer employment and development opportunities to individuals from disadvantaged communities
  • Address gender inequality in senior management
  • Make finance accessible to individuals and businesses from disadvantaged backgrounds
  • Commit to support legislation for a living wage

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

While some policy interventions can have negative effects, such as the impact of increasing wages on profitability and competitiveness, OECD analysis highlights that a number of interventions offer a so-called ‘double-dividend’, where reducing inequality can also help boost long-term GDP per capita.

To realise this double-dividend, an economy that works needs to examine:

  • Education policies: Promoting equal access to education and increasing graduation rates from secondary and tertiary education

  • Fiscal measures: Reducing income tax and/or national insurance contributions will reduce the cost of employment, creating jobs and enabling net income to rise. Any reduction in government revenue can be offset through increasing taxes on high-carbon and scarce natural resources
  • Tax evasion: Ensure that government revenue is maximised by enhanced collection and enforcement of UK tax receipts
  • Living wage levels: This will help all those in employment to cover basic costs
  • Access opportunities: Address forms of exclusion that reduce opportunity such as lack of access to capital, resources and services

IMF STUDY ON THE Relative Effect of income Distribution on Growth Spell Duration

Words in parentheses point to negative impacts

Source: Please download or view our Report online for a full list

 

 

Wellbeing at the Core

WELLBEING AT THE CORE

WHY IT MATTERS

The need to measure wellbeing grew out of the recognition that Gross Domestic Product (GDP) alone is not a comprehensive measure of prosperity. In the words of the Office of National Statistics (ONS), to really understand our economic performance we need a “fuller picture of how society is doing by supplementing existing economic, social and environmental measures.” Many organisations have attempted to define and measure wellbeing, ranging from subjective aspects such as happiness to more tangible elements including living conditions and economic wellbeing. The graph below, developed by Deutsche Bank, captures these multiple dimensions.

In the UK, the ONS Measures of National Wellbeing identified 41 wellbeing indicators grouped into 10 categories following a large-scale public consultation:

– Health – Education and skills
– Our relationships – The economy
– What we do – Governance
– Where we live – Natural environment
– Personal finance – Individual wellbeing

These categories reflect a number of issues we explore in this report and combine a subjective assessment of wellbeing with an assessment of objective factors that directly influence individual happiness.

WHAT SUCCESS LOOKS LIKE

A successful approach to wellbeing would see it treated as a central policy objective, reported on by government and the media and influencing key decisions in other areas.

 

WHAT IS IN IT FOR THE UK ECONOMY?

A more productive, healthy and effective workforce: the UK’s annual 130 mn days of sickness absence cost the economy £100 bn. Focusing on wellbeing could significantly reduce this figure

An economy with wellbeing as one of its goals would make the UK a more attractive place to live, work and do business

Greater wellbeing is likely to reduce public spending in healthcare and crime prevention

A greater focus on wellbeing would create opportunities through services required to promote wellbeing

WHAT ABOUT BUSINESS?

A greater sense of wellbeing will benefit business through:

Increased productivity: According to research by Towers Watson, individuals with high wellbeing make more productive and innovative employees, helping create operating margins for their employers that are almost three times higher than those reported by equivalent companies with low engagement and wellbeing amongst staff

Revenue growth: A focus on wellbeing provides growth opportunities for companies in the health, wellness, education and personal development sectors

Employee attraction and retention: If the UK is perceived as having high wellbeing, it will become easier for UK-based companies to attract and retain the most talented employees

Analysis by the New Economics Foundation highlights work-related aspects of wellbeing which business can influence. These include pay, job security, safety, relationships and work-life balance. Building on this research, businesses can support societal wellbeing by:

  • Measuring and managing performance around the issues mentioned above
  • Promoting a work environment that raises mental wellbeing – such as training and stress management – as well as physical wellbeing
  • Adopting business practices that do not negatively impact important contributors to wellbeing such as the environment
  • Strengthening job and income security
  • Identifying revenue generation opportunities that result in greater wellbeing
  • Extending ‘sustainability reporting’ to include wellbeing indicators

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

Through the development of the ONS’s Wellbeing measures an important first step has been taken. Going forward, key policy objectives should focus on:

  • Making wellbeing a core policy objective by acknowledging the role of government to increase the wellbeing of its citizens and integrating wellbeing considerations into all aspects of policy making
  • Measuring wellbeing in a consistent way in order to know what is important and how to influence it

  • Developing an integrated wellbeing indicator to provide a regular snapshot of how the UK is performing
  • Strengthening civil society and active citizenship, participation and engagement
  • Focusing the health sector on complete health. The World Health Organisation (WHO) defines health as “a state of complete physical, mental and social wellbeing and not merely the absence of disease or infirmity”. This includes a stronger focus on mental illness and longevity

The many elements of happiness and wellbeing

Words in parentheses point to negative impacts

Source: Please download or view our Report online for a full list

 

 

Low Carbon

Low Carbon

WHY IT MATTERS

The long-term cost of failing to address climate change is recognised by businesses and governments around the world. The UK aims to reduce its greenhouse gas emissions by 80% (based on a 1990 baseline) by 2050. This challenge opens up opportunities for the UK economy, to achieve more efficient energy use and develop new technologies and skills for export markets.

The latest IPCC impacts report makes it clear that “climate-change impacts are projected to slow down economic growth […] further erode food security […] and will create new poverty pockets in upper-middle- to high-income countries in which inequality is increasing”.

WHAT SUCCESS LOOKS LIKE

A low carbon economy requires substantial emissions reductions in the most carbon intensive sectors. These include power generation, industrial activity, transportation, housing, services and agriculture.

The Committee on Climate Change has set out measures to reduce emissions from these sectors, ranging from developing more fuel-efficient vehicles and buildings to zero carbon energy generation.

WHAT IS IN IT FOR THE UK ECONOMY?

Growth, jobs and competitiveness: Many countries are decarbonising their economies. The green economy already delivers a £5 bn trade surplus to the UK and provides around 940,000 jobs. As the chart below shows, green exports are substantial and expected to halve the UK’s trade deficit in 2014–15.

The UK has an opportunity to lead the transition to a low carbon economy thanks to its industrial expertise and research strength in biotechnology, maths, advanced materials, control systems, electronics, engine technology and energy management.

However, a number of indices demonstrate that the UK is falling behind and being overtaken by competitors. We need to reverse this trend and maintain our leadership position.

Reducing long-term energy costs and risks: Low carbon energy costs will decrease relative to other sources in a number of areas, thanks to a combination of increased energy efficiency, self-sufficiency and the rising price of conventional fuel. For example, the Carbon Trust estimates that savings to the UK from reducing emissions from non-domestic buildings will reach £4.5 bn by 2020, with reductions of 70–75% possible at no net cost.

Security: Fuel costs are rising around the world. Developing greater energy self-sufficiency will help the UK mitigate some of these increases and make us less dependent on overseas providers.

Wellbeing: Reducing the threat of climate change will reduce the risk of potential health effects and inequalities.

WHAT ABOUT BUSINESS?

UK businesses are clear about the economic logic for tackling climate change. According to the CBI:

“The business response is definitive and emphatic: green is not just complementary to growth, but a vital driver of it.” Benefits to business include:

Revenue growth: Global investment in clean technology is currently around $300 bn a year. Research by the EU demonstrates that strong targets for renewables and energy efficiency in 2030 would create over half a million new jobs and save €258 bn on imported fossil fuels. UK industries that can benefit include finance, automotive, aerospace, ICT, renewables, construction, retail, business services, life sciences, resource management and many more.

Innovation: A low carbon economy will drive the development of new technologies and skills. The UK financial sector can play a key role in funding the necessary investment.

Productivity: Businesses will benefit from reduced costs as greater energy efficiency makes them more competitive globally.

Exports: The UK already runs a surplus on green goods and services. Around the world more countries are investing in low carbon technology.

Finance: There is an opportunity to develop investment vehicles that fully integrate the risks and opportunities related to climate change.

Competitive advantage: Addressing the strategic, regulatory and reputational drivers will enhance a company’s ability to compete.

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

The three most important areas for low carbon policy development are:

Effective carbon pricing: Emissions trading schemes have merit, in spite of the lack of effectiveness of the EU ETS. But to make real impact we need a trading scheme with the right incentives for business. Adopting a simple carbon tax could also raise the price of carbon. Both have the potential to reduce emissions and raise revenues.

Promote low carbon technologies and innovation: The long-term benefits of low carbon technologies are widely accepted, but the slow shift away from our high-carbon path is limiting the development of these technologies. Addressing this requires:

  • Focusing R&D policies on rewarding low carbon innovation via research grants, innovation prizes, patents and tax credits
  • Supporting low carbon technologies via feed-in tariffs or renewables certificate systems

  • Developing carbon capture and storage
  • Supporting community energy projects
  • Encouraging a shift to low carbon transport technologies and models

Removing barriers to low carbon behaviour and investment:

  • Long-term policy security to support long-term investment decisions
  • Shifting government subsidies away from fossil fuels and towards low carbon alternatives
  • Introducing ambitious low carbon and energy efficiency requirements in infrastructure projects

Strength of the UK’s green export markets

The UK exported low carbon and environmental goods and services to 52 countries in 2010–11, totalling £11.8bn

Source: Please download or view our Report online for a full list

 

 

Zero Waste

Zero Waste

WHY IT MATTERS

Resource depletion. For many years global economic growth has relied largely on the availability of cheap energy and raw materials. Between 45–60 bn tonnes of raw materials are extracted from the earth every year. With demand for material goods increasing and reserves of raw materials being finite, reducing resource use is becoming a key driver for competitiveness and resilience.

Accumulation of waste to landfill. WRAP estimates that of the 600 mn tonnes of products and materials that enter the UK economy each year, only 115 mn tonnes are recycled. This costs money – an estimated £3.2 bn to local authorities in 2011–12 – while creating significant environmental damage.

By pursuing opportunities for re-use, the UK could reduce its reliance on raw materials, such as rare earths, by as much as 20% by 2020.

WHAT SUCCESS LOOKS LIKE

An Economy That Works would promote durable products designed and produced so that they can be repaired, re-used and recycled. At the end of their usable lives products could be disassembled and remanufactured, while others could be recycled or composted, reducing waste sent to landfill.

This dynamic is known as a circular economy, which is restorative by intention and design, in which products do not quickly become waste but are reused to extract their maximum value before safely and productively returning to the biosphere.

WHAT IS IN IT FOR THE UK ECONOMY?

An economy that takes waste out of the equation will:

  • Create jobs and spur innovation as economic activity shifts from resource and energy intensive production processes to more labour intensive remanufacturing processes. There are a potential 314,000 new manufacturing jobs based on this model
  • Reduce net material costs and drive resource productivity. Estimates suggest an additional £10 bn in annual profits for manufacturers
  • Increase the supply of raw materials through recycling, reducing the UK’s dependency on imports and potentially lowering prices
  • Reduce waste to landfill with its associated financial and environmental costs, including reducing up to 27 mn tonnes of CO2 equivalent greenhouse gases every year

WHAT ABOUT BUSINESS?

A zero waste economy can bring many benefits including:

  • Revenue growth through the development and commercialisation of resource and waste management systems
  • Circular production models that reduce materials costs while building products that last can reduce the costs of warranties
  • Increased profitability through remanufacturing where reduced raw material and processing costs both outweigh increased labour costs
  • Reduced exposure to resource scarcity risks
  • Brand differentiation through sustainability practices and greater engagement with customers through product take-back and re-use models

How business can contribute to a zero waste economy

  • New consumption models: “The circular economy advocates the need for a ‘functional service’ model in which manufacturers or retailers increasingly retain the ownership of their products and, where possible, act as service providers – selling the use of products, not simply their consumption.”59
    Such models include the shift from products to services and the increased sharing of products for multiple use
  • Product and services development: Businesses can develop opportunities by embedding these models in their product and services development cycles. In order to take advantage of these benefits, businesses will need to collaborate at every step of the value chain. They will also need to adapt their after- sales approach and ensure the traceability of components and materials
  • Disclosure: Transparent disclosure of material throughput and a company’s exposure to resource scarcity in their annual and sustainability reports will help generate support for a zero waste economy in the investor community
  • Finance: Develop investment vehicles that reward zero waste business models based on their reduced reliance on scarce resources

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

The recommendations from the Circular Economy Task Force, a government-supported, business-led group convened by Green Alliance, suggest the following government interventions:

1. Clarify exposure to risk

  • Conduct a government-led study into exposure to material insecurity, starting with sectors identified by the industrial strategy as those most able to contribute to growth
  • Require Environmental Product Declarations (EPDs) based on a unified methodology across the EU

2. Broker co-operation

  • Create sector specific road maps using the industrial strategy model for government and industry collaboration, piloted through the delivery phase of existing industrial strategies

3. Enable system design

  • Implement stricter Individual Producer Responsibility
  • Set re-use, recycling, collection and disassembly requirements
  • Use landfill bans as the intervention of last resort for high volume, low value materials
  • Set green public procurement rules specifying more circular products
  • Promote design that enhances repairability, recyclability and disassembly

From Linear to Circular

Source: Please download or view our Report online for a full list

 

 

Enhancing nature

Enhancing nature

WHY IT MATTERS

Ecosystems are formed by the interaction of living creatures with their environment. Although intrinsically valuable, ecosystems also provide the natural capital which underpins our economy.

The Natural Capital Committee defines ‘natural capital’ as the elements of nature that produce value for people, such as forests, water, land, minerals and oceans. These benefit us in many ways, providing us with food, clean air, wildlife, energy, wood, recreation and protection from hazards.

In its latest report, the Committee highlights areas that are at particular risk and could undermine the health of our economy. These are clean water, wildlife, carbon storage, hazard protection, recreation, clean air and marine fisheries. According to the TEEB Study, between US$1.9 and 4.5 tn of value is lost each year through deforestation alone.

Ecosystems intersect with the economy in three main ways: they contribute to economic value, their natural capital can depreciate through economic activity, and response measures to restore ecosystems can have wider economic effects.

WHAT SUCCESS LOOKS LIKE

An Economy That Works would explicitly recognise and maintain the benefits that ecosystems provide.
It would protect land and other natural resources while preventing the loss of plants and animalspecies.
It would also recognise the costs associated with not protecting ecosystems, such as loss of climate change adaptation functions and depletion of resources.

WHAT IS IN IT FOR THE UK ECONOMY?

To understand the economic benefit we need to take a step back and understand what the UK National Ecosystem Assessment describes as “ecosystem services”. These include:

  • Provisioning services, for example the goods obtained from ecosystems such as food and water from rivers, lakes and aquifers
  • Regulating services that include pollination, control of pests and diseases, as well as climate and hazard regulation

  • Supporting services that provide the basic infrastructure of life, such as soil formation and capturing the sun’s energy
  • Cultural services in the form of places where we can enjoy the natural world

While valuing ecosystem services is challenging, the UK has carried out a provisional assessment:

  • Terrestrial, wetland and marine biodiversity deliver or underpin ecosystem services believed to be worth in excess of £3 bn annually
  • Carbon sequestration by UK woodland is worth £680 mn, while pollination services are worth £430 mn
  • UK fish landings are valued at £600 mn per annum
  • Safe, green spaces may be as effective as prescription drugs in treating some forms of mental illnesses which cost the UK economy over £26 bn
  • Air and noise pollution are detrimental to wellbeing

WHAT ABOUT BUSINESS?

The UK’s natural capital underpins our economic development. Maintaining our natural capital makes good business sense, making our supply chains more resilient and providing a source of competitive advantage to the UK.

As well as general advantages, specific revenue opportunities arise from a more diverse and well-protected ecosystem, such as organic products, sustainable timber and eco-tourism.

Furthermore the protection of ecosystems is a growing industry. For instance, global certification and offsetting markets are rapidly expanding and are predicted to be worth in excess of U$250 bn by 2020.

Ecosystems support innovation, both through the replication of natural processes at industrial scale and through the medicinal properties of fauna and flora.

Employers benefit from a healthy workforce that has access to green spaces.

Conversely, being associated with damage to ecosystems creates huge reputational risks for businesses.

How can business help achieve a biodiverse economy

  • Promote agricultural practices that conserve soil fertility and maximise value for society across all ecosystem services
  • Develop policies that ensure environmental impacts are integrated into planning and accounting systems
  • Use natural capital accounting to measure the impact of environmental risk on business operations and integrate this into annual reports
  • Apply best practice standards of environmental protection in financing infrastructure and industrial development, such as those defined by the IFC
  • Work with local communities and authorities to develop joint stewardship approaches

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

  • Develop a long-term ecosystems recovery plan that values, protects and enhances natural capital
  • Make no net loss of biodiversity an explicit policy target, and aim for net gains in biodiversity and protection of threatened ecosystems
  • Identify and avoid thresholds beyond which biodiversity cannot be restored and/or its contribution to ecosystem services is significantly diminished – such as wild fish stock collapse

  • Develop policies to stay within these margins, including the targeted use of markets, standards, subsidies, taxes and protected zones, as well as ensuring government procurement promotes the protection of nature
  • Strengthen the government’s handling of biodiversity by including the economic value of natural capital in the national accounts, with a natural capital budget presented by the Chancellor of the Exchequer alongside the fiscal budget

Ecosystem services

Source: Please download or view our Report online for a full list