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Tackling a low-wage economy in Cornwall and the Isles of Scilly

The Cornish Stuff website recently worked with students from Falmouth University to produce a series of reports on low pay in Cornwall. They asked if the LEP could give its view. The following article is by our Chief Executive, Glenn Caplin, and was first published on 28 February 2019 by Cornish Stuff.

If we needed a reminder about the economic gulf that exists between different regions of the UK, data published this week shows that parts of London’s economy outpace ours by more than nine times when it comes to measuring Gross Domestic Product (GDP) per head.

Wages in Cornwall and the Isles of Scilly have also consistently lagged behind the UK average and currently sit at £19,262 per year, compared with £24,000 nationally, which is 80% of the national average.

The impacts of this are complex and as a board member of Cornwall Neighbourhoods for Change, which aims to challenge and tackle inequality, I’ve seen how low pay can cause and exacerbate poverty and social exclusion and negatively impact on individuals and communities across Cornwall.

But, the Cornish economy is growing. Total GVA (Gross Value Added) for Cornwall and the Isles of Scilly increased by 43.4% between 1998 and 2017, with a UK growth figure of 43.3%. So, why has GDP per capita remained static in Cornwall and why are wages low?

There are many reasons for this, including the size and structure of our businesses, the areas of the economy they operate in and the number of part-time workers they employ. In the UK, sole proprietors have the highest levels of low pay (56% are paid below the Real Living Wage of £9 per hour outside London), followed by partnerships (40%) and then private companies (28%).

In Cornwall and Scilly, these two categories – sole proprietors and partnerships – account for 48% of all businesses, compared to 25% nationally.

Data also shows that the greater the number of employees, the lower the incidence of low pay. Cornwall and Scilly have just 10 enterprises (out of a total of 24,000), with more than 1,000 employees. The vast majority of our business stock is made up of microbusinesses with less than nine staff, so our business structures are already more likely to pay lower wages.

Another issue is the type of businesses we have. The largest sector of our economy (almost 18%) by business count falls within the category ‘wholesale retail trade’, which ranks as the sector with the highest levels of employees being paid less than the Real Living Wage, at 43% of all staff.

Social care is a similar story. In 2018, it was estimated that over 43% of all jobs in social care were paid below the Real Living Wage, and health and social work accounts for almost 14% of our businesses.

Part-time employment is also an issue for our economy because we have the highest number of part-time workers (32.2%) of any of the 38 Local Enterprise Partnership areas in England. This compares to a UK average of 24.9%. And research shows that 44% of part-time workers are paid less than the Real Living Wage, compared with 15% of full-time workers.

So, we have more small businesses, employing more part-time workers, in sectors were low pay is endemic.

The productivity of our economy also lags behind other parts of the UK. Productivity is basically a measure of what you get out, minus what you put in, such as time, effort and skill. If workers and businesses become more productive, firms can afford to pay them wage increases as they become more profitable. Increased profits also allow businesses to invest in training and upskilling their workforce. If you pay your employees more, workers feel more valued, increasing productivity. In an ideal world it’s a virtuous circle. Conversely, low wages can supress productivity, creating a vicious cycle which keeps wages low.

Tackling low pay requires a multi-pronged approach because there is no single cause and no single answer. Solutions must include improved skills, support for our business community and investment in infrastructure.

An example is the £151 million investment to accelerate the roll-out of superfast broadband which has created an estimated 3,500 jobs and seen an annual £137m uplift in the economy. This has helped create one of the fastest growing clusters of digital businesses in the country, creating quality jobs that pay above average wages.

At the LEP our job is to create the conditions in which people and businesses can thrive, which is why we have continued to invest in improvements to Cornwall’s infrastructure. The bulk of the £78m Growth Deal funding we have secured from Government has gone towards improving our road, rail and public transport networks.

Our rurality increases the costs to business for transporting goods and raw materials, and makes it more difficult for people to get around, all of which can impact on the productivity of our economy. That’s why we’ve invested in schemes across Cornwall to remove some of those obstacles to business growth, and people’s ability to access employment and training.

Support to help our businesses grow is also vital, so that they can pay higher wages, and invest in their staff. That’s why the LEP has contributed more than £1 million to the Cornwall & Isles of Scilly Growth & Skills Hub, which can help businesses find the support, training and skills they need. We’ve also helped set up a £40m business investment fund that can provide from £25,000 to £2m to help local businesses grow, create jobs and pay better wages.

Some of these interventions that have contributed to Cornwall and the Isles of Scilly having the fastest growth in the number of scale-up businesses in the UK, but we need to do more.

It’s also important to diversify our economy by looking at emerging industries, which is why we have focused on things like space with our £8.7m investment to upgrade Goonhilly Earth Station for deep space missions, and support to grow our aerospace sector. The average salary on the Aerohub Enterprise Zone is significantly higher than the Cornish average and that’s why we are looking to grow high value sectors and their supply chains.

What’s interesting is how some of these emerging opportunities, like geothermal energy or lithium extraction to help power the electric car revolution, tap into some of our traditional industries like mining that put our economy at the heart of the first industrial revolution, and could put it at the heart of the next.

We’re also investing in programmes that can inspire our young people about career opportunities in Cornwall, raising aspiration and increasing life chances as a way of helping to reduce deprivation. And we’re working with businesses to look at how they can employ more people with disabilities or long term health conditions, giving them access to a wider pool of talent and taking on people who might not have otherwise found employment.

Businesses also need to make the right decisions about pay. On one hand there is frustration that low pay makes it difficult to attract the right people to Cornwall, but on the other businesses say the reason they don’t pay more is because no-one else in their sector does. If we can encourage some of those businesses to make a first move then perhaps we can encourage more to follow.

Low pay is a deep-rooted issue associated with the structure of our economy, which is why our region has qualified for EU funding for the last 20 years and would have qualified for more investment from Europe were it not for Brexit.

In fact without Brexit UK regions would have received £13 billion under the next EU funding round, 22% more than the current programme. This is because many UK regions continue to fall behind the EU average in terms of regional prosperity.

Figures published only this week by Eurostat, the statistical office of the European Union, shows an enduring and massive wealth gap with other UK regions. In 2017 (the most recent year with available figures), regional GDP per head in Cornwall and Scilly was 68% of the EU average, which is the lowest in England. For comparison, Devon’s figure was 77%, and the South West as a whole was 90%.

But in parts of inner London, GDP per head was a massive 626% of the EU average, which is more than nine times that in Cornwall and Scilly. When people talk about the need to rebalance our economy, this is what they are talking about.

The problem is exacerbated in my view by policy interventions which fund already high performing areas through competitive processes which inevitably favour areas with the scale and capacity to compete.

This is highly relevant as the Government prepares to launch its long-awaited consultation on its Shared Prosperity Fund. This is designed as a replacement programme for EU funding to tackle inequalities between UK communities.

Our argument is that the new fund must be based on proven economic need so that we are not left worse off as a result of Brexit and we can continue our battle to boost productivity and wages in Cornwall and the Isles of Scilly, while making an important contribution to the UK economy.

The Shared Prosperity Fund should be an opportunity to redesign regional funding so that it supports the creation of sustainable and inclusive economies and raises productivity in areas that are furthest behind. We’re up for the challenge. All we ask is for the tools to do the job.

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Cornwall and Isles of Scilly Local Enterprise Partnership, PO Box 723, Pydar House, Pydar Street, Truro, TR1 1XU
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