The Resolution Foundation launched its Economy 2030 Inquiry last week. The 2020s, it says, will be a decisive decade for the UK in a way that no other decade has been since the 1980s. It listed five ‘seismic’ changes that will hit the UK economy between now and 2030, any one of which would have a significant impact but which, taken together, pose a serious challenge.
- Covid-19 and its aftermath;
- The transition to a Net Zero Carbon economy by 2050;
- An ageing population;
- Rapid technological change.
At the moment, the relentless focus on the first two risks crowding out discussion of the other three. Before Brexit and the pandemic, most articles and conferences on the future of work focused on technology to the exclusion of almost everything else. Now everyone is talking about remote working and the future of the office. A few mention demographics, though given how long we have known about the population ageing, it still strikes me as odd that it rarely appears on the agenda. Climate change and the shift to Net Zero barely gets a look in.
Getting the economy to Net Zero will be a massive undertaking. As the Resolution Foundation points out (my emphasis):
The UK’s commitment to bring all greenhouse gas emissions to Net Zero by 2050 will require an immense set of changes, including the transformation of agricultural and industrial processes, shifts in consumption patterns, and an end to the dependence on carbon-based energy that facilitated the birth of an industrial society 250 years ago. Again, urgency is needed: 60 per cent of fuel supply (oil and gas industries) and half of surface transport decarbonisation needs to happen during the 2020s.
The investment needed will be significant and much of the up front cost comes during the next fifteen years. Though the projections suggest these investments will eventually pay for themselves through the savings made, the report estimates this will take until the 2040s. That’s fine for governments and large businesses that can take a longer term view. For smaller firms and most individual households, 2040 might as well be forever.
The question of how the costs of this and other infrastructure will be split between the state and private sector is absolutely crucial, but almost totally unresolved.
As Frances pointed out recently, the world will have to transition from a carbon-intensive to a metals-intensive economy. Cutting the use of fossil fuels requires a massive amount of metal. We have barely begun to think through the environmental implications of this, let alone the way that jobs will be destroyed, created and, perhaps most importantly, changed.
This will be the point at which the move to decarbonise the economy starts to affect people’s day-to-day lives. The UK has made significant progress on decarbonisation in the last three decades but most of the changes have happened in places where most of us don’t see them. As long as our lights come on when we flick the switch, few of us stop to think where the electricity is coming from. This next phase will be where decarbonisation gets personal.
Much of the focus of the recent discussion has been on transport and the proposed switch to electric cars, public transport and cycling. The other big change, though, will come in people’s homes. It is unlikely that the UK can achieve a carbon net zero position by 2050 while most of the country still uses fossil fuels for heating. According to National Grid, 20 percent of UK carbon emissions are created by heating buildings. The International Energy Agency has proposed a ban on the sale of gas boilers after 2025. The UK government hasn’t gone that far yet but it has indicated that it will stop the installation of gas boilers in new build homes from 2025.
This is but one example of the scale of the challenge ahead. As the Resolution Foundation comments:
If we are to hit the 2050 Net Zero objective and realise the wider benefits, while avoiding huge economic costs, there must be a surge of progress in the 2020s: we need to move, for example, from installing almost zero heat pumps each year, to installing 3,000 every single day by 2030.
It also neatly illustrates the massive unanswered cost question. Who pays to replace existing boilers? The government, the energy company or the householder?
If the finances haven’t been thought through, even less thought seems to have been given to the workforce implications. The manpower and skills challenge of rapidly shifting the economy to Net Zero is something rarely discussed. If the UK Commission for Employment and Skills were still going, this is one of the things they would probably have looked at but the government, in its wisdom, shut them down in 2017. Does this country have the people who can make this surge of progress happen? Does it have enough of them and do they have the right skills?
The problem is compounded because the 2020s is also the decade in which the UK’s long-anticipated demographic shift starts to affect the size of the workforce. US generational labels (Baby Boomer, Gen X etc) don’t work in a UK context. True, there was a spike in the number of births after the Second World War but our big population bulge came during the 1960s. That’s why people of my generation remember primary school classes of over 40.
You can see this bulge working its way through our population pyramid. At the turn of the millennium, those from that 60s born generation were in their thirties. Over the course of this decade they will all turn sixty and many will start leaving the workforce, taking their skills with them.
In recent decades, we have relied on migration to pad out our working age population. Most of the UK’s employment growth after the 2008 financial crisis came from those born elsewhere. But the combination of Brexit and the Covid pandemic has reduced the number of immigrants. The pandemic also appears to have encouraged many of those migrants who were here to return home. Michael O’Connor and Jonathan Portes reckon 1.3 million have left the UK since January 2020. Some dispute their figures but, given that this is the same duo that identified the discrepancy between NI numbers and immigration figures a few years ago, I’m inclined to give them the benefit of the doubt. The pandemic has disrupted the usual immigration surveys but Michael’s analysis of HMRC numbers suggests that a disproportionate number of EU nationals have disappeared from the payrolls and are probably no longer here.
Employers are already warning of a labour shortage and, while it is likely that immigration will increase again as the pandemic subsides, it probably won’t return to its pre-Brexit level. The laws are more restrictive, the political climate less favourable and the economic conditions in many countries have improved relative to the UK. Furthermore, the UK isn’t the only place planning significant reductions in carbon emissions. Net Zero by 2050 has been, or is soon to be, enshrined in law in a number of countries. They are likely to want to keep hold of their people with the skills to make it happen.
So if we have a looming skills shortage and can’t rely on immigration to plug the gap, that suggests a massive re-skilling programme might be on the cards. The government says it’s keen on re-skilling. It has promised to revolutionise skills and training opportunities and even suggested re-training ballerinas as cyber-something-or-others. But, while politicians seem to think re-skilling is a get-out-of-jail card, the truth is that this country isn’t very good at it.
UK business has, for many years, had a buy-not-build culture. In most organisations, the instinctive reaction to a skills gap is to go out and hire someone. As the Industrial Strategy Council remarked last year:
The percentage of skill-shortage vacancies reported by employers has remained at 22 per cent or above since 2013, yet the UK stands out internationally for its preference to recruit rather than train.
Consequently, employer investment in training has fallen and, when combined with occupational shifts that have removed mid-level career development roles, the result has been a degradation in the opportunities for people to develop new skills on the job. As Resolution Foundation research last year found, very few workers retrain for new occupations and, for non-graduates, any form of career development is becoming a rarity. Where employers offer them training, it is most likely to be on health and safety.
All of which suggests that, if there is to be a great re-skilling to tackle climate change and shift the economy to Net Zero, the government will have to step in to cover employers’ lack of investment. The trouble with that being that governments don’t have a great track record in this area either.
If there is a financial and a skills challenge in reaching net zero, there is also a serious public opinion problem. While people have finally come round to the view that climate change is happening and something needs to be done, they are a lot less keen on actually paying for it. A recent YouGov poll found a majority across all age groups reluctant to consider increased taxes or higher energy bills despite accepting the seriousness of the climate change threat.
So the UK will need to see a surge of progress to reconfigure its carbon-based economy during the same decade as its largest age cohort starts to leave the workforce, its supply of migrants slows and its trade and diplomatic relationships are still in a state of flux. All this against a background of weak productivity and a woeful lack of investment in both capital and labour. Public opinion is nowhere near prepared for the magnitude of the change because politicians and commentators have not discussed it in any detail.
As the Economy 2030 report remarked:
The economic turbulence that people, places and firms face as we recover from Covid-19, exit the EU, and see decarbonisation reach into citizens’ lives, goes beyond anything seen in a generation.
We like to think we know how to handle change. Those of us working in the corporate world talk about it all the time. We tell ourselves that we have lived through a time of epic change, a VUCA period where the pace just gets faster every year. Disruption is where it’s at these days! We have had so much change to manage we had to invent something called change management. It’s nonsense, of course. On a number of measures, the last few decades have been reasonably stable. The next decade, by contrast, is likely to be disorderly.
If the government is serious about Net Zero, the decarbonisation measures will start reaching into our lives very soon. It is likely that this will take the country by surprise. Our people have no idea what’s coming, many of our companies are unprepared and our government appears to have no plan for funding, for the workforce or for getting the public on side. What could possibly go wrong?