208. Have We Just Surrendered Our Economic Independence To The US?

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1:03Hello and welcome to The Rest is Money with me, Robert Peston. And me, Steph McGovern. And back with us by popular demand, we've got Andy Haldane, who is chair of the Inclusive Growth Commission. He's someone who, you know, we talk regularly to because, of course, former Bank of England guy as well, Robert, and someone who's always fascinated on how we solve our economic problems. Yes, he's absolutely right. Former chief economist at the Bank of England, one of the most creative, interesting economists in the UK at the moment. And here's our conversation with Andy. Andy, great to see you. You've chaired the East Midlands Inclusive Growth Commission.

1:40I'm intrigued who chaired the Exclusive Growth Commission. But anyway, yours was the other one. Tell us what you learned about how you generate growth within a region of this nature. Yeah, very happy to. Great to be on, Robert and Steph. Well, key word, inclusive. So there's no point having growth unless everyone feels it. And the key to everyone feeling it is that everyone feels they've got a route to progress. What's different about this? One, it has to be local. It has to be local. How local? What does local mean? This needs to be sometimes town by town, not just region, but town by town. You know, the needs of a pretty poor Ashfield and Mansfield is very different of a relatively affluent Derby and Nottingham.

2:24And to think you can, much less from central government, form a plan that meets the needs of those very different places before you even get to high peaks in North Derbyshire is fanciful. So it has to be local, in fact, hyper-local to work for local people. It doesn't work for local people. It doesn't work at all. And second, it needs to be centred on people. So much of the growth agenda right now is about projects rather than people. And I'm not against projects. and for data centres and power stations and railway lines. But ultimately, what lifts up people's lives is their work and investing in them as people, in their skills.

3:06And the skills part of the growth agenda has somehow got lost in translation during the initial phase. And that's a big miss. And you feel passionately about this, don't you, Steph? Yeah, completely. I mean, you know, I've read the report. I mean, I agree with everything you say in it, but I think in practice, how do you deliver this? because you're talking about education, skilling people for the jobs around them. You're talking about transport, making sure people can actually get to the jobs they need. You're talking about matching skills with jobs. So there's that re-skilling and up-skilling going on.

3:36And the economy is desperately crying out for that. We keep saying that on this podcast. What do we do to make this happen? A couple of things there to kick us off. I mean, one is this will not happen from the hallowed halls of Whitehall. It needs to happen at a local level. So that speaks to properly empowering local leaders, mayor or otherwise, avail them with the powers they need to do the job. And there's been incremental progress forward on that with the devolution bill that's winning its way through parliament. But frankly, that's still a pretty partial menu. Let me give you a case in point.

4:12Right now, the most that any mayor can expect is power over skills after the age of 16 or 18. Nothing wrong with that per se, but nothing about anything before the age of 16. How do you change that though? Because that comes from a central government system of education. It does. And the way you change it is by telling the DfE that this is a decentralized and delegated power, not one that they held dear. There's no good reason for that other than the centralizing tendencies of the Whitefield machine. And just to be a little bit more specific about this, did your work reveal to you, let's go to a place like Ashfield, what kind of skills should be taught within secondary and even possibly primary schools that's not happening at the moment?

5:04Yeah. So, I mean, we made a point, one, of visiting these places and speaking to local residents, that was the part of the inclusive bit of the plan. Let's speak to those that are actually in the place and ask what they want. But it's also asking, what is the skill set they currently have that we can build upon? And how can we join that up with the jobs of tomorrow? So as a case in point, when we spoke to Lee Anderson, reform MP in Ashfield, his challenge to us entirely reasonably is what's in this for the people of Ashfield? And the report speaks directly to that. And part of it is nurturing jobs in and around Ashfield itself and giving a progression pathway for people who work in Ashfield.

5:48And part of it is saying, well, Ashfield is quite isolated. We need better connectivity in what is a energy supercluster if you head east or to a growing city centre in the south in Nottingham. Absolutely, this is a story for the residents of Ashfield of where they might seek future jobs that raise their pay and job prospects. and that's why that's the level of detail you need of granted that you need to tell a story that works the people of ashfield and beyond but i suppose my question was did you have the opportunity to go into local schools i mean it's not that one dismisses much of the academic education that's there but we all know that the world of work i'm going to come back to this later in the in the podcast is changing at the most extraordinary speed at the moment partly because of artificial intelligence.

6:47But even without that, you could argue that compared to other countries, we just don't do enough in schools that relates to practical skills that people will need all their lives when they're working. I just wondered if you were able to devote any time to this issue. This issue. We did. A couple of reflections on that, Robert Seffa-Vamey. One is, let's not kid ourselves that the academisation of schools is a panacea. Most of the schools in East Midlands are academies. All of the inadequate schools are academies. And 95 % of those that need improvement are academies. So this is not a singular solution to the problems of education in East Midlands or indeed anywhere else.

7:32Secondly, one of the things that those schools are sorely, sorely missing, this speaks to your point, Robert, is decent careers advice and indeed decent work experience. So one of our recommendations is that we create a scheme which the mayor, Claire Ward, in East Midlands has signed up to, so-called East Midlands Youth Ambition. And that would be that every school child from primary school onwards gets careers advice and has the opportunity to experience work firsthand. firsthand. So that this begins to get into the bloodstream of kids from the earliest of years and provides ideally a much more streamlined and seamless pathway into the world of work and the options that are available to people from primary school onwards.

8:23And that would make a material difference, I think. Andy, I don't know if you know this about me, but I went to school, obviously in Middlesbrough back in the 80s 90s and went to a city technology college for my secondary education they were started in the late 80s and they were set up more like workplaces they were sponsored by industry which meant they had great facilities so we had laptops and things like that in our first year year seven so when we were like 11 and 12 despite the fact that you know lots of people who went to the school couldn't afford to have laptops and things like that. So it gave everyone that equal start with equipment and they were set up to give you the skills that were needed in the local area where the skills gaps were.

9:09But as you've just said, they did exist. They were working. I think they're entirely the reason I've done well for myself because we were given that sense, that really tangible sense of work and the world of work from a young age. We were often in businesses. We understood what supply chains were at the age of 13. But many of them have ended up becoming academies and fallen more into the traditional academic school system. And we do have a kind of equivalent now of CTC, City Technology Colleges, which are called UTCs, so University Technology Colleges. That's a school you can go to from the age of 14.

9:46They are fantastic. I've visited lots of them. Again, they've got more of a workplace feel about them, which suits a lot of the learners there, but they're often few and far between. So for some people, they're too expensive or too difficult to get to. Or parents worry that they're not as good as traditional schools. Plus you don't go there until you're 14. So people are worried about leaving a traditional secondary school to go to it. But they are the types of places meeting the needs of local employers. And the thing that really kind of gets to me in all of this is we've seen from them that that does work.

10:23So why can't we get back there? And why can't we have more things like UTCs and start that earlier? Because that seems to be the key here is if there's evidence and my school is just one example, how do we change that? And I think it's worth pointing out here that the school that you went to, the general view, and I think there's a lot of evidence since the war, this is true, that it was Labour was particularly committed to trying to improve state education. But the kind of college you went to was created by Ken Baker. Yeah, it was. From memory during the Thatcher years. Yeah, it was a Tory set up.

10:57And he's been a great champion of setting up these sorts of institutions, because precisely for the reasons that you make, Steph, that not everybody wants academic or will thrive in an academic environment. Or has the structure at home to be able to do it? The lack of diversity in the education system is genuinely a worry to me. Yeah. Well, listen, Steph, I'm totally with you on that. I think the work that Ken's done through the Baker Deering Trust has been fantastic. And the footprint is growing, but it's growing pretty slowly. We know at the same time, funding for further education colleges is still down a quarter of what it was 15, 20 years ago.

11:36So we're still under-investing in the vocational pathway. And it's increasingly clear that we've over-invested in the skills of the head, not least in our universities, many of which are now sitting on very significant financial deficits. And where what had been a near certainty of employment for graduates had gone completely out the window. That certainty is long gone and the graduate pay premium shrunk very materially. I mean, one of the things that we were talking about earlier, Steph, wasn't it? Was James Reid, who runs the Reid employment business, talking about the collapse in opportunities for new graduates.

12:13In America, there's been quite a lot of academic research on this. I think Bryn Olfson did a paper on this recently. And everybody's relating it to artificial intelligence broadly replacing what would have traditionally been regarded as sort of white collar middle class jobs for university leavers. Apparently, this AI revolution has already started. But governments are just nowhere near keeping up with the pace of how education and skills training has to change. Because, you know, in all industrial revolutions, people lose their jobs. The challenge so that we don't get complete social disaster and social dislocation is to make sure that when new jobs are created, people have the skills to do that.

13:03That's it. And that's so important right now because the lag from AI to its showing in productivity, what you've called the Engels pause previously, that might not even be a pause this time around. Everyone's using it, right? The speed to adoption has been shrank to almost nothingness. And the key thing there is how much disruption it causes to the world of work and smoothing that transition as much as possible. And that will require a complete reimagining of the educational journey, both the when and the what and the how. The when bit is, this is no longer, can no longer just be about educating young people.

13:41This has to make a reality of the lifelong bit of learning. On the what, you know, who's for disciplinary silos these days. That doesn't speak to any of the challenges we face particularly. So we need a rethink of the curriculum in a much more root and branch fundamental way than I've seen so far from Becky Francis' review of the curriculum. A much more practical and vocational orientation to what is taught, which by its nature then becomes overtly cross-disciplinary. Yeah, I think we're all agreeing, aren't we? That parity of esteem between the types of learning is key. Exactly. A genuine dual carriageway rather than a kind of slow lane, fast lane, which we've had in this country, academic and non-academic for so many years.

14:29Some of this will require a fundamental rethink of the business model of the universities, right? And I personally am very strongly in favor of the norm becoming for many universities degree apprenticeships. That is to say a pathway that combines explicitly work and learning. That strikes me as working for the learner, because it gives a smoother pathway through into the world of work. It works for businesses in creating the talent pipeline that they need. And it ought to work actually for universities as well, if we redeploy the apprentice levy to help them out of their financial problems. I don't see that level of thinking right now emanating from anywhere in government, to be honest, here or any other Western country, but needs to.

15:25Otherwise, we'll be sitting on pressures to slow down the AI revolution to give us a chance to catch up. This is a very diffused technology. There is no opportunity for the government to slow it down. It is already part of our lives and you can't regulate it away. Well, I mean, you can't stop it. I think there's ways of slowing. You can't slow the private, you know, private sector bosses have fiduciary duties to maximize their returns. No government can stop that from happening. No, not stop entirely. But there's grit you can throw in the wheels on this, you know, if it risks significant displacement and social strife, as you've seen with every technology.

16:01Now, I hope that doesn't happen. The pressures to do something will mount if we do find people with nowhere to turn as and when they are displaced. And I think that is, it's a shame there's not more of a conversation about that stuff because I think it's absolutely fundamental. It's something I've been talking to Jackie Smith about actually, who's obviously the Minister for Skills. I was talking to her about it this week because she was out in Denmark at this big like skills competition where it's basically loads of young people who are doing vocational training competing in like a skills Olympics.

16:31So it's a ginormous arena full of people doing bricklaying and plastering and computer design and mechatronics and all these different things. And just to your point, which you were saying about the reskilling and what Robert was referring to there with AI, can you explain more about this opportunity escalator? so i was intrigued by this in your report so this sense of looking at the skills that workers have now and then setting out the types of better paid higher skilled roles that they could move into what is it is this like software or is this people data inputting and doing it kind of qualitatively like what is it so we have a website that enables you to do just that so that the The question is this, you know, if you're there in Mansfield, say, and you're doing bar work or zero hours contract work of some type there and thinking that we're in a dead end job, you're feeling insecure.

17:28But as importantly, you don't set a pathway through to a more secure, higher pay, higher skilled job. The truth is, you almost certainly, you know, by dent of say, work, you know, fantastic interpersonal skills to work in a bar. very tricky actually working in a bar, difficult customers and all that. There almost certainly is a much wider spectrum of jobs that you could do, but which aren't on your radar. And what this kit does is saying, well, we know in the work that you're doing, you have those skills. Here are other job families, opportunities that would build on those skills. And here's the investment you would need to make to take those steps up the opportunity escalator, not in giant strides.

18:12This isn't jumping to the moon. It is modest steps to skill up and move to jobs, a wider range of job families that offer you opportunities, ultimately higher pay and more secure work than you are in currently. And doing that for everyone. We have the data now to understand how those escalators might work for everyone in the workforce, not just those in the superstar sectors that tend to attract all the attention. So much more we need to discuss, Andy, but hang on, we're going for a quick break.

18:47Can I just move us on to a couple of related points? One is to do with the announcements that we've seen on this day when we're recording the podcast, which is well over£30 billion of investment in data centres and a supercomputer. And there's obviously related investment in power to keep these things going. All the investments, every single bit of this money and technology is coming from America, whether it's Microsoft, it's OpenAI, it's Alphabet, it's N-Scale, it's NVIDIA. And this is a sort of technological industrial colonization of the UK. These investments in data centers and the cloud and supercomputers, this is the infrastructure of the new economy.

19:43This is the infrastructure of the AI industrial revolution. And there is just something really striking about the fact that every bit of this infrastructure in the UK will be American owned. This is a moment in history. It is, I think, probably the first time in our history where so much absolutely essential infrastructure has no British ownership at all. And I suppose the question is, I feel anxious about it, truthfully. Just talking about it, I'm beginning to feel my stress levels rise. But maybe I shouldn't worry about it. a whole range of points in there. In some ways on this, I think the pass has been sold.

20:24I think the tech lead now from the Magnificent Seven that you mentioned is unassailably large to think there's going to be a European competitor catch up anytime soon. The infrastructure is too developed. Should that cause us concern? To a degree. I mean, part of the concern, of course, is all the tricks that we've missed en route to here. So just on that point, though, you've got America with its extraordinary prowess and critical mass in data centers and AI. And you've got China, right? And it is quite interesting to me that China, having it seemed for quite a long time, been desperate to get hold of NVIDIA's chips, which are the GPUs that do all the processing for AI, China has just decided, according to the FT, that they are now going to block imports of NVIDIA's chips.

21:15And they've told their mega data companies and their mega AI companies, you cannot now buy American technology, which is absolutely fascinating to me because it is, I think, China saying, if we use NVIDIA's technology, A, America may have a backdoor into our infrastructure, and they're worried about that. And presumably, they also take the view, once you become dependent on NVIDIA, they can't be 100 % certain that America and NVIDIA wouldn't just turn the thing off. And I suppose the issue about relying so much on America's infrastructure is, I mean, we assume there's going to be this wonderful, friendly relationship with America forever, but there's no contingency if we ever fall out with America.

21:58No, I think that's absolutely fair. I'm not sure from here what you would do differently, necessarily. We will not be growing our own of a scale anytime soon to challenge that. So, want to remain friends with someone. I'm guessing faced with a choice that someone will be across the Atlantic. No, I know that I'm sort of King Canute standing by the sea trying to push it back. I know that this is a sort of slightly mad thing to me, but it is still, I don't know, I just find myself feeling very anxious and therefore feel I have to vocalise my neurosis. Any over-reliance on something so fundamental to so many jobs and so much of our economy must be a cause for concern, whoever the country is that you're reliant on.

22:35I think a broader point here, How is it that we haven't been able to grow our own? The truth is, as I know you've discussed on this pod previously, we are not without the innovation capacity. We spawned the arms and the deep mines, but we flogged them off to those that have now taken control. And we're still supporting those companies, by the way. We're still, after US and China, we are third on the global list for rapidly scaling up businesses. Then we flogged them to American companies. Well, that is the risk. How do we prevent that leakage when they reach a critical mass and look like a prize asset to American companies in particular?

23:15I mean, that is the key. And that's where I think this government and previous one are onto something very sensible. And they say, well, we need to invest in them ourselves with our massive pool of pension fund capital. But it's not happening. It's not happening fast enough. I agree with that. Can I ask something which is kind of partly linked to this in the sense of thinking of the tech world as like a cluster and, you know, Silicon Valley and things like that? Because you make the point that the bulk of everyday jobs are in the everyday economy and not in these competitive clusters. And actually, we should be focusing more on that than trying to create clusters that are going to potentially, you know, change the world by doing something with AI or whatever else.

24:03How does that work? Listen, I am not remotely, again, as winning our winners. So, where we have industries that are generally world-class and world-beating, we have some of them, parts of advanced manufacturing, parts of the creative industries, parts of life sciences. Let's win our winners. We absolutely should go full throttle to give them the support they need to grow and develop and to create jobs and higher pay. But to your point, Steph, that needs not to be to the complete neglect of what I call the everyday economy, which is where most of the jobs are. You know, retail, construction, hospitality, public services, health care and the like.

24:46Those need not and must not be seen as somehow dead end jobs. Low pay, low skill trap. And that means giving everyone, whatever sector they work on, some sense of the pathway to progress. So would you not invest in something like the Oxford-Cambridge corridor? No, I would. But that's a cluster and that's taking money away that could be spread more evenly across the country. So that's where we might differ because I don't think this is an either or. I think as a country, we still have enough, you know, that six trillion parked up in our pension funds to be able to pat our head and rub our tummy at the same time.

25:22So we absolutely can and should support those clusters of brilliance of which we have enough to get behind at scale. But equally, that must not mean we don't invest in people at the local level working in their everyday economy to help them to rise and shine. And that's an investment in people and their skills as much as it is in big projects and kit. I know those big projects make for good press notices and good TV. I'm not against them and as going at them with real energy, but that must not be to the neglect of those everyday jobs in the everyday economy and as offering people in those jobs real hope of progressing.

26:05And this is where I'm sort of surprised by this government's, well, some would call it short-sightedness, the returns from being seen to help people in places like Ashfield and Mansfield improve their earning path through improving skills in the short term, the political returns from that will come way faster than, for example,£40 billion in new nuclear power, which is not going to be online till sometime after 2030 at the earliest. I'm just surprised. We are going to talk to Jackie Smith about skills, but my goodness, there's not enough momentum behind that programme because the returns from properly investing in upgrading our skills would come much faster than some of the other, as you say, eye-catching, multi-billion pound infrastructure investments.

26:57That's so right. I mean, put it in political terms, that high end, the high skill, high pay, graduate metropolitan is already voting Labour. The swing sits elsewhere. And, you know, among the reasons I think people are migrating their vote is because they have no sense of progress in their lives and in their pay packet and in their jobs in that everyday economy. And unless and until we do, they'll be looking for alternative solutions, alternative parties. So this ought to be the core that every political party is seeking to harvest. And that means having an investment in them, the people in those jobs.

27:35One of the things I'm also slightly obsessed by and I've been banging on about now for two or three years is skills retraining. You can't do it unless you also change the welfare system. And if AI is not just about augmenting people's skills, it's definitely not quite a lot of AI is about replacing people. then I believe that when somebody's job disappears, the state has to give them a decent income, but conditional on them acquiring new, useful, productive skills. So you would time limit it. But we have no schemes like that, or at least not generous enough and not widely available enough. Again, it just feels to me like another area where thinking is so short-sighted at the moment.