Does the government know what the UK’s largest industrial sector is? And if it doesn’t know, does it matter? Perhaps yes, given Brexit…..

April 15, 2019

Forecasting Eye 

 

You might think that after Cebr published its report two weeks ago showing that The Flat White Economy is now the UK’s largest sector – heavily covered not only in The Times and Bloomberg but also in the main IT press – someone from the government and the Bank of England might have been in contact with Cebr to find out more and to open a dialogue about our analysis.

 

Yet, this has not been the case as a persistent feature of the government has been a reluctance to use data from sources other than itself. It might accept some data from full time academics, but the heart of the UK economics sector is its healthy private sector with economists in consultancies and in financial institutions. Research carried out last year suggested that the private economics consultancy sector turned over more than £1.5 billion – more than all UK cinema box office takings – and was growing at an annual rate of 8%. Despite this, the government does not recognise the sector as an important source of information.

 

To repeat the key findings from our report from two weeks ago, Cebr research showed that the Flat White Economy (for detailed statistical definition see the full report on the Cebr website) is now 14.4% of Gross Value Added compared with industry at 13.8%. Using GVA as a measure, though conventional, understates the role of industry in creating indirect output in supplier industries. If this is taken into account, industry almost certainly remains a bigger sector. But – using only the government’s own statistics – the Flat White Economy is the biggest direct contributor to GVA of any sector in the economy. And this does not even take account of the tendency to under-measure the digital sector to which I drew attention in my eponymous book The Flat White Economy.

 

If the sector has expanded so fast without the government acknowledging its existence, maybe hiding your light under a bushel is the right approach. After all, a sector that is driven by people but doesn’t require much capital may not need much government support. People seem to train themselves in using IT without a large direct training effort from government, though the role of the schools in this has presumably made a big difference.

 

But one area where the future will not be like the past is Brexit. Until now, the supply of skills for the Flat White Economy has been driven by a mix of domestic supply (60%) and migration (40%). If this changes post Brexit the sector is likely to lose not only skills but also the creativity which is its raw material. So whereas until now it has not really mattered that the government did not know what its largest economic sector is, post Brexit it is vital that immigration policy takes this into account.

 

Contact: Douglas McWilliams dmcwilliams@cebr.com – 020 7324 2860