IPSOS VIEWS

UNDERSTANDING SOCIETY

2. 3.

03.Foreword by Kelly Beaver

04.Europe 10 years after the crash

How do European businesses and global investors view prospects in Europe?

Allan Simpson, Kelly Finnerty

08.Communicating economics

An interview with Kamal Ahmed, former Economics Editor for BBC News

Ben Page

12.Prosperous beyond Europe

A vision of trade outside the EU

Joanna Crossfield, Krishna Dabhi

16.Cyber attacks: a dangerous business

Can UK businesses and charities better protect us from cyber attacks?

Rowena Schoo, Senior Policy and Communications Advisor at the Department for Digital, Culture, Media and Sport (DCMS), Jayesh Navin Shah, Harry Williams

20.We need to talk about automation

The views of UK businesses, MPs and the public on automation

Mark McGeoghegan

23.Your country needs (data about) you!

Can AI win public hearts and minds?

Sarah Castell

28.Solving the productivity puzzle

An interview with Gemma Tetlow, Chief Economist at the Institute for Government

Kelly Beaver

32.Skills gap or skills divide?

Public support for investing in UK workers’ skills post-Brexit

Trinh Tu, Patricia Pinakova

35.Is the penny dropping for Britain?

The move from cash to contactless

Darragh McHenry

39.The credit they deserve

How can we improve access to finance for UK SMEs?

Matt Adey, Director of Economics at the British Business Bank, Dr Rebecca Klahr, Yasmin White

efficiency in the workplace, or a risk to jobs? Do they understand the full implications of AI on society and the economy, and do they appreciate the full value of their personal data in an AI-driven world?

Finally, we look at the complex world of cyber attacks – an increasingly everyday threat to businesses. As the latest hacking attacks and ransomware threats make headlines in the UK and worldwide, are UK businesses and charities up to the task of protecting our data from harm?

We hope you enjoy reading this edition of Understanding Society, looking at today’s and tomorrow’s challenges for businesses and the economy. We hope that the insights of all our contributors, drawing on our own research and analysis, and other contextual data, will inform the debate among our readers on these important topics. We remain committed to understanding society from the broad range of social and economic research we and others conduct, in the belief that this leads to better politics, policy and practice. If you would like to discuss any of the research here, please get in touch.

Kelly Beaver Managing Director, Ipsos MORISocial Research Institute

@KellyIpsosMORI

growth, employment statistics and low productivity. While there are no quick-fix solutions, she suggests we should open new lines of communication between businesses of different sizes, and across different sectors. Can they create a space to share good practice and ideas, and to develop new ways to boost productivity together?

Communication is also the focus of the interview between Kamal and our Chief Executive, Ben Page. Kamal draws on his wealth of experience in journalism to argue that the media, economists and business managers should re-engineer how they communicate policy and future challenges to the general public. This, he believes, is one way to resolve the so-called twin deficits in public understanding and public trust.

Work by our researchers also touches on similarly deep-seated structural challenges. First, we give an overview of business and inward investment in Europe since the 2008 financial crash, and how this illuminates the present and future prospects of the UK and other European economies. We explore the UK skills shortage, and how the public attitudes might help or hinder certain solutions and policy approaches. And we consider the problems small and medium-sized businesses encounter in their attempts to access finance, and how the Government can support their growth ambitions.

But this edition is not just about structural deficiencies – it’s also about technological innovations that are reshaping the workplace and the wider economy. Our article on cashless payments demonstrates the significance of contactless to consumer spending behaviour. It also warns of the impact on demographic and economic groups vulnerable to this transition, such as the homeless, the elderly, and small family businesses unwilling to invest in card payment technology.

We look at the role of automation and artificial intelligence (AI) in the world of work, and public perceptions of this. Do people believe automation is essential for

Welcome to this edition of Ipsos MORI Social Research Institute’s Understanding Society. This issue, Tomorrow's Business, delves into the landscape of UK businesses – not only the contemporary and upcoming challenges that threaten their success, but also some of the opportunities that await them. Perhaps even more so than normal, the state of the UK economy is of critical importance to our country’s researchers, policymakers and practitioners. It has never been more important for central Government to engage with businesses to deliver its Industrial Strategy, improving the UK’s productivity and coordinating its departure from the European Union.

And there it is – the elephant in the room. Regardless of your views on the outcome, it is fair to say the vote to leave the European Union has transformed the political, cultural and economic landscape of Britain. Brexit and the prevailing atmosphere of uncertainty in the UK make it difficult to focus on anything else. Our monthly Issues Index shows that Brexit now dominates public concern just as much as the economy did after the financial crash 10 years ago.1

Business-as-usual is a thing of the past, for the Government and businesses alike. However, businesses and the economy will still be here after March 2019, dealing with the challenges that await them. In this issue, we strive to create a vision for the future of the UK economy, based on research carried out by business and economics experts in our UK Social Research Institute. We shed light on important themes that risk falling under the radar of public interest: productivity, skills, new technologies, and trade.

To help us explore these themes further, we are delighted to have contributions from Gemma Tetlow, Chief Economist at the Institute for Government, and Kamal Ahmed, Editorial Director and Economics Editor at the BBC. In an interview on the UK’s productivity puzzle, Gemma discusses the contradictions and links between wage

Foreword

Editorial: Lucy TallentireJayesh Navin Shah Patricia PinakovaYasmin White Information www.ipsos-mori.com Lucy.Tallentire@ipsos.com Follow @IpsosMORI

Foreword

4. 5.

Kelly Finnerty

Allan Simpson

Ipsos MORI – Understanding Society November 2018 Europe 10 years after the crash – How do European businesses and global investors view prospects in Europe?

Europe 10 years after the crashHow do European businesses and global investors view prospects in Europe?

rating agencies downgraded many of Europe’s biggest economies. Economic growth in the Eurozone and the UK came to a virtual standstill in 2011. Eurostat data show that net investment – in capital expenditure, research and development, and in staff training – in the Eurozone and UK economies fell dramatically post-2008.3

So where does the story go from there? What has happened to investment prospects in European economies since the crash? Two international Ipsos MORI surveys give us several important insights. The annual European Investment Bank Group Survey on Investment and Investment Finance shows the investment perspective of around 12,000 European businesses.4 And our 2017 Global Investment Decision-Makers Survey for Invest Europe looks at the attitudes of

A tough decade

Just over 10 years ago, in August 2008, the investment bank Lehman Brothers filed for bankruptcy, kicking off the global financial crisis. It’s hard to understate the impact this had on European economies, and on their citizens. Before the crash, the unemployment rate in the European Union (EU) had reached an all-time low of 6.8% in February 2008. By February 2013, this was at an all-time high of 11%.2

The decade that followed the crash proved tough for Europe. There was the Eurozone debt crisis and associated bailouts for Greece and Portugal. Credit

said they would invest less than before.Businesses’ actual behaviour has also

exceeded their own expectations in the recent past. Our data show that, one year previously in 2016, 26% of European businesses said they would invest less over the course of that year than they had in previous years. In the latest survey, we retested this prediction against what businesses actually did in 2016. Just 15% really did invest less in 2016.

Wider investment indicators outside our European businesses survey paint a similar picture. For example, the European Investment Bank’s 2017/18 economic investment report highlights that net business investment in the EU is now growing at a faster rate than it was from 1995 to 2005 – a faster rate than the pre-crash average, effectively.6

Turning to inward investment from global investors, prospects are also broadly positive. In total, six in ten (60%) of the global investors we surveyed believe their fellow investors will increase their investment in Europe over the next five years, and a quarter (24%) strongly agree with this sentiment.

One Europe, many countries

There is, of course, variation across countries (Figure ONE). The investment outlook has been particularly positive in countries like Denmark, Slovenia, Luxembourg, Sweden, Finland and

global investors towards Europe, and how these compare with those towards the US and China.5

A good news story?

In the current climate of uncertainty, it can be difficult to find good news. Nevertheless, our survey of European businesses shows just that. For two years running, more businesses have said they would increase rather than decrease their levels of investment. Most recently in 2017, 35% intended to increase their levels of investment, while 40% said they would maintain current investment levels. Just 23%

When it comes to inward investment in the UK, it’s a slightly different story. Global investors are split three ways. Just over a third say Brexit will make no difference to them investing in the UK over the next five years.

Europe has many winnersFigure ONE: Future expectations vs. current investment

65% 70% 75% 80% 85% 90% 95% 100%

Lithuania

Croatia

Austria

NetherlandsSloveniaLuxembourg

All EU business average

Czechia

FinlandDenmark

SwedenFrance

UK

Portugal

Bulgaria

Greece

Romania

Latvia

Estonia

Hungary

Slovakia

Cyprus

PolandBelgium

Germany

Spain

Malta

Italy

Ireland

30%

20%

10%

0%

-10%

*Net balance is defined as the % expecting to increase investment minus the % expecting to decrease investment.

Low investment and expanding

Low investment and contracting High investment and contracting

High investment and expanding

Share of firms investing

Net

bal

ance

of f

irms

expe

ctin

g to

in

crea

se in

vest

men

t in

2017

*

6. 7.

Ipsos MORI – Understanding Society November 2018 Europe 10 years after the crash – How do European businesses and global investors view prospects in Europe?

Belgium, where, as our survey shows, a very high proportion of firms is already investing, and investment prospects for subsequent years have been among the most favourable. At the other end, Greece, Bulgaria and Romania have lagged behind with only around six to seven in ten of firms in these countries currently investing (versus an EU average of 84%), and with more muted investment prospects compared to other EU countries.

Comparing 2017 investment expectations to actual 2017 GDP growth rates also highlights the stronger and weaker performers. Among the established high-income economies, Germany and the Netherlands have both higher-than-average investment expectations, and high growth rates (growing 2.2% and 3.2% respectively). By contrast, the UK and France come across as relatively stagnant, with both lower-than-average investment expectations, and relatively low growth (each growing 1.8%). Across the rest of Europe, it is the new European economies leading the way – Slovenia, Estonia, Hungary and Poland all have higher-than-average investment expectations, and GDP growth rates at or in excess of 4%.

Beyond the economics

European businesses still have concerns about the future. On balance, they think the overall economic climate will get better over the next 12 months. On the other hand, twice as many expect the political and regulatory climate to decline (28%) over this period as expect it to get better (14%).

Perhaps this isn’t surprising, given Europe’s broader concerns and

challenges. Since 2015, several EU countries have had an influx of economic migrants and refugees, termed the EU migrant crisis. Our 2017 global poll on attitudes to immigration shows that people in Germany, Sweden and Italy are among the most likely to think that immigration has increased “a lot” in their countries over the last five years.7

Alongside this, populist parties have gained power in EU countries, such as Italy, Austria, Hungary and Poland. Our most recent (September 2018) global survey shows that an anti-system sentiment is still strong in Europe. We find that people in Hungary are among the most favourable in the world towards having outspoken leaders, while people in Spain and Italy typically have the least confidence in the banking system.8

Don’t forget Brexit

Yes, Brexit is happening. But as a whole, Europe is perceived to be resistant to big shocks. Half (50%) of the global investors we surveyed feel that Brexit will make no change to their decision to invest in EU countries (excluding the UK) over the next five years. And a further third (33%) say they will be more likely to invest.

When it comes to inward investment in the UK, it’s a slightly different story. Global investors are split three ways. Just over a third (36%) say Brexit will make no difference to them investing in the UK over the next five years. Three in ten (30%) say they would be more likely to invest in the UK over this period, and a third (33%) say they would be less likely to do so.

Europe’s perceived structural weaknesses

Global investors have their own thoughts on the relative strengths and weaknesses of European economies. These tell a familiar story, as shown in Figure TWO.

Europe’s perceived strengths, relative to those of the US and China, include a high-skilled workforce, access to Government incentives, the rule of law, and commitment to environmental sustainability. Europe is also more likely than the US and China to be seen as politically and socially stable. This puts the earlier findings into perspective – businesses are concerned about the political and regulatory climate, but political stability is still seen on balance as a strength of Europe, relative to the US and China.

At the same time, Europe is perceived as comparatively weaker than the US in its access to other global markets, efficient capital markets, its IT infrastructure, and in innovation and entrepreneurship. This highlights that there are persistent reservations about Europe as a place to invest.

A recovery fraught with challenges

Europe’s ongoing recovery comes after years of turbulence and it’s

important not to judge this prematurely. The EU unemployment rate has only recently got back down to 6.8%, and youth unemployment remains high.9 Wage growth in several European economies has been poorer than overall economic growth – analysis by the European Trade Union Institute reveals the average European worker in the UK, Belgium, Finland, Greece, Italy and Spain was earning less in 2017 than they were in 2010.10 And a new debt crisis in Italy may be just around the corner.

At the same time, our surveys highlight areas where the outlook is mixed. These

include worries about the political and regulatory climate, and ever-present perceptions of a lack of dynamism in European economies compared to the US. These kinds of concerns are hardly surprising in the wider context of Brexit, the migrant crisis, populist governments and the spectre of US trade tariffs.

Nevertheless, our surveys, and other economic indicators, highlight several positive sentiments among businesses and investors. Europe is a big place, with high performers and low performers, economically speaking. But as a bloc, the investment climate

across European economies looks good. If businesses and investors are right, the collective future of the continent is brighter than we might think.

Global investors perceive strengths and weaknesses with EuropeFigure TWO: Q. From the options provided, which country or region do you think is the strongest performer in each of the following areas?

High-skilled workforce

51%

33%

16%

Economic growth

23%

25%

52%

Access to low-skilled workforce

18%

14%68%

Labour flexibility

30%

33%

37%

Government incentives

48%

32%

21%

Efficient capital markets

39%

49%

12%Access to global

markets

37%

44%

19%

Innovation and entrepreneurship

30%

50%

20%

Political stability

50%

25%

26%

Commitment to environment

74%

16%11%

Social stability

50%

24%

25%

Transport infrastructure

50%

31%

19%

Rule of law

53%

31%

16%

IT infrastructure

31%

57%

13%Tax levels

36%

38%

25%

Regulatory climate

48%

38%

14%

% saying Europe % saying US % saying China

8. 9.

Ipsos MORI – Understanding Society November 2018 Communicating economics – An interview with Kamal Ahmed, Economics Editor for BBC News

Ben Page

Communicating economicsAn interview with Kamal Ahmed, Economics Editor for BBC News

the productivity puzzle, tax or legislation, or remuneration. A potential partnership would significantly brighten the future of the UK economy.

BP: In your opinion, which industries face the most challenges over the next five years?

I think the most obvious are those with a complicated supply chain and links with the EU, such as the car, pharmaceutical, food and retail industries. Those with global connections will be less affected than those with a particularly European focus.

There are also several prevailing issues for smaller and medium-sized businesses, particularly around productivity and how to invest for the future. Businesses are still more likely to be risk-averse because of the financial crisis, the Eurozone crisis and the uncertainty around Brexit. These issues have created an atmosphere in which it feels like the next crisis is just around the corner. Businesses are now carrying much more cash on their balance sheet than they did in the past. Uncertainty has depressed the level of investment and has made it more difficult for businesses to think about how they can invest for the future, to drive sustainable productivity.

BP: Do you think that the Government’s business strategy is well-received by UK businesses?

I do – I think businesses appreciate the fact that the Government is talking about these issues, particularly given my earlier point that we’re unlikely to see any policy changes or new legislation for a while. The Industrial Strategy promotes conversations between the Government and businesses. I think businesses

For fear of stating the obvious – Brexit is a primary concern for every global company, at present. The UK leaving the EU will also prove significant for the wider business community who trade with and rely on EU goods and services.

It’s easy for me to get an overly optimistic view of business because I speak to some very successful companies. But I have found a surprising number of smaller businesses to be more optimistic than anticipated. I think this is likely to be a result of our current position in the single market with a depressed currency value. This has resulted in a general economic boost for the country; costs have decreased, for example, for small engineering firms, which import from abroad and do small-scale manufacturing here for export. There is also a degree of optimism regarding global growth, which has remained stronger than many expected.

BP: There is obvious uncertainty about the outcome of the Brexit negotiations. But in terms of skills and transport, where do you see the position of the UK economy in five years’ time?

A major concern is that Brexit has dislodged other important issues from policymakers’ minds. Are we currently getting a coherent line on the new world of work, the skills debate or the productivity problem? And we should be mindful of a lack – or even absence – of policy proposals in other areas.

The general political tone of late has been described by some as anti-business, so one of the greatest challenges for UK businesses is how to change the Government's inclination to be tough on them. The Government faces several issues in which businesses could be asked to play an advisory role, be that

Kamal Ahmed is Editorial Director of the BBC, and Economics Editor at BBC News.

He joined the BBC in April 2014 as Business Editor from the Telegraph Media Group where he was Executive Business Editor with responsibility for the Sunday Telegraph’s business coverage. He was also the editorial lead for the Telegraph’s annual Festival of Business.

Between 2007 and 2009 Kamal was Group Director, Communications, at the Equality and Human Rights Commission, the regulator charged with upholding and enforcing equality and human rights legislation in Britain.

Before joining the Commission in 2007, Kamal was Executive Editor at the Observer with responsibility for the news section of the paper. He was a member of the team that developed and re-launched the Observer as a mid-sized, full-colour Sunday paper, a development that won Newspaper of the Year at the British Press Awards in 2005, the highest award for any newspaper.

BP: Thanks for joining us, Kamal. I’d like to start by getting your take on our recent study of FTSE 500 companies, which revealed a pessimism about our economic future.11 What do you see as the key pressures on the UK economy?

have begun to realise they are part of the solution to issues like income and productivity – and that the Industrial Strategy is at least an attempt to have those types of discussions.

BP: Do you think businesses lack confidence?

Well, a typical business leader is no shrinking violet; Chief Executives rarely lack confidence within their own businesses. Nevertheless, some clearly lack confidence to participate in public debate. Since 2008, there has been a growing fear to enter the public domain, with which there has not yet been adequate engagement. I suspect most business leaders fear they will not get a fair hearing, so they avoid the possibility of it altogether. Nigel Wilson of Legal & General is, perhaps, the exception that proves the rule – he is one of the very few businessmen willing to publicly discuss the role of business in issues such as housing and income.

BP: Chief Economist at the Bank of England, Andy Haldane said economic policy has “twin deficits” – both a deficit of public understanding and a deficit of public trust.12 Do you agree with Andy?

A key challenge for the Governor and Andy Haldane is improving communication with the public, to help the public understand the role of the Bank of England. The visibility of central banks in public debate has changed dramatically over the last 20 years – Mark Carney is now seen as pivotal to the future of the UK economy. This comes with great responsibility, and I personally believe that the Bank is dealing with that relatively successfully.

On public trust – we need to reflect on the public’s perception of experts. For instance, does the public understand enough what a forecast is and why it is necessary? The notion that all forecasts are wrong has been toxic to the economic profession, and unfairly so. Forecasts are a set of possible outcomes, of which some are more probable than others. Forecasting is a statistical exercise, not an exact science – it’s not like saying “if I drop this ball, it will fall”.

Economics has become crucial to the future of the UK and for that very reason I think that the Bank and the media are duty-bound to tackle the deficit of public trust to which Andy refers. The best approach is explaining the use of forecasting in planning for the future. As Tony Blair once said: “The two options on the table are not where we are and Shangri-La, it’s where we are and the alternative.” The alternative to forecasting – not forecasting – would be far worse than the risk of over-interpreting a few outlying results.

BP: We know that people struggle to calculate how much they should put away for the future, or how much it costs to raise a child. If it is difficult for them to manage their own incomes and spending patterns, do you think they can deal with complex macroeconomics?

I don’t want to criticise the public for giving little thought to tail risks, bond yields and the Government’s fiscal rules. What we need to do is connect these topics to what people will understand – the price of everyday goods, interest rates and employment levels. These issues are very direct and relevant to people’s everyday lives. We should not expect the audience to understand the granular detail of complex

Businesses are still more likely to be risk-averse because of the financial crisis, the Eurozone crisis and the uncertainty around Brexit.

10. 11.

Ipsos MORI – Understanding Society November 2018 Communicating economics – An interview with Kamal Ahmed, Economics Editor for BBC News

macroeconomics – we should do more to simplify these issues into language people can understand. And we should be particularly careful not to let complex terminology affect public understanding of, and trust in our experts.

BP: How do you think businesses and journalists should communicate economic and business policy to the public?

It is up to us, as businesses and journalists, to focus on what is most important, and make this as relevant and relatable as possible. To mark the 10th anniversary of the financial crisis, we did a piece that took readers on a whistle-stop tour of the crisis as it happened – Lehmans, RBS, Alistair Darling, Obama, a heck of a lot of people carrying boxes and Mervyn King. That worked well, but we found our real-people case studies particularly effective. We interviewed a single father, whose income was £18,000 in 2008 and is still £18,000 today. We let him tell his story; he had worked for Woolworths, was made redundant almost immediately after the crisis and had to deal with the financial hit of sending two children to university, simultaneously. It’s a different narrative from the usual experts’ perspective; and audiences can relate to that.

I think the challenge for journalists and businesses is to re-engineer the way they communicate – we need to blend expert opinions with the far more engaging narrative of the public’s experiences, giving information and explaining the world in a way that audiences can engage with. Communication is a huge responsibility for anyone involved in this debate – not just for journalists but for business people too. We are in a period of flux and if we want to have a national conversation about these very important issues, then we need to understand how

our audiences and the wider population can participate in that conversation.

BP: Following on from this, what role should journalists and businesses play in “reality checking” the facts?

We have a concept called “BBC Explain”, which acts as a centralised reality check unit. We have both data and visual journalism there. I think that institutions and organisations should at least attempt to get beneath the headlines to discover what is really going on. There is a tendency in the media to be quite binary, which I describe as “black-hat/white-hat” – that there is a goodie and a baddie. But often there is neither, and we need to think about how we report that.

“BBC Explain” includes a network of experts – trusted guides to educate and inform. It’s not just about reporting the news, it’s about giving context. It’s an incredibly important part of what we do because it questions our instinctive prejudices. There’s a place for instinct, of course, but there is also a place for really trying to understand how and why people think a certain way. Once you understand that, you can engage with them. We must engage in this kind of debate – I think that’s true with all institutions.

The term "transparency" is banded around a lot now, as well. Your work at Ipsos MORI provides very helpful insight into audience trust. I recently had dinner with a senior person at TSB, where I was told the full story behind their IT issue. I think people would respond well to businesses with the initiative and the courage to stand up in the public domain and explain what happened. Businesses should lead by example and be brave enough to say “these were the issues we faced, this is what we did to resolve them, and this is why we kept some

things private for a while.” I think there is a duty on us to do much more “return journalism” – going back to a story and looking at what actually happened with the help of hindsight.

BP: How do you get that “return journalism” into a busy news cycle?

Well, we could put it anywhere, but it needs to have visibility to make an impact. The media still relies too heavily on the 24-hour cycle – here’s the news in the morning, here’s some other news in the evening, and then tomorrow here’s some completely different news.

Sometimes news can seem chaotic, we need more reflective journalism. The hectic, noisy crises that form so much of our news are often not relatable for the public, whose lives are not typically in constant crisis. They get up every morning, go to work, come home, see family and friends or whatever else it might be. As a news group board, we’re trying to come up with fresh ways to appeal to a more diverse audience, and different types of audiences. BBC Three is experimenting with news formats right now to engage younger audiences, for example.

BP: Popular science is a hugely popular area of publishing – could journalists and businesses learn from that?

We should try to learn from their example. Isn’t it amazing, about 20 years ago, BBC History plugged into people’s obsession with knowledge to cover things they really wanted to learn about. Businesses should try to learn from popular science journalism which tells compelling stories about its world, like the struggle against adversity or success following a crisis. It makes it emotional and creates empathy. James Harding, the

former Director of BBC News, had what he called “slow news”, which is more considered, contemplative and emotive, but it has been mainly text and digitally based so far. We need to think about how we can be a bit slower on television news as well, give things a bit more air, rather than bang, bang, bang.

BP: Some great insights. Thanks, Kamal.

There’s a place for instinct, of course, but there is also a place for really trying to understand how and why people think a certain way; once you understand that, you can engage with them.

12. 13.

Ipsos MORI – Understanding Society November 2018 Prosperous beyond Europe – A vision of trade outside the EU

Krishna Dabhi

Joanna Crossfield

Prosperous beyond EuropeA vision of trade outside the EU

international trade. The British Social Attitudes survey found that feelings of protectionism dropped, across a range of measures, between 2003 and 2013. A follow-up survey in 2017 found these views had fallen even further, suggesting we are becoming increasingly positive about the role trade plays in our economy (Figure THREE). Good news for those tasked with setting the scene for our future relationships with the EU and the rest of the world.

Seeing the big picture

It doesn’t look like this positivity is built entirely on blind faith. It seems to be grounded in at least some understanding: the vast majority of people (68%) know that the EU is our biggest trading partner – although only half of us (50%) know that there is a difference between the Customs Union and the single market – and over six in ten (62%) know that we are net importers, which makes our support for free trade more notable.

We are also mostly able to identify the big players in international trade and where they are placed. When asked to rank 14 countries on the value of their international exports, on average the British public correctly identify China, the US, Japan and Germany as being the top four, suggesting we have a clear picture of where future opportunities lie (Figure FOUR).

Magnifying the UK’s position

false? And what does this mean for policymakers and communicators?

It certainly seems that we’re entering into this new era with open hearts. Over half (55%) of us see opening up the UK economy to foreign businesses and trade as an opportunity, compared to a fifth (20%) who see it as a threat. That puts us amongst the most open of the 23 countries that Ipsos MORI surveyed in 2016. Twice as many of us support economic openness than in Italy, France or Japan.13

Other indicators also seem to point to a growing warmth towards

A new vision for trade

Trade is back in focus, as the Government prepares to negotiate independent trade agreements after 45 years of common European Union (EU) policy. But how do the British people feel about this? How do we see ourselves when it comes to international trade – and just as importantly, do we understand the realities about trade, or are our perceptions

Over half (55%) of us see opening up the UK economy to foreign businesses and trade as an opportunity compared to a fifth (20%) who see it as a threat.

But our picture of our own place in world trade is less clear. In fact, it could even be described as conflicted. Although half (49%) of us agree that our “country is in decline”, we still seem to exaggerate our role in global trade in some areas. For example, despite getting the hierarchy of the four biggest global traders right, we’re off the mark when it comes to our own position, pushing ourselves up from eighth to fifth. We also promote the Commonwealth countries Australia and India, at the cost of our neighbours France, Italy, the Netherlands and Switzerland. This suggests we magnify not only our own position, but also that of non-EU countries with whom we have a historic relationship.

We also overestimate the strength of our trade relationships with key countries. We think we export much more to China, Japan and Australia than we do in reality (Figure FIVE). We are about right on our exports to the US, slightly underestimate exports to the EU, and even further

underestimate how much we export to the rest of the world. What’s more, perceptions of the players we trade with have not changed since we last asked this question in 2016. This suggests that increased coverage of the issue, as Britain prepares to negotiate an independent trade policy for the first time in over 45 years, has had limited impact on public knowledge.

These attitudes create opportunities for the Government. British people are clearly open to international trade and are becoming more so, suggesting its promotion should fall on fertile ground. However, policymakers and communicators will also need to manage our great expectations. Our findings suggest that an uplift of our place in the global trade hierarchy and diversification of trading partners away from the EU may only meet, rather than exceed, expectations of our place in the world.

Despite this slightly overinflated sense of self, we actually underappreciate our current trade performance in other

We are increasingly positive about international tradeFigure THREE: % agreeing with the following statements

2003 2013 2017

Large international companies are doing more and more damage to

local businesses in Britain

Free trade leads to better products becoming available in Britain

Britain should limit the import of foreign products in order to protect

its national economy

62%

57%

56%

56%

63%

48%

53%

63%

36%

14. 15.

Ipsos MORI – Understanding Society November 2018 Prosperous beyond Europe – A vision of trade outside the EU

areas (Figure SIX). Taking our trade relationship with the US as an example, we see ourselves as net importers when we are net exporters – we may be underplaying what the UK brings to the table, to the US in any case. We also underestimate the proportion of our exports from manufacturing, suggesting that we may offer the world more than we think. These beliefs may help communicators to set up quick wins to boost national confidence and pride when it comes to trade. This might be particularly helpful to nurse a collective bruised ego, should we realise where we really sit in the world.

Blurred vision

When it comes to trade, we seem conflicted about our place in the world. We feel that we’re not the trading nation we used to be, while overestimating our position in the world simultaneously. Some things are worse than we think, and others are better.

Changing attitudes is hard; we see that every day in the wide range of tracking and longitudinal studies we run for clients, where public opinion inches

forwards and back again, often taking a dip when external stimulus such as advertising is removed. Changing the narrative is even harder in a current climate of mistrust: eight in ten (79%) lack confidence in political parties, three-quarters (75%) in the media and two-thirds (66%) in the Government.14 Furthermore, all of our experience in understanding people’s misperceptions – whether about trade, our relationship with the EU, immigration, crime, or any other important social policy – tells us that simply trying to counter people’s attitudes by quoting statistics to them is unlikely to work. Facts are important, but they need to be woven into emotionally resonant stories to help them stick. And

even then, we will probably always have biases that will mean we overestimate our own performance, or that mean negative stories about decline will have the advantage over any good news.

Despite these challenges, we think there are reasons to be cheerful for those tasked with promoting international trade to the British public: we’re open to it and we think we’re quite good at it. There may even be some quick wins to be had by building awareness of the existing strength of our trade relationships with the US, and bolstering confidence in manufacturing, which might come in handy in the event of a “no deal” exit from the EU. What’s more, people recognise that trade is going to be vital

for Britain’s relations with other countries over the next 10 to 20 years, much more than our military or cultural influence for example. Trade could play a bigger part in our national conversation in the future.

48

62 13 25

The EU is the UK's largest trading partner (true) 68 16 17

We overestimate the strength of some trading relationshipsFigure FIVE: % share of UK exports by trading partner (actual and perceived)

EU US Australia China Japan Rest of the world

38%

9%

12%

8%

16%

17%

Perceived % share among UK public

43%

2%3%

32%

2%

18%

Actual % share based on value of

exports

We have false perceptions of UK tradeFigure SIX: Q. Do you think each of the following statements are true or false?

% correct % incorrect % don't know

In 2016, the UK spent more on imports of goods and

services than it earnt in exports (true)

The EU Customs Union is the same thing as

the single market (false)

The UK sells more to countries outside

of the EU than within the EU (false)

The UK sells more goods and services to the US than

it buys from them (true)

Less than a third (33%) of the UK's total exports

are from manifactured goods (false)

50 19 32

33 40 27

19 50 31

30 23

Which countries do people perceive as high-value international exporters?Figure FOUR: Countries ranked by value of exports (actual and perceived)

Country Actual rank of countries shown based on value of exports

Perceived rank among UK public

China 1 1

US 2 2

Germany 3 4

Japan 4 3

France 5 7

Italy 6 11

Netherlands 7 12

UK 8 5

Canada 9 8

Switzerland 10 13

Russia 11 10

India 12 6

Australia 13 9

Portugal 14 14

16. 17.

Ipsos MORI – Understanding Society November 2018 Cyber attacks: a dangerous business – Can UK businesses and charities better protect us from cyber attacks?

Harry Williams

Jayesh Navin Shah

Rowena SchooCyber attacks: a

dangerous businessCan UK businesses and charities better protect us from cyber attacks?

Are any businesses really offline anymore?

Not really. The Cyber Security Breaches Survey (CSBS) 2018 shows that virtually all UK businesses (98%) and charities (93%) rely on some form of digital communication or services, such as websites, online bank accounts, social media pages. Around half (56% of businesses and 44% of charities) hold personal data on customers electronically.

These aren’t just tech firms. As Figure SEVEN shows, with data from our 2017 Commercial Victimisation Survey, firms in the agricultural, manufacturing and construction sectors are among the most worried about online crime.

Despite the headlines, this isn’t all about complex hacks and malicious code written by nefarious programmers. CSBS 2018 finds that of the 43% of businesses that identified a cyber attack in the past year, three-quarters (75%) of these were scam emails or websites targeted at ordinary staff.

Cyber attacks can be costly

Where cyber attacks have a tangible outcome, like a loss of files or access to a network, the costs can be substantial. According to CSBS 2018, businesses that had these kind of attacks lost an average of £3,100 last year as a result. For the large businesses (with 250 or

and almost 200,000 registered charities in the UK? And for their customers and beneficiaries, i.e. all of us? This is something that various Ipsos MORI studies have sought to answer, including our series of Cyber Security Breaches Surveys with businesses and charities for the Department for Digital, Culture, Media and Sport15, our Commercial Victimisation Surveys of businesses for the Home Office16, and research from Ipsos MORI’s Reputation Council of global business leaders17.

Hardly a month goes by without news of a major corporation being struck by a cyber attack. In the last two years, big names such as Reddit, Ticketmaster and Uber have all taken a bruising. In the UK, the 2017 Wannacry attack on the NHS and others was still fresh in people’s minds … just as the recent British Airways hack hit the news.

If attacks on big business make headlines worldwide, what is the situation for the other 1.3 million or so businesses

more staff) facing these kinds of attacks, the average resulting loss was £22,300. The introduction of the General Data Protection Regulation (GDPR) earlier this year also means that businesses face far more stringent fines for cyber breaches involving personal data loss.

There are non-financial costs too. Global business leaders on Ipsos MORI’s Reputation Council see cyber security breaches as one of the greatest threats to their corporate reputation, rated the same as poor quality products or services (Figure EIGHT).

However, many cyber attacks do not result in lost data or network access. CSBS 2018 finds that, among the businesses experiencing cyber attacks last year, only two-fifths (37%) faced this kind of tangible outcome. In most cases, the attacks failed. This presents its own

behavioural challenge: it only takes one successful attack to wreak havoc, but businesses may look at the typical failed cyber attack and come away thinking they don’t need to act.

Changing culture drives action

We needn’t be alarmist. Most businesses and charities do take basic actions to protect themselves, and their customers or beneficiaries, as Figure NINE highlights. But more can be done. Relatively few (37% of businesses) have rules around encrypting personal data,

It would be a catastrophe for our reputation if the information should leak. It would have a long-term effect on our reputation.

Ipsos MORI Reputation Council Member

Which sectors think about cyber attacks?Figure SEVEN: % of business premises that were worried about online crime by sector (2014 to 2017)

Agriculture, forestry and fishing

Information and communications

Manufacturing

Construction

Retail and wholesale

Arts, entertainment and recreation

Administration and support

Transportation and storage

Accommodation and food

38%

34%

29%

29%

27%

27%

26%

23%

11%

18. 19.

Ipsos MORI – Understanding Society November 2018

and even fewer (12%) hold their suppliers to the same standards to which they hold themselves. Across the board, charities fall behind businesses.

So how do you change behaviour? Qualitative interviews with businesses and charities as part of CSBS 2018 suggest that it requires a culture change within the organisation. On one hand, there were organisations that thought cyber security was just common sense,

and didn’t require special rules or training. On the other hand, some were scared of it, thinking it would be too technical for them, or create a burden on their staff if there were too many rules and controls. And many organisations suggested that change comes from the top, by having board members or trustees with responsibility for cyber security – something which only 30% of businesses and 24% of charities currently have, according to CSBS 2018.

Introduction of the General Data Protection Regulation (GDPR) earlier this year also means that businesses face far more stringent fines for cyber breaches involving personal data loss.

Cyber attacks: a dangerous business – Can UK businesses and charities better protect us from cyber attacks?

Not common sense, but not hard either

It’s clear that the Government, industry and regulators all have a role to play in helping change corporate cultures. In qualitative interviews in CSBS 2018, businesses and charities said that the Government, trade associations, and regulators such as the Charity Commission in England and Wales, were trusted sources of information and guidance on cyber security.

The Government already offers a range of guidance for organisations of all sizes. This includes:

• the Small Business Guide18 and Small Charity Guide19 for cyber security, setting out the simple, low-cost steps these organisations can take to improve their online protection

• the Cyber Essentials scheme20, which provides organisations with independent accreditation, so they can reassure customers that they have technical measures in place to prevent the most common cyber attacks

• the 10 Steps to Cyber Security21, which sets out a comprehensive cyber risk management regime for larger organisations

• guidance for management boards from the National Cyber Security Centre (NCSC)22, helping them ask the right questions to keep their organisations safe online.

Our research has consistently shown that businesses find this sort of guidance useful, but that they don’t make as much use of it as they could.

Taking responsibility

No organisation, regardless of size or sector, can escape the growing and costly threat of cyber attacks. If we’re going to fulfil the Government’s National Cyber Security Strategy 2016-202123, and make the UK the most secure place

to do business online, we all need to take responsibility. The Government, industry and regulators need to continue spreading good guidance. Management boards need to set the right culture from the top. And, perhaps most of all, frontline staff need to know what to do when – not if – that next ransomware email lands in their inbox.

Actions taken on cyber securityFigure NINE: % of organisations that have rules or controls covering each of the following areas

Up-to-date malware protection

Firewalls with appropriate configurations

Restricting IT admin rights to specific users

Backing up data securely via a hard drive

Security controls on the organisation's

devices (e.g. laptops)

Backing up data securely via a cloud service

Encrypting personal data

90%

89%

78%

70%

65%

58%

37%

73%

69%

65%

53%

42%

38%

31%

Businesses Charities

Cyber attacks hit reputationsFigure EIGHT: Q. From the following list, please tell me which two you feel are the greatest threat to your organisation's reputation?

A cyber security breach

Poor quality products or services

Malpractice by staff

Poor customer services

Mistreatment of the environment

False claims in marketing or communications

Mistreatment of local communities

Mistreatment of staff

42%

42%

27%

26%

17%

17%

13%

10%

47%

31%

20%

48%

7%

16%

5%

25%

Global business leaders from Ipsos MORI Reputation Council UK business or finance journalists

20. 21.

Ipsos MORI – Understanding Society November 2018 We need to talk about automation – The views of UK businesses, MPs and the public on automation

(45%), as Figure THIRTEEN shows.Reskilling people to do high-skilled

jobs is important, but we shouldn’t treat this as a magic bullet. It assumes that only low-skilled jobs are at risk. The ability to automate mental, as well as physical, labour exposes a very wide range of jobs, including high-skilled jobs, to automation. Lawyers, GPs, and even market researchers will feel the impact. It also assumes that the jobs of the future will be accessible to the current generation of workers displaced by automation, and not just to future generations. Neither assumption is supported by evidence, and both could be wrong.

Communication is key

Businesses face a dilemma. If they don’t automate what can be automated, they lose their competitive edge. But as more work is automated, higher unemployment and underemployment may take their toll on the communities in which businesses operate. Businesses need to engage with policymakers and the public on automation right now, so they don’t end up being blamed by

Mark McGeoghegan

We need to talk about automationThe views of UK businesses, MPs and the public on automation

But people don’t seem particularly concerned about their own jobs. Only one in four (24%) of the public are concerned that they, personally, may lose their job to automation in the next 15 years. Even specifically among those who think automation will lead to net job losses, only three in ten (30%) are concerned that they may lose their own job (Figure ELEVEN).

Our 2017 qualitative public dialogue on machine learning for the Royal Society makes a similar point. The general public participants in the dialogue recognised that machine learning was an important technology, which could have an impact on their lives. But they often didn’t fully grasp the potential of the technology. There was a sense of disbelief that machines could ever learn to make decisions, and therefore that they could ever really replace human workers, in jobs that require nuanced decisions.27

In sum, the general public is aware that automation will impact the labour market and could lead to job losses – but not for their job, which they think has some uniquely human component. Are they truly prepared and informed about what is around the corner?

Can’t we just reskill?

MPs are keen to forge ahead. Only 4% want the Government to regulate the degree to which businesses can automate work, and just over half (53%) would oppose an “automation tax” (Figure TWELVE). Almost nine in ten (89%) think businesses should continue to automate work. A high number believe that the Government should respond by investing in new industries (57%) and helping to reskill the British workforce

social, political, and economic challenges of transitioning to a heavily automated economy will be substantial. A recent Institute for Public Policy Research (IPPR) report argues that automation will, without careful management, have an outsized negative impact on the poorest in society.26

Governments, businesses and the public need to be prepared. Are they?

Not my job

Evidence from Ipsos MORI’s MPs survey, and our research among the general public, shows that both groups tend to believe that automation will cost more jobs than it creates. Almost half of our MPs and just over half of the public think more jobs will be lost than gained in the next 15 years (Figure TEN).

The Fourth Industrial Revolution is well underway. Automating work – replacing human workers with robots, machine learning algorithms, and artificial intelligence – is a phenomenon currently sweeping through every industry in the world.

Debate rages over the impact of automation on the labour market. The Organisation for Economic Co-operation and Development (OECD) estimates that almost one in ten jobs in the developed world are currently at high risk of automation, and a further one in four face a risk of being mostly automated.24 In the UK specifically, the Bank of England estimates that a third of all jobs are at high risk of being automated out of existence by the early 2030s.25

We might look at the original Industrial Revolution in the early 1800s and argue that job losses will be offset by job creation in new industries. But even then, the

Businesses face a dilemma. If they don’t automate what can be automated, they lose their competitive edge.

… but not that it will happen to usFigure ELEVEN: Q. To what extent are you concerned, if at all, that you personally will lose your job to automation in the next fifteen years?

% very concerned % fairly concerned % not very concerned % not at all concerned % don't know

Among all general public

Among those who think will lead

to net job losses

7

8 22

17 30 1036

3429 6

We predict jobs will be lost to automation … Figure TEN: Q. Do you agree or disagree with the following statement? More jobs will be lost than gained as a result of automation over the next fifteen years.

% agree % neither agree nor disagree % disagree % don't know

General public

MPs

54

45 24

24 11 12

27 3

22. 23.

Ipsos MORI – Understanding Society November 2018

society for difficult and unexpected decisions taken in future decades.

Engaging the public with complex issues like machine learning isn’t easy – something we have learned from countless public dialogues. Businesses and policymakers should learn from this too. It’s about having a two-way conversation with the public, and discussing the potential challenges and solutions with them, before forging ahead with major societal changes.

As BlackRock Chief Executive Officer (CEO) Larry Fink points out in his 2018 letter to CEOs:

“We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges … Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” 28

All businesses want to be seen as socially responsible. In one scenario, automation can destroy that ambition. But if discussed in the right way, it’s also an opportunity to make good on it.

Your country needs (data about) you! – Can AI win public hearts and minds?

Sarah Castell

Your country needs (data about) you!Can AI win public hearts and minds?

AI made the school buses run on time, but parents protested

Last year Boston city challenged tech developers to optimise school start times and student bus routes.29 Massachusetts Institute of Technology

(MIT) designed an algorithm to create an artificial intelligence (AI)-enabled system, which maximised the efficiency of the buses and the learning time for students. It was triumphantly unveiled, but parents complained about the outcomes of the algorithmically-generated decisions. The scheme was scrapped, even though the plan saved millions of dollars.

In the UK, meanwhile, at least five councils are developing predictive child safeguarding algorithms.30 The media reporting is uneasy.

Our work suggests that the situation for those launching services which rely on publicly and privately-collected data

may be volatile, especially for businesses seeking to partner with the private sector.

In public dialogue, people are not protesting about predictive algorithms being used in principle. But if the way public and commercial services are rolled out clashes with underlying questions of equity and the social contract around data sharing, there may be a backlash.

The public is positive about AI systems in principle …

We regularly talk with the public in dialogue about the future governance of new technologies, on behalf of tech companies, policymakers and others. Participants say in principle they are happy and optimistic about new tech, when it comes to the benefits it might bring them as consumers or service users. The most positive perceptions of AI are around automation of tasks that computers might do better than humans, like assessing medical scans.31

We do know, though, that the public starts from a very low level of knowledge about predictive algorithms, AI and the data science on which it is all based. This is reflected in a recent Ipsos MORI survey of workers’ attitudes (Figure FOURTEEN). Other surveys show that workers are worried about losing their jobs to AI. The majority of those surveyed here in the UK had not had any experience of AI at work. Coming fresh to the idea, two-thirds felt that AI tools might reduce tedium and errors, and speed up their work. Admittedly, this is less optimistic than the perspectives from the US and

… and want us to reskill or try new jobsFigure THIRTEEN: Q. What should Government policy on automation be going forward? (unprompted, MPs)

Invest in creation of new industries, jobs, or ways of

working

Automation should be encouraged or supported

Invest in retraining or reskilling the workforce

Plan for the impact on society/support those affected/without jobs

Engage with businesses to form a strategy for

the transition

48%

45%

24%

23%

57%

6%2%3%

MPs support automating work …Figure TWELVE: Q. Do you agree or disagree with the following statements? (MPs)

% agree % neither agree nor disagree % disagree % don't know

Businesses should continue developing and using

artificial intelligence and robotics to automate work

Businesses which heavily automate work should pay

an "automation tax"

89

19 24 53 3

6 23

24. 25.

Ipsos MORI – Understanding Society November 2018 Your country needs (data about) you! – Can AI win public hearts and minds?

China, but even so, just over half in the UK also felt AI might improve quality.

Similarly, in public dialogue, early in the discussion, people express spontaneous views which are relatively positive. They tend not to express unprompted concerns.

“You keep asking us about whether we’ve got any concerns. What should we be worried about? Unless you tell me what might happen, I can’t think!”

Consent to use human tissue and linked health data in health research dialogue32

However, in dialogue, we go deeper than these spontaneous views, digging into perceptions of possible social benefits and harms from technologies based on data sharing. For the Wellcome Trust we recently looked at attitudes to sharing data with commercial companies.33 Participants distinguished between information given in commercial settings (phone records, shopping data etc.) and in public service settings (e.g. tax or health information); this could be information passively collected or actively given. They felt very uncomfortable if information was shared across that divide, and used by either the public or private sectors to learn something about them in the round. This felt very sinister – the invasive surveillance of a “one-way mirror”, as described by our Wellcome Trust participants (illustrated in Figure FIFTEEN). And similar sentiments emerged in our human tissue and linked health data dialogue.

“I’m not sure what could happen if someone got that information. But I think, personally, I just wouldn’t want a load of people possibly knowing that particular thing about me.”

Consent to use human tissue and linked health data in health research dialogue

And once we show specific examples of how data given under different circumstances might be linked, and the hypothetical future impacts of the public and private sector working together, the discussion can take a more dystopian turn. Participants grasp that if personal information – especially new kinds of information like genomic data, and commercially generated information like phone or shopping records – is shared between state and commercial actors, this could have far-reaching social consequences. They suddenly become concerned with the equity of social outcomes, rather than the personal benefit to themselves of getting better products or services.

“Is there potential for that information to be … linked to a third company, like insurance companies, to the detriment of ethnic groups?”

Academy of Medical Sciences health tech dialogue (publication forthcoming)

How to build trust

This creates a potential reputational risk for businesses working with the public sector; even when the public sector is nominally in charge of contracts,

industry is unlikely to escape blame if social harms are felt. So far, the AI industry, governments and civil society have mapped risks and benefits, and defined values and principles by which new tech should work (such as our work with DeepMind Health, which established principles for technology companies to work with the NHS34).

Debate now turns to identifying how principles should be operationalised, what happens when values come into conflict with each other, and how social goods can be optimised at the same time as encouraging economic growth in this sector.

To equip the public for these future discussions, we must first create greater public understanding of the concept of the “data self". Participants in dialogue take a long time to absorb the ways data about them are useful. How can data about me predict some of my needs, guide the services I might want

to use, and have a public value when aggregated with data about others in my cohort – but without erasing my free will and agency? The idea of a “data self” in finance is acceptable; participants in our dialogue on open banking found this easy to imagine.35 But other sectors will need to work on a clearer narrative. There is a complex social contract to dissect. What data will we need to have control or choice over, ourselves? What data do we want the state, or companies to control? This will affect the way we use and link data on health, tax, benefits, from the criminal justice system, from social media, consumer activities, phone tracking and elsewhere.

After this, we must inspire a more creative discussion of the uses of data. Currently some of the benefits and harms we consider are presented as inherently opposed (privacy vs. efficiency, for instance). Future visioning and scenario planning work, bringing

together technologists, the public, industry, regulators and other civil society stakeholders, can help us to imagine how technology might solve seemingly intractable problems and create a future where we all could flourish. This work also tends to identify opportunities for businesses – identifying new niches of real value to society, which will help build reputations.

Finally, we must design systems which ensure that if people give their data, the system is committed to equitable outcomes.

“Sift out the vultures who’d use data the wrong way.”

DeepMind Health dialogue

Some communities, for example ethnic minorities, are rightly wary of donating data in the wake of the Windrush scandal. We should pilot and prototype concepts like data trusts (a slippery concept, but involving establishing ways of storing and sharing data, where mutual value to the data owners and those who want to use it is agreed).36 This can help us explore the hidden power relationships in the use of data – make sure that companies are working for the ultimate benefit of society in the broadest sense – and ultimately ensure that predictive algorithmic systems at best redistribute power, rather than encoding existing biases and consolidating power in the hands of the few.

International perceptions on AI differ markedlyFigure FOURTEEN: Q. Do you think that, in your workplace, the development of AI and its applications will lead to … ?

… reducing the time spent performing

certain tedious tasks

… enhancing your ability to meet your deadlines

and do things faster

… reducing the risks of error

… increasing the time spent on tasks with the

most added value

66%

63%

61%

61%

92%

90%

90%

80%

71%

66%

64%

63%

… enhancing the quality of your work

53%

93%59%

… reducing the danger associated

with certain tasks

54%

90%57%

… enhancing your ability to innovate in your work

56%

81%62%

UK US China

People are uncomfortable sharing data across the public and private sectorsFigure FIFTEEN: Two traditional mindsets for data sharing

Actively given

Passively taken

DoingData transaction

BeingExisting in

public space

BuyingFinancial transaction

Service usingMy health records

for my care

Open, vulnerable m

indset "W

e're all helping each o

ther"

Com

mer

ical

tran

sact

ion

"M

y d

ata

have

fina

ncia

l val

ue"

26. 27.

Ipsos MORI – Understanding Society November 2018

Kelly Beaver

Solving the productivity puzzleAn interview with Gemma Tetlow, Chief Economist at the Institute for Government

But finance is not the only sector that has experienced a productivity slowdown since the crisis. The manufacturing sector in the UK – and in other countries like Germany – slowed down as well, although it’s less obvious exactly why this happened.

KB: Wage inflation has also tapered off in recent years. Why is that?

While employment rates have recovered since the crisis and unemployment is at a 40-year low, wage growth has remained very subdued, which raises a question about why workers have not been able to negotiate better pay rises. There are several theories: a more flexible labour market, less employment security, the declining power of trade unions, and a greater shift to self-employment, to name just a few.

If businesses are able to employ more workers at lower wages, rather than investing in costly machinery and infrastructure, then – mechanically – this leads to lower productivity (which is measured as value added per worker or value added per hour worked).

Because the UK has struggled to keep up with the productivity of its direct competitors for some time, boosting productivity now is not just a case of reversing the slowdown, but actually trying to claw back some of the lead that our competitors already had on us.

KB: In 2017, Andy Haldane, Chief Economist of Bank of England, urged Government to set benchmarks for businesses to demonstrate how they compare to the rest of the world in terms of productivity.38 How important is it for UK businesses to reflect on their situation from a global perspective?

crisis, but has pretty much flatlined since that time. We’ve seen almost no productivity growth at all since 2007. There is also a separate longer-term puzzle about why UK productivity has lagged behind that of other advanced economies – Germany, France and the US, for example – for many years.

There are several theories about what has driven the productivity slowdown since the crisis. Immediately after the crisis, some said it was a temporary blip, which led to businesses keeping hold of workers to avoid the cost of re-hiring. Others blamed tight credit conditions after the financial crisis, with businesses struggling to get loans to invest in new productivity-enhancing machinery. But as time went on, these explanations fell by the wayside.

KB: That’s interesting. Last year you suggested a sector-based explanation to low productivity.37 Could you expand on that?

The slowdown in growth has been much more concentrated in certain sectors of the economy – one of them being financial services. This is important because financial services make up a larger proportion of the economy in the UK, than in other countries.

In part, this apparent slowdown in financial services reflects a problem with how we measure productivity in that sector. Productivity in the financial services sector is measured by looking at the difference between the interest rates paid on deposits and those charged on loans, then multiplying that by the size of banks’ balance sheets. As a result, financial services were thought to have experienced a big boom in productivity before the crisis, which has dropped away since. But part of the measured slowdown was quite possibly a correction of something that was actually unsustainable.

Gemma Tetlow is Chief Economist at the Institute for Government. The institute aims to improve the effectiveness of Government through providing rigorous research and analysis, topical commentary and offering a space for discussion and fresh thinking. Gemma joined the organisation in April 2018 and works across the Institute’s programme areas.

Between 2016 and 2018, Gemma was Economics Correspondent at the Financial Times, reporting on and analysing economic developments in the UK and globally. Before that, Gemma led the Institute for Fiscal Studies’ work on public finances and pensions.

Gemma has a PhD in Economics from University College London.

KB: Thank you for the interview, Gemma. We’d like to start with your take on the UK productivity puzzle. We have faced a greater deceleration in productivity than other G7 countries since the 2008 financial crisis – what do you see as the key factors behind the UK productivity challenge?

What people usually refer to as the productivity puzzle is the fact that productivity had grown at about 2% a year running up to the financial

Solving the productivity puzzle – An interview with Gemma Tetlow, Chief Economist at the Institute for Government

What Andy Haldane has pointed to is a long tail of low productivity firms in the UK. While our best performing companies are as productive as the best in the world, we also have an unusually large proportion of very low productivity firms. This is a long-standing phenomenon, not just something that has appeared since the crisis.

It appears that one significant part of the explanation for this is comparatively poor management practices in the UK. Nick Bloom and others have been doing a lot of work in recent years to show the importance of good management practices to improve firms’ productivity and it’s an area some firms are starting to address with new management training funded through the new Apprenticeship Levy policy. Take Nestlé as an example – it has now utilised its Apprenticeship Levy to provide people with higher-level skills, in addition to traditional entry-level skills.

KB: Another example would be the UK’s "Be the Business" initiative, encouraging knowledge exchange between highly productive and less productive companies.39 Have you any thoughts on investment in schemes like this to help balance the productivity across the spectrum? And how well are these received by businesses?

I think we've yet to see quantitative evidence of the impact of these initiatives, but I can’t see how they could be detrimental to productivity. It can be very positive if good practices established by one business can be transferred to others – and it opens a line of communication between businesses of different sizes across different sectors. It can only be a good thing if businesses with something in common with each other share ideas and develop new

ways to boost productivity together. For example, Be the Business have set up a network for businesses in the hospitality sector in the South West and another one for family-run businesses.

The idea of pairing big businesses with some of these smaller firms – and encouraging big businesses to utilise their larger networks – could be very beneficial for the UK. Big businesses have the advantage of learning from within, whereas small businesses have a much smaller pool of knowledge and experiences to draw upon.

KB: What is your take on this with regard to the Government’s recent pledge to invest in infrastructure, like superfast broadband and transport?40 To what extent do you think that this investment is likely to support either regional redistribution of productivity or indeed productivity for the UK as a whole?

Historically, the UK has a relatively low level of public investment in infrastructure and ranks rather poorly in terms of infrastructure quality. It is certainly an area for improvement and a good time to invest in infrastructure, since the cost of Government borrowing is still relatively low. The areas you mention – broadband and transport – are obvious examples of where the UK is lagging behind its competitors. And it’s not just a rural area issue: there are parts of London and the South East that have equally poor broadband infrastructure!

But a related problem is that the technological advances of the past few decades do not seem to have led to the kind of productivity enhancements that had been expected. One view on this is what you might call the “technology pessimist” view, espoused by Robert Gordon – an American

It can only be a good thing if businesses with something in common with each other share ideas and develop new ways to boost productivity together.

28. 29.

Ipsos MORI – Understanding Society November 2018 Solving the productivity puzzle – An interview with Gemma Tetlow, Chief Economist at the Institute for Government

bill for some initial costs. For example, we are likely to need new agencies to replace tasks currently carried out by EU institutions. It is obviously taking up a lot of Government time and effort to go through the Brexit negotiations, and that means that a lot of other long-term investments have been benched, too. Decisions just aren't being made at the moment.

KB: In January, the Bank of England stated that the single market – with completely free trade in goods but restrictions on trade in services – had disadvantaged the UK.41 How important is the service industry to the future of business in the UK?

The UK economy is 80% services, which is a larger share than in many other European economies. That slightly overplays the importance of services to the UK in terms of trading with other countries: there are some services, like haircuts, that no one would come over from Paris to buy, for example! Nevertheless, if you look at the UK economy compared to other EU economies, we have a much greater comparative advantage in the services industry. UK companies are good at producing services, we have a very large business services sector and a large financial services sector, and services are embedded in our manufacturing exports.

The EU single market has evolved over time and now constitutes a well-developed single market in goods. The EU rules have also gone further than any other trade deal in trying to remove barriers to services trade, but the single market in services remains far from complete.

Inevitably that combination – of completely free trade in goods but with some restrictions remaining on trade in services – has favoured those

EU countries that are more aligned to exporting goods, rather than exporting services. That’s what the Bank of England paper indicated. There has been a gradual movement over time to complete the single market in services, but we’re not there yet.

KB: Is there an appetite beyond the EU for the import of UK services?

About three-fifths of UK services exports already go to non-EU countries, with the US being the single largest purchaser. So, yes, there is an appetite for them beyond the EU.

Services can be exported in lots of different ways. For example, by a company in the UK providing a service remotely to a client overseas, or through foreigners visiting the UK to enjoy a service – like attending university – here, or through a UK-resident travelling abroad to provide a service to a foreign client, or through a UK company setting up a subsidiary overseas. So there are a few factors that make services trade easier, including whether other countries recognise UK qualifications, how restrictive their visa rules are, and whether any restrictions are imposed on foreigners setting up businesses.

History dictates that certain countries that were colonised by the British – such as Australia and New Zealand – still have similar legal and accounting systems to the UK and many international contracts are drafted using English law. As a result, the services of UK-trained lawyers and accountants are in demand around the world.

KB: Finally, Ipsos MORI tracks consumer confidence on a monthly basis. Our data indicate that confidence has been falling for quite a while, but that it has dropped

markedly in the last couple of months.42 What are your thoughts on this trend, and its importance?

Consumer spending is very important to growth in GDP. One of the things that surprised many economists in the aftermath of the Brexit vote was the extent to which UK consumers carried on spending, meaning UK GDP growth remained quite solid after the vote. But growth has slowed more recently alongside the decline in confidence that your indicator has picked up. So yes – it does matter. Everything stems from confidence.

KB: A great take-away for us all, I think. Thanks very much!

economist based at Northwestern University – who suggests that recent technological advances have simply been less life-changing than previous advances like electricity. But a less pessimistic view is that technology could still make a difference – we just have to figure how to use it properly.

Having in place those digital infrastructures and broadband is necessary for us to take that next step. But we also need to make sure businesses are picking up new technologies and adopting new ways of working.

Evidence for transport infrastructure and its impact on productivity is more of a mixed bag. Small and cheap transport infrastructure projects often have a greater impact on local productivity than larger-scale projects like superfast cross-country train lines. But politicians have tended to favour the latter. Faced with limited resources, we’ll have to weigh up the benefits of small projects that increase links within a city, versus big spending on increasing national transport links.

KB: We’ve focused up to now on the current business climate – let’s look to the future. What would you say are the top issues that face businesses around productivity in the UK today?

The UK has long struggled with the skill level of its workforce, and that is certainly something holding back UK productivity growth. With a view to anticipating future demands, the UK needs to focus on the creation of more highly skilled, value-adding jobs – and the workforce to fill them. The UK Government acknowledged this as a problem a very long time ago but has struggled to get to grips with it. Here, the role of businesses would be to provide adequate training. But there is a bit of a question mark over their future role in this area, in the context of an increasingly flexible labour market. More

and more of us are choosing to become self-employed; and employees move between companies more frequently than they once did. In that context, what is the most effective way for a business to invest in its workforce and ensure it has access to the skills it needs?

The ageing population is also set to pose a huge challenge. Longer working lives will mean we’re more likely to switch careers, perhaps a few times. Businesses will have to change their mindset on the profiles of people they recruit to entry level jobs. There may also be increasing numbers of people wanting to take a step down in responsibility towards the end of their careers, rather than staying in a highly demanding senior role all the way to retirement.

KB: Perhaps the elephant in the room, Brexit has created uncertainty both in terms of public sector investment and business investment, particularly in areas we have already discussed, such as infrastructure and technology. How will the transition period for us leaving the European Union (EU) impact growth and public spending?

Evidence suggests that businesses and business leaders are delaying some big investment decisions until they know exactly where the UK is going. We’re dealing with high levels of uncertainty; we’ve no clue what policies will be in place during any transitional period, or indeed how long that period will last. Yes – we have a notional end date of 2020. But the implementation of all of the policies and procedures that could be needed after Brexit are unlikely to be completed by that deadline. It’s a difficult situation for businesses.

There are challenges to public sector investment as well. Once the Brexit deal we’re going to get becomes clear, the public sector will need to foot the

The ageing population is also set to pose a huge challenge. Longer working lives will mean we’re more likely to switch careers, perhaps a few times.

30. 31.

Ipsos MORI – Understanding Society November 2018 Skills gap or skills divide? – Public support for investing in UK workers’ skills post-Brexit

Patricia Pinakova

Trinh Tu

Skills gap or skills divide?Public support for investing in UK workers’ skills post-Brexit

employment rate in the third quarter of 2018 stands at 75.5%, with unemployment at 4.0%.46

Employers’ appetites for increasing their workforce show little sign of diminishing, either. The number of vacancies in the economy has been on an upward trend since 2012, and reached an all-time high of 832,000 in the third quarter of 2018. The majority of these vacancies are in service sectors (738,000), reflecting the relative size of services in the UK economy.47

But by the same token, employers’ unmet demand for workers has also increased. This is most severe in five service sectors, which represent the highest vacancy ratios (Figure SIXTEEN). This ratio partly reflects unmet demand for labour. One of the causes of this is a mismatch between job requirements, and the skills and qualifications held by those in

that half the British public would support an increase in immigration by highly skilled workers. However, the public is much less supportive of allowing in lower skilled workers.44 But what does this mean for shortages in low-skilled workers? What challenges does this pose to the Government and businesses alike?

Britain’s labour predicament

The UK’s current employment record is nothing short of a miracle, the likes of which was last recorded in 1974. The workforce has grown to 32.3 million helped by 2.3 million EU (non-UK) workers as of August 2018.45 The

In the 2017 general election, Britain’s three main political parties each made significant pledges around skills in their manifestos. In the same year, the Government launched the Apprenticeship Levy to fund an ambitious promise of 3 million new apprentices by 2020, paid for by the largest employers.43 But the need to upskill the UK’s current workforce is more crucial than ever; as the UK’s exit from the European Union (EU) looms, there is growing concern that labour shortages will hit UK businesses and the economy.

Prime Minister Theresa May's cabinet recently announced a post-Brexit immigration system that will offer visas to immigrants in a tiered way, based on skills and earnings, to ensure the UK retains higher-skilled workers. This is likely to be well received by the majority – our 2017 research for King’s College London found

Of the 100 senior business leaders in our 2017 Captains of Industry survey, 94% named the Brexit negotiations as one of the most important issues facing Britain today.

4.0

Certain sectors face greater skills shortagesFigure SIXTEEN: Vacancy ratios* by sector (June to August 2018)

Accommodation and food

Other service activities

Information and communications

Finance and insurance

Health and social work activities

Wholesale, retail, and repair of vehicles

Average for all vacancies

Professional, scientific and technical activities

Electricity, gas, steam and air conditioning supply

Transportation and storage

Arts, entertainment and recreation

Manufacturing

Real estate activities

Water supply, sewerage, waste and remediation activities

Administration and support

Mining and quarrying

Construction

Education

Public sector administration

3.5

3.5

3.3

2.9

2.8

2.8

2.6

2.6

2.5

2.4

2.3

2.2

2.1

2.0

2.0

1.9

1.6

*This is the number of vacancies per every 100 jobs.

4.1

32. 33.

Ipsos MORI – Understanding Society November 2018 Skills gap or skills divide? – Public support for investing in UK workers’ skills post-Brexit

unemployment and underemployment. If the UK were to end freedom of movement for EU citizens, as Prime Minister Theresa May has proposed, this would require employers to entice local workers to fill these vacancies by offering higher pay, offering better terms and conditions, or encouraging movement of local workers to areas with vacancies. This will take both time and money for businesses, as local workers will need to be trained and upskilled. Consumers may also have to get used to higher prices.

A poor Brexit deal is a serious concern for businesses who rely on EU workers. Of

the 100 senior business leaders in our 2017 Captains of Industry survey, for example, 94% named the Brexit negotiations as one of the most important issues facing Britain today. They also highlighted the importance of EU staff to their business; 82% agreed it would be important for them to recruit EU workers easily, after Brexit.48

So, how aware of this predicament is the general public? Our data show that the public is aware there will be a shortage of workers when the UK leaves the EU (Figure SEVENTEEN). We are able to correctly identify jobs that will be affected by this shortage

too, such as restaurants and catering staff, care home workers and doctors. But we underestimate bankers and IT professionals, and overestimate a shortage of construction workers.

In its recent report, the independent

Migration Advisory Committee (MAC) set out how the post-Brexit immigration system could look.49

The MAC’s first recommendation was to remove completely the current cap on skilled migrants, who it identified as

net contributors to the UK economy. It also recommended selecting migrants based on their skills and qualifications and not their nationality. It argued that a tighter control on low-skilled migrants may force more companies to invest in more efficient technologies and enhance worker productivity.

The Government has agreed that immigration post-Brexit will be skills-based, to the dismay of many business representatives. The UK economy, businesses argue, needs a balance of both high and low-skilled workers. Restricting businesses’ access to low-skilled workers during record low unemployment will worsen labour shortages, which are already serious in agriculture, retail and hospitality.50

Superficially, public opinion on this seems pretty clear. Our 2017 King’s College London research highlights that the public is, on balance, in favour of more high-skilled immigration (by 52% to 12%), and more students (by 40% to 13%), but fewer people coming to do routine manual jobs (just 18% want more of this type of immigration to Britain, but 44% want less).

As Figure EIGHTEEN shows, the public supports visas for EU workers for some lower-skilled occupations such as seasonal fruit pickers, while not all high-skilled jobs are seen the same way – notably bankers. This partly reflects the public’s views of where shortages are likely to occur. However, this is not the whole story. The public seems willing to accept visas for academics and computer experts, even though not many are expecting shortages in these areas, which suggests wider reputational factors may also come into play.

Our latest research, though, also suggests that a large proportion of the public would be prepared to live with skills shortages in the short term, if balanced by attempts to improve

We underestimate shortages for bankers and IT professionals, and overestimate a shortage of construction workers.

Where do people predict skills shortages?Figure SEVENTEEN: Q: In which of the following jobs, if any, do you think there will be a shortage of suitable workers for the positions available when Britain leaves the European Union?

Seasonal fruit and vegetable pickers

Care home workers

Restaurant and catering staff

Construction workers and labourers

Doctors

Staff in manufacturing

Baristas (coffee servers)

Academics

Computer and software experts

Bankers

None of these

Don’t know

58%

50%

45%

42%

42%

25%

22%

18%

14%

7%

13%

12%

9

9

14

13

12

12

13

14

14

Work visas are not off the table for some jobsFigure EIGHTEEN: Q. When Britain leaves the European Union, EU citizens will no longer be able to freely come and work in the UK as they do now. Do you think that special work visas should or should not be offered to EU citizens who are coming to Britain to work in the following jobs?

% should % should not % don't know

Doctors

Nurses

Academics

Computer and software experts

Care home workers

Seasonal fruit and vegetable pickers

Construction workers and

labourers

Restaurant and catering staff

Bankers

Baristas (coffee servers)

81 10

80 11

69 17

61 26

60 27

56 31

46 41

42 44

41 45

33 52 15

34. 35.

Ipsos MORI – Understanding Society November 2018 Is the penny dropping for Britain? – The move from cash to contactless

domestic skills to fill these shortages. Over four in ten (44%) agree with this, and another 13% think any gaps can be filled by UK workers straightaway in any case. As Figure NINETEEN shows, this is strongly related to views on whether there will be shortages in the first place. Among the one in eight who think there will be no shortages, there is understandably a limited appetite for issuing more work visas. Instead, they believe UK workers should be able to fill these roles straightaway or after training.

By contrast, those who think there will be labour shortages are much more in favour of work visas. But even among this group, support is stronger for training and upskilling UK workers to fill job vacancies.

Short of demonstrating public consensus, our data shed a light on a number of important points for the Government and businesses. Britons recognise there will be some labour shortages across a range of occupations, but they do not correctly identify all of those likely to be hardest hit. Even then, some high-skilled jobs do not get majority support for more visas; this might be because the public underestimates how hard sectors like banking will be hit, and partly due to the wider reputational issues of that particular profession. Similarly, while there is much less support for increasing lower-skilled immigration in general, public opinion can also change when specific workers are mentioned, like care home workers.

On the other hand, our findings suggest that many among the public think that shortages could be lived with for an interim period, while UK nationals are upskilled. This is laudable – it means that the UK may finally address its sluggish productivity. This is everyone’s ambition, but achieving it assumes that UK workers would be willing to fill these vacancies, and that upskilling workers would be a quick process. Both may be

wishful thinking, since employers’ primary motivation for recruiting EU nationals is a lack of UK applicants.

For the Government and businesses, there is good and bad news. Firstly, the good: there is likely to be public support for immigration policy based on skills, and for the Government’s and businesses’ ongoing efforts to improve the domestic skill base, through training, apprenticeships and mentoring initiatives. However, there are dangers in relying on a simplistic reading of public opinion as a guide to policymaking, particularly when our data show that public opinion can change when represented with different information. The public

underestimates the difficulties involved with filling skills-shortage vacancies, and if that hits the economy and prices as hard as some warn it could, consumers could be unprepared, and might blame policymakers and businesses even more. Furthermore, some sectors, despite their importance to the UK economy, do not yet have public opinion on their side. It’s one thing to persuade the public of the merits of visas for doctors and teachers – but convincing them that bankers deserve the same is a much harder task.

Is the penny dropping for Britain?The move from cash to contactless

Darragh McHenry

The autumn of 2016 marked a turning point for the games company Hasbro, as it launched the latest version of the popular board game, Monopoly, with the tagline “Monopoly goes cashless”. This was the first time since its release in 1935 that the game broke from traditional paper money. Despite initial opposition, Hasbro reported a 2% increase in sales over the following months.51

In the same year, Britain’s economy experienced a similar turning point. For the first time, debit card payments (42.6% of all payments) surpassed those made by cash (42.3%).52 Debit card transactions had seen an increase of 4.5% from 2015, whilst cash transactions dropped by

4.9%.53 In 2017, cash payments fell again to just 34% of the 38.8 billion transactions made in the UK.54

Undoubtedly, a key driver of rapidly increasing debit card usage has been the emergence of contactless payments, which increased by 97% during 2017, and is expected to increase further (Figure TWENTY). This growth can be attributed to the continued roll-out of contactless cards by banks, the increase in devices that take contactless payments, and the increase in consumer confidence to make contactless payments.

But as Ipsos MORI’s National Payments Study – our annual survey of over 2,000 consumers for UK Finance – finds, the

increase is not equally distributed across all demographic groups in society. The 2017 study found that people aged 65 and over were far less likely to have ever made a contactless payment (27% have never done so) than those aged between 25 and 34 (6% never). The most affluent, of NRS social grade AB55, are far more likely to use contactless payments several times a week (29%) than those of social grade C2DE (12%). Contactless payments may be growing, but do not yet touch everyone equally.56

The move from cash to contactless also poses challenges to those at risk of marginalisation in society. Electronic banking requires a bank account, and

We’re comfortable with the idea of a short-term skills shortageFigure NINETEEN: Q. If there are not enough workers to fill these jobs, which one of these possible solutions would you support the most?

Accept that there will be shortages in the short term,

but provide more skills to UK workers to fill these

roles in the future

Issue more work visas for suitable workers from

outside the UK straight away

Don't need to do anything because UK workers will be able to fill these roles

straight away

Don't do anything, and accept a smaller number of

these in the future

None of these

44%

31%

13%

2%

3%

44%

32%

32%

3%

7%

46%

38%

9%

1%

2%

All general public Among those who think there will be a labour shortage when the UK leaves the EU Among those who think there will not be a labour shortage when the UK leaves the EU

36. 37.

Ipsos MORI – Understanding Society November 2018 Is the penny dropping for Britain? – The move from cash to contactless

yet 1.6 million adults in Britain today don’t have one.57 And 50% of those with a basic bank account still choose to manage their money in cash.58 Is Britain in danger of marginalising the non-users of electronic payments?

Nevertheless, even though contactless payments are not yet ubiquitous, by the end of 2017 there were approximately 119 million contactless cards in circulation in the UK.59 Furthermore, the credit and debit card industry has recently “committed to ensuring that from January 2020 every bank-issued payment terminal in the UK will be capable of accepting contactless payments”.60 British Retail Consortium data show cash payments on a steady decline (Figure TWENTY ONE). Britain appears to be undergoing a payment infrastructure overhaul, regardless of whether we are all on board.

How will contactless affect behaviour?

The growth of contactless payments in our daily lives could be viewed through the prism of progress – we can all acknowledge that contactless cards speed up our daily commute, buying food, and socialising in bars and cafés. But is Britain comfortable with contactless, or merely conforming to it? Dr Niro Sivanathan, Associate Professor of Organisational Behaviour at London Business School, suggests that contactless payments separate the

In qualitative interviews, consumers tended to use cash as a means of controlling spending, reducing the risk of any “financial hangover”.

“pleasure of consumption and the pain of paying” – they make it easier to spend more. However, Dr Sivanathan notes that consumers incur greater “financial hangovers” with contactless, which can lead to erratic spending patterns.61

Moreover, as the UK continues down the path of digital payment, what might be the effects on the daily lives of those for whom cash still plays a fundamental role? Ipsos MORI’s 2016 study of cash versus electronic payments, on behalf of HM Revenue and Customs (HMRC), highlights that some consumers and businesses remain wedded to cash.62 In qualitative interviews, consumers tended to use cash as a means of controlling spending, reducing the risk of any “financial hangover”:

“I feel more comfortable paying cash, I just feel more comfortable knowing that it’s paid.”

“You could put in a wrong amount, and not realise you’ve done it. And when it comes to finish and you just say accept, then you’ve paid too much for something.”

Conversely, people felt that debit card and contactless payments “crept up on you”, as they lacked the physicality of cash. However, even those who were most inclined to use cash felt that the migration to a cashless consumer model was very likely, and that they would have to embrace it.

Whilst consumers might see cashless spending as the future, opinions among small businesses (with under 50 staff) were mixed. Of those who said they would not offer contactless payments, 32% said there was nothing that would make them offer such a service in the future. Despite this, 43% of all small businesses expected the number of cash payments they received in the future to

decrease. With the significant predicted increase in card transactions over the next decade, an important challenge emerges for small businesses: they must either adapt to the increase in contactless payments, or hope that their cash sales can maintain the status quo.

With fewer coins in our pocket, people may now feel less likely to make spur of the moment donations. Barclaycard’s 2017 study on contactless payments suggested that charities only willing to accept cash donations could lose up to £80 million a year.63 Charities responded by launching Tap for Change contactless donation boxes. Greater Change, a social enterprise in partnership with the University of Oxford, has suggested that homeless people could carry QR codes to obtain donations via phones.64 As Britain’s spending culture transforms, society endeavours to adapt to keep pace.

Learning from others

Sweden has been held up as the jewel in the cashless society crown, but even they faced challenges from an accelerated journey to contactless.65 This includes the aforementioned risk of financially excluding a section of society, and the increased the risk of cyber attacks and fraud associated with electronic payments – something that also worried UK consumers in our HMRC study. In a recent poll for Bankomat AB, a company providing ATM services in Sweden, 68% of Swedes wanted cash to remain as a viable payment option in the future, while 85% of those aged 65 and above expressed the same desire.66 Its central bank, Riksbank, issued

We’re increasingly drawn to the ease of contactlessFigure TWENTY: % of all UK transactions estimated to be made by contactless cards …

15%

36%

… in 2017 … in 2027

Cash transactions in retail dwindleFigure TWENTY ONE: % share of retail transactions with British Retail Consortium members made in cash

2013 2014 2015 2016

60%

40%

20%

0%

38. 39.

Ipsos MORI – Understanding Society November 2018

a precaution for a fast move from cash to contactless, noting that it needed “to take place at a rate that does not create problems for certain groups or exclude anyone from the payment market”.67

Similarly, Britain’s economy must recalibrate to our new spending norms. Electronic payments can certainly make our daily lives more convenient. But whilst this may convenience the many, we should be wary of excluding the few: those who do not have the means, or desire, to join the contactless movement. The pace of this move is essential, particularly for the UK’s small businesses, some of whom aren’t ready to abandon cash. While we continue to enjoy the benefits of cashless payments – less commuter congestion, and fewer coins weighing down our purses – we must also be mindful of how it can change spending habits. In particular, in a country already experiencing high levels of consumer debt, we should be careful to avoid another credit-induced financial hangover.

Of those who said they would not offer contactless payments, 32% said there was nothing that would make them offer such a service in the future. Despite this, 43% of all small businesses expected the number of cash payments they received in the future to decrease.

The credit they deserve – How can we improve access to finance for UK SMEs?

Yasmin White

Dr Rebecca Klahr

Matt AdeyThe credit they deserveHow can we improve access to finance for UK SMEs?

challenges than larger firms when it comes to finance.

SMEs need to know their options

The 2017 survey reveals a lack of awareness among smaller businesses of financial products beyond bank loans, overdrafts and credit cards – and even when they were aware of products, many did not have a trusted provider to contact. There were also regional variations to awareness, particularly for alternative sources of finance like venture capital and mezzanine finance, which was generally lower outside London.

The number of SMEs seeking and using external finance is also low. In the 2017 survey, only two in five (39%) had sought external finance in the last three years. And 27% of those who didn’t get all the finance they were looking for gave up, rather than looking elsewhere. This disinclination to seek external finance is confirmed by 42% of SMEs currently not using any form of finance, according to the survey.

A lack of confidence

The survey points to several reasons for this. Many business owners avoid borrowing to avoid debt and because of fear of rejection. Distrust in banks and financial institutions also appears to be a concern, with 32% of those that

commitments to help them navigate the myriad of challenges and opportunities they face on a daily basis and, ultimately, to support their growth.69

Since 2014 the British Business Bank – a state-owned economic development bank established by the UK Government – has commissioned a unique survey among small and medium enterprises (SMEs, with under 250 staff) to better understand their awareness of different types of external finance and experience of raising finance. The survey, conducted by Ipsos MORI, has consistently shown that smaller businesses face bigger

Smaller businesses are the backbone of the UK economy. Office for National Statistics (ONS) data showed an average of 1,000 new businesses starting up every day in 2016.68 They drive growth, create jobs, are seedbeds for innovation and help make the UK more competitive. They have also shown resilience during economic slowdowns. Younger smaller businesses, however, tend to face more barriers, including cash flow, employee skills gaps, red tape and access to finance. Recognising the importance of smaller businesses to the economy, the UK Government has made several

40. 41.

Ipsos MORI – Understanding Society November 2018 The credit they deserve – How can we improve access to finance for UK SMEs?

had a need for external finance in the last 12 months citing this as one of the main reasons for not applying for it. The negative attitude of businesses towards finance was also highlighted in the 2016 survey when over four times as many businesses assumed obtaining finance from a bank was difficult, rather than easy (56% compared to 13%).

There remains a lack of confidence among smaller businesses to assess the appropriateness of alternative sources of finance. The 2017 survey shows (in Figure TWENTY ONE) that, while almost seven in ten SMEs are confident in assessing finance products offered by their own bank (67%), this falls to only half of SMEs when it comes to assessing products offered by other providers (49%).

This is corroborated by those who have sought finance in the last three years. For these businesses, their usual bank is still their preferred port of call for finance. The majority do not even research other suppliers, and could be missing out on a better deal as a consequence. Already having an established relationship is by far the most common reason for sticking with the familiar (cited by 55% of those who contacted only one provider, as Figure TWENTY TWO shows). However, a range of other factors are at play, including: the cost of finance, and perceptions of the hassle and time making contact with alternative providers.

Fresh solutions

So what does all this mean for the future of small businesses? Given the lack of understanding of products available and the low confidence in assessing products, taking advice would appear to be a solution. However, most SMEs

do not seek advice when applying for finance. Our 2017 survey reported fewer than half of all SMEs saying they would seek advice if they needed external finance in the future (43%) – although, encouragingly, the survey reveals a small increase in the last three years (from 13% of businesses that have sought finance taking advice in 2016, to 18% in 2017).

Just 43% of all SMEs think that finance providers give them enough information about their products, to be able to judge if they are suitable or not – and this lack of agreement may help explain the unwillingness to seek advice. The future success of a young business depends on them being able to access information they trust about their finance options. Moreover, small businesses need to be aware of the positive impact of borrowing, and the range of options and providers, in order to feel more assured they will have the support they need when seeking finance.

Building smaller businesses’ confidence and awareness of their finance options, so they are encouraged and enabled to seek the finance best suited to their needs, is a key objective of the British Business Bank. To help fulfil that objective, the British Business Bank has for several years provided the Business Finance Guide, published in both hardcopy and online, in partnership with the Institute of Chartered Accountants in England and Wales (ICAEW) and a further 21 leading business and finance organisations.70 The guide impartially sets out the range of finance options available to businesses at all stages, from start-ups to SMEs, and growing mid-sized companies.

In a significant step-up, this summer the Bank launched its new online Finance Hub, specifically designed for high-growth businesses.71 The digital hub provides everything a business looking to scale up might need to know about their finance options, featuring short films,

expert guides, checklists and articles from finance providers to help make their application a success. The new site also features case studies from real businesses, to guide businesses through the process of applying for growth finance.

Addressing the challenge to drive demand for finance is vital. Improving the growth and productivity of smaller businesses is central to improving the economy as a whole which makes it even more important that they are given the credit they deserve.

Distrust in banks and financial institutions also appears to be a concern, with 32% of those that had a need for external finance in the last 12 months citing this as one of the main reasons for not applying for it.

SMEs are hesitant to trust alternative providersFigure TWENTY TWO: Confidence in ability to …

% confident % neither confident nor unconfident % unconfident % don't know or refused

… assess finance products offered

by own bank

… assess finance products

offered by other providers

49

67 13

17

16

628

3

Established relationships can trump better dealsFigure TWENTY THREE: Top unprompted reasons for only approaching one finance provider when last seeking finance

Had an established relationship with that provider

Lowest cost/offered the best deal

My only/most obvious option

First provider had what I wanted

Too much hassle contacting more than one provider

Had the specific type of finance I wanted

55%

15%

14%

9%

7%

6%

42. 43.

Ipsos MORI – Understanding Society November 2018 References

1. https://www.ipsos.com/ipsos-mori/en-uk/search?search=Issues%20Index

2. https://tradingeconomics.com/european-union/unemployment-rate

3. https://tradingeconomics.com/euro-area/gross-fixed-capital-formation

4. http://www.eib.org/en/about/economic-research/eibis.htm

5. https://www.investeurope.eu/media/687062/Invest-Europe_Global-Investment-Decision-Makers-Survey_Nov-2017.pdf

6. http://www.eib.org/attachments/efs/economic_investment_report_2017_en.pdf

7. https://www.ipsos.com/ipsos-mori/en-uk/new-global-study-reveals-unease-about-immigration-around-world

8. https://www.ipsos.com/ipsos-mori/en-uk/anti-system-sentiment-still-strong-around-world

9. https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics

10. https://www.etui.org/Publications2/Books/Benchmarking-Working-Europe-2018

11. https://www.ipsos.com/ipsos-mori/en-uk/two-thirds-ipsos-mori-captains-not-confident-governments-ability-negotiate-eu

12. https://www.ft.com/content/d842ffc4-d381-11e7-8c9a-d9c0a5c8d5c9

13. http://www.natcen.ac.uk/media/1543779/Embracing-the-world-Changing-attitudes-to-trade.pdf

14. https://www.ipsos.com/en-us/news-polls/ipsos-global-advisory-power-people

15. https://www.ipsos.com/ipsos-mori/en-uk/cyber-security-breaches-survey-2018

16. https://www.gov.uk/government/statistics/crime-against-businesses-findings-from-the-2017-commercial-victimisation-survey

17. https://www.ipsos.com/ipsos-mori/en-uk/cybercrime-threat-corporate-reputation

18. https://www.ncsc.gov.uk/smallbusiness

19. https://www.ncsc.gov.uk/charity

20. https://www.cyberessentials.ncsc.gov.uk/

21. https://www.ncsc.gov.uk/guidance/10-steps-cyber-security

22. https://www.ncsc.gov.uk/guidance/board-toolkit-five-questions-your-boards-agenda

23. https://www.gov.uk/government/publications/national-cyber-security-strategy-2016-to-2021

24. http://www.oecd.org/els/emp/wcms_556984.pdf

25. https://www.bankofengland.co.uk/speech/2015/labours-share

26. https://www.ippr.org/research/publications/managing-automation

27. https://royalsociety.org/~/media/policy/projects/machine-learning/publications/public-views-of-machine-learning-ipsos-mori.pdf

28. https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

29. https://www.bostonglobe.com/opinion/2017/12/22/don-blame-algorithm-for-doing-what-boston-school-officials-asked/lAsWv1Rfwqmq6Jfm5ypLmJ/story.html

30. https://www.theguardian.com/society/2018/sep/16/councils-use-377000-peoples-data-in-efforts-to-predict-child-abuse

31. https://www.moorfields.nhs.uk/content/breakthrough-ai-technology-improve-care-patients

32. https://www.hra.nhs.uk/about-us/news-updates/public-support-greater-data-sharing-biobanks/

33. https://www.ipsos.com/ipsos-mori/en-uk/commercial-access-health-data

34. https://deepmind.com/applied/deepmind-health/transparency-independent-reviewers/developing-our-values/

35. https://www.ipsos.com/ipsos-mori/en-uk/open-banking-data-sharing-dilemmas

REFERENCES36. https://theodi.org/article/what-is-a-data-trust/

37. https://www.ft.com/content/1c57dcb0-aa89-11e7-ab55-27219df83c97

38. https://www.bbc.co.uk/news/business-40451454

39. https://www.bethebusiness.com/

40. https://www.gov.uk/government/speeches/investment-in-transport

41. https://www.ipsos.com/ipsos-mori/en-uk/economic-optimism-index-eoi-state-economy-1997-present

42. https://www.ft.com/content/2f2354a8-ebe5-11e7-bd17-521324c81e23

43. https://www.gov.uk/government/publications/apprenticeship-levy/apprenticeship-levy

44. https://www.ipsos.com/ipsos-mori/en-uk/half-public-support-more-immigration-highly-skilled-workers

45. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/ukandnonukpeopleinthelabourmarket/august2018

46. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/october2018

47. Ibid.

48. https://www.ipsos.com/ipsos-mori/en-uk/two-thirds-ipsos-mori-captains-not-confident-governments-ability-negotiate-eu

49. https://www.gov.uk/government/publications/migration-advisory-committee-mac-report-eea-migration

50. http://www.cbi.org.uk/news/post-brexit-immigration-on-the-menu-at-cbi-south-west-annual-dinner/

51. https://www.bbc.co.uk/news/business-39697277

52. https://www.actuaries.org.uk/documents/cashless-society-benefits-risks-and-issues

53. Ibid.

54. https://www.ukfinance.org.uk/uk-payment-markets-2018-summary/

55. http://www.nrs.co.uk/nrs-print/lifestyle-and-classification-data/social-grade/

56. Ibid.

57. https://www.ukfinance.org.uk/statistics/payments/

58. http://blogs.lse.ac.uk/businessreview/2017/12/06/alex-kong-there-are-1-6-million-unbanked-working-adults-in-the-uk/

59. http://www.financialinclusioncommission.org.uk/report

60. https://www.ukfinance.org.uk/convenience-of-debit-card-payments-puts-cash-in-second-place/

61. https://www.london.edu/news-and-events/news/the-perils-of-contactless-payments-1271

62. https://www.gov.uk/government/publications/uses-of-cash-and-electronic-payments

63. https://www.home.barclaycard/media-centre/press-releases/contactless-donation-boxes.html

64. https://www.greaterchange.co.uk/learn-more

65. https://www.bbc.co.uk/news/business-43645676

66. https://bankomat.se/om-bankomat-ab/press/#/publication/5aafa7622b5e1600044e6c36/59c3b9f4c-092c50e004bb05c?&sh=false

67. https://www.riksbank.se/globalassets/media/rapporter/arsredovisning/engelska/annual-report-2017.pdf

68. https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2016

69. https://www.gov.uk/government/publications/department-for-business-energy-and-industrial-strategy-single-departmental-plan/department-for-business-energy-and-industrial-strategy-single-departmental-plan-may-2018

70. https://www.thebusinessfinanceguide.co.uk/bbb

71. https://www.british-business-bank.co.uk/finance-hub/

44. 45.

Ipsos MORI – Understanding Society November 2018 References

FIGURE References

1. Source: European Investment Bank/Ipsos MORI | Base: 12,338 EU businesses (data are weighted) | Fieldwork: 28 April to 1 September 2017

2. Source: Invest Europe/Ipsos MORI | Base: 360 investors from China, France, Germany, the UK, and the US | Fieldwork: September to October 2017

3. Sources: British Social Attitudes (2003 and 2013); NatCen Panel (2017) | Bases: 873 British adults aged 18+ in 2003; 904 in 2013; 2,169 in 2017 (all data are weighted) | Fieldwork: August 2017 (NatCen Panel)

4. Sources: Ipsos MORI (perceived rankings); World Bank (actual rankings; https://wits.worldbank.org/countrystats.aspx) | Base (Ipsos MORI): 1,129 UK adults aged 16 to 75 (data are weighted) | Fieldwork (Ipsos MORI): 18 to 21 September 2018

5. Sources: Ipsos MORI (perceived rankings); Office for National Statistics (actual rankings; https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/articles/whodoestheuktradewith/2017-02-21) | Base (Ipsos MORI): 1,129 UK adults aged 16 to 75 (data are weighted) | Fieldwork (Ipsos MORI): 18 to 21 September 2018

6. Source: Ipsos MORI | Base: 1,129 UK adults aged 16 to 75 (data are weighted) | Fieldwork: 18 to 21 September 2018

7. Source: Home Office | Bases: c.150-450 business establishments per sector (data are weighted) | Fieldwork: 2014-2017

8. Source: Ipsos MORI | Bases: 96 Ipsos MORI Reputation Council members; 81 UK business or finance journalists | Fieldwork: April-August 2016 (Reputation Council) and 1 June to 5 July 2016 (business or finance journalists)

9. Source: Department for Digital, Culture, Media and Sport/Ipsos MORI | Bases: 1,519 businesses, excluding agriculture, forestry or fishing businesses; 569 charities (all data are weighted) | Fieldwork: 9 October to 14 December 2017

10. Source: Ipsos MORI | Bases: 1,002 UK adults aged 18 to 65 (data are weighted); 94 MPs | Fieldwork: 8 to 15 September 2017; 21 June to 25 August 2017 (MPs)

11. Source: Ipsos MORI | Bases: 1,002 UK adults aged 18 to 65; 528 who think automation will lead to net job losses (data are weighted) | 8 to 15 September 2017

12. Source: Ipsos MORI | Base: 94 MPs | Fieldwork: 21 June to 25 August 2017

13. Source: Ipsos MORI | Base: 94 MPs | Fieldwork: 21 June to 25 August 2017

14. Source: BCG GAMMA/Ipsos MORI | Bases (all for adults aged 18+): 1,009 in UK; 1,011 in China; 1,010 in US (all data are weighted) | Fieldwork: 18 May to 6 June 2018

15. Source: Wellcome Trust/Ipsos MORI (https://www.ipsos.com/ipsos-mori/en-uk/commercial-access-health-data)

16. Source: Office for National Statistics (https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/datasets/vacanciesbyindustryvacs02)

17. Source: Ipsos MORI | Base: 1,129 UK adults aged 16+ (data are weighted) | Fieldwork: 18 to 21 September 2018

18. Ibid.

19. Source: Ipsos MORI | Bases: 1,129 UK adults aged 16+;845 UK adults who think there will be a labour shortage with the UK leaves the European Union; 150 UK adults who think there will not be a shortage (data are weighted) | Fieldwork: 18 to 21 September 2018

20. Source: UK Finance (https://www.ukfinance.org.uk/uk-payment-markets-2018-summary/)

21. Source: British Retail Consortium (https://brc.org.uk/media/179489/payment-survey-2016_final.pdf)

22. Source: British Business Bank/Ipsos MORI | Base: 2,070 UK small and medium enterprises (with 1 to 249 employees) (data are weighted) | Fieldwork: 30 August to 7 November 2017

23. Source: British Business Bank/Ipsos MORI | Base: 469 UK small and medium enterprises (with 1 to 249 employees) that contacted only one finance provider (data are weighted) | Fieldwork: 30 August to 7 November 2017

46.

Ipsos MORI – Understanding Society November 2018

48.

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