Time for strategy built on the foundational economy

The North East is rightly proud of its cutting-edge sectors that include advanced manufacturing and clean energy.

But new analysis suggests the real engine of regional prosperity is hiding in plain sight.

The foundational economy – the everyday services and essential goods that keep life running, from care and housing to food, retail, construction and transport – already dominates the regional economy.

It accounts for around £37 billion in gross value added, roughly 70 per cent of all economic activity, and employs more than 600,000 people, equivalent to nearly three-quarters of the workforce.

This is four times the employment of the sectors prioritised in the UK’s industrial strategy.

And yet, despite its scale and importance, the foundational economy is largely absent from national economic thinking.

The Government’s industrial strategy makes no meaningful reference to it, even though Rachel Reeves argued in 2019 that “we need to broaden our conception of industrial strategy and include the foundational economy”.

Local Growth Plans largely follow suit, with the foundational economy often marginalised.

The North East Mayoral Strategic Authority is a partial exception, but even here it occupies only a modest space relative to its true importance.

This matters because the foundational economy is where most people work – and where everyday living standards are determined.

Jobs in these sectors are often lower paid, less secure and more unequal, with a higher prevalence of insecure contracts and gender pay disparities.

Improving life chances in the North East therefore depends, to a large extent, on improving the quality of work in these sectors.

At the same time, the foundational economy faces structural challenges that limit its ability to deliver for communities.

Across sectors such as housing, care, construction and food, ownership and control are frequently concentrated in large firms headquartered outside the region.

This extractive model channels profits away from local economies, weakening resilience and raising fundamental questions about who really benefits from economic growth.

There is, however, a major opportunity to turn this around by harnessing the power of the region’s anchor institutions – local authorities, NHS trusts and universities.

Collectively, these organisations spend more than £5 billion each year with external suppliers, with around £3.8 billion already flowing into foundational sectors.

Yet only a small proportion of this reaches social economy organisations, while the majority goes to private firms.

Used more strategically, this spending could improve job quality, support more locally rooted businesses and keep wealth circulating within the North East.

If the North East Mayoral Strategic Authority placed the foundational economy at the heart of its economic strategy, the benefits could be transformative.

This means using its full range of levers – from skills and business support to planning and procurement – to raise standards in key sectors like care, strengthen the social economy and align anchor institutions around shared goals.

In doing so, the region could build a more inclusive, resilient economy that works for growth and everyday life.

Julian Boys is associate director (economic strategy) at independent economics think tank Centre for Local Economies

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