Productivity Crisis

By Anna Isaac, economics correspondent,
The Telegraph

Hopes that a “dynamic movement” among small firms could solve the UK’s prolonged productivity crisis have been dashed after business owners said it was not a priority.

Just 7pc plan to make it a priority next year, with SMEs citing the state of the UK economy as a much greater concern.

Economic growth will average just 1.4pc over the next five years, according to the OBR, down from the 1.8pc it predicted in March.

The findings dampen hopes that a bottom-up productivity transformation could solve the UK’s biggest economic headache.

Sir Charlie Mayfield, chairman of the John Lewis Partnership, has argued that a “dynamic movement” involving thousands of businesses could add as much as £130bn in Gross Value Added to the UK economy each year.

Sir Charlie Bean, of the OBR, as well as the OECD think-tank have suggested that the productivity crisis is a far greater problem than Brexit for the UK.

Four times as many businesses are worried about a possible slowdown as a worry, a survey of more than 1,000 businesses by HSBC has shown.

It comes after productivity growth was revised down by the Office for Budget Responsibility for the seventh year in a row.

FAQ | Productivity

What is productivity?

Simply put, it’s the rate of output per unit of input expressed as the value per worker. The UK’s ONS measures this as the relationship between wage and labour costs on one hand and the value of goods and services on the other.

Is productivity important?

With low productivity, companies find it hard to award workers pay rises, so low productivity is associated with falling standards of living.

How is the UK’s productivity?

In short, not good. Low productivity has long been a bugbear of successive Labour and Conservative governments. In particular, the 2008 financial crisis put such a serious dent in productivity that the country endured almost a full decade of productivity stagnation.

UK productivity still remains some 30 per cent behind the United States and 18 per cent behind the G7 average.

What causes low productivity and can it be improved?

There are three factors that influence productivity and it’s useful to look at other national statistics to identify the correct culprit.

  • Investment capital, or lack of it
  • Technology, such as computer systems, assembly lines, transport and communications infrastructure
  • Human capital, for example a skills shortage or lack of organisational expertise