Autumn Statement 2016: For all Hammond's plans the OBR fears UK economic productivity could be weaker after Brexit

 
Billy Bambrough
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Brexit means the harder you work, the less you'll get done
Brexit means the harder you work, the less you'll get done (Source: Getty)

In the Autumn Statement today chancellor Philip Hammond said no other major economy has such a gap between the productivity of its capital and its other cities.

He also said the UK lags the US and Germany by a whopping 30 points in productivity.

According to Hammond raising productivity is essential for the "high wage, high skill economy" he's targeting.

Read more: Poor productivity drags on pay rises

Number 10 has said Hammond told the cabinet this morning the three fundamental principles of his first autumn statement as chancellor were ensuring Britain lives within its means, retaining flexibility for future challenges and addressing long-term economic weaknesses such as low productivity.

In the statement he emphasised the importance of raising productivity levels, which currently mean people in the UK work longer hours for less pay than their counterparts in similar countries.

As part of pushing up productivity Hammond has announced a National Productivity Investment Fund of £23bn to be spent on innovation and infrastructure over the next five years.

Read more: Productivity held back by financial services regulation

He said this is part of a plan to "invest today for the economy of the future."

Will today's new announcements do anything to help the UK's productivity puzzle?

The UK has been stuck in a productivity spiral for around a decade.

Productivity – calculated by dividing total economic output by every hour worked – has flat-lined since about 2006. It didn’t crash in the recession – probably because unemployment rose as output fell, keeping the calculations pretty stable – and hasn’t shot up since.

There are almost as many theories on why Britain’s productivity isn’t performing brilliantly as there are people commenting on the fact Britain's productivity isn’t performing brilliantly. The short answer is, no one really knows.

Stephen Roper, of Warwick Business School, isn't too hopeful the chancellors plans will pay off.

Roper said:

How effective will the Chancellor’s package of measures be in addressing the productivity challenge? Only time will tell, but public investment alone is unlikely to close the gap. UK firms too will need to significantly increase their investment, which is perhaps unlikely given the uncertainties of Brexit.

The productivity challenge is significant and borrowing to fund a £23bn Productivity Investment Fund to address it is a gamble. As the Chancellor indicated it currently takes an average UK worker five days to generate the same productivity as German employees generate in four days.

What do the new forecasts mean for productivity?

Brexit is going to be a problem.

Official forecasts of the UK’s economic growth until 2020 have been cut, as economists start to take stock of the medium-term impacts of the UK’s decision to leave the European Union.

The lower growth has also prevented the government from running a budget surplus by the end of this Parliament in 2019-20.

MP Iain Wright noticed a worrying paragraph in the Office of Budget Responsibility's economic and fiscal outlook. It highlighted that reduced trade intensity after Brexit will likely reduce future productivity growth by more than implied by its forecast, according to previous studies.

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