Invest, connect, and train: How to fill the UK’s productivity void

 
Dean Turner
Views Underground At Crossrail As Project Reaches 80% Completion
Improving transport links across the whole country will strengthen inter-regional connectivity and trade (Source: Getty)

Last Friday, the Office for National Statistics (ONS) released its latest figures on the UK’s labour productivity.

The results showed that output per hour worked fell for the second consecutive quarter.

Year-to-date output per hour of UK workers has fallen by 0.6 per cent. More worryingly, it remains lower than before the financial crisis.

Read more: Even more puzzling: UK productivity is now 15 per cent below the G7 average

In comparison with our international peers, the UK’s performance is, to put it bluntly, dismal.

In the context of the UK’s current negotiations with the EU, it’s worth noting that workers in Germany and France produce between one fifth and one quarter more output per hour than they do in Britain.

While UK workers are less productive than their French counterparts, France’s unemployment levels are twice as high as the Britain’s.

One explanation could be the UK’s relatively flexible labour laws, and (up to now) plentiful supply of overseas labour. These factors have enabled firms to hire staff to meet additional demand, rather than invest in plant and equipment.

The result is the highest number of people in work, when measured as a share of the labour force, since records began.

High employment is not a bad thing, but without rising productivity, employers are often unwilling or unable to raise wages in real terms.

This begs the question: why can’t we have both low unemployment and high productivity, something Germany seems capable of?

The answer is, we can, but it will require significantly more investment to enable the UK workforce to realise its potential.

Investment aimed at raising productivity is not just a task for firms: the government also has its part to play. When the UK leaves the EU, an industrial strategy backed by significant investment will become imperative.

Investment in infrastructure and training should be immediate priorities. The UK is a world leader in a number of industries, but we must build on this success and ensure we can take a leading role as new ones emerge.

According to the British Chambers of Commerce, some 70 per cent of UK businesses experience problems with mobile coverage in their local area. Such poor connectivity is likely hampering growth opportunities and causing unnecessary delays.

Fixing bottlenecks like this seems like an obvious way to boost productivity. The government’s £400m Digital Infrastructure Investment Fund should help to address some of these problems, but it shouldn’t stop there.

More progress is also needed in transport infrastructure. The likely delay to Crossrail 2 caused alarm last week, but problems are not limited to London. In fact, a lack of investment in transport infrastructure outside of the south east is likely to be a factor behind the woefully uneven distribution of productivity across the UK.

Improving transport links across the whole country will strengthen inter-regional connectivity and trade, and bring more of the workforce within reach of more jobs.

Again, steps are being taken in the right direction, with the chancellor announcing £300m for rail improvements in the north during the Conservative party conference.

Then there’s the importance of training, which is often overlooked. Although it doesn’t carry the same glamour as grand infrastructure projects, it is equally vital. After all, an unskilled workforce is not a productive workforce.

More money for training is always welcome, but a more effective route might be to devolve power to regional bodies to decide how best to use existing resources. Each region in the UK has its strengths and weaknesses, which should be identified locally and the workforce upskilled accordingly.

Private companies have their part to play, but a strong approach from the government, encompassing targeted investment at a regional level, must lead the way. With borrowing costs at historically low levels, the time to borrow and invest has arguably never been better.

As the UK prepares to leave the EU, increasing our productive potential is the best way to ensure that we can continue to compete and succeed on a global stage.

Read more: We can solve the productivity puzzle by investing in people

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles