A brand new chancellor, same old challenge.
It’s the issue that brought us to Brexit, and the one that will underpin its impact: flatlining UK productivity.
Sajid Javid and Philip Hammond may not be on the same side this week, but both chancellors entered Number 11 to confront this same priority. On Wednesday, Javid stood up to deliver his spending review and put a price on the problem: £5,000 annually, for every household.
Think about that. If productivity had continued to grow at levels prior to the financial crisis, average annual wages today would be over £5,000 higher.
And it isn’t improving. The most recent figures from the Office for National Statistics (ONS) show four consecutive quarters of decline. Productivity was down 0.6 per cent in the last quarter.
Employment growth has masked its impact on GDP, but for how long? As freedom of movement ends, we are not going to hire our way to further growth, and we already work longer hours than most of our G7 peers.
That’s why it was heartening to see the new chancellor redouble the government’s focus on productivity. Tellingly, he echoed the words of the Prime Minister on his first day when Boris Johnson said he would seek higher productivity across the whole of the UK, unleashing “the productive power not just of London and the south east”.
Yet, in order to achieve this, the government needs business on board. While we know that in the long run public projects like transport, broadband and other infrastructure are vital for productivity to rise, in the immediate future businesses themselves have their hands on the levers that count.
For now, every business is focused on preparing for a no-deal Brexit. But it is vital that they also start preparing for new deals. Sales competitiveness, operational efficiency, and superb talent management practices will determine a company’s ability to win post-Brexit.
It may not be in the foreground, but far-sighted businesses are already gearing up for tougher competition: for talent, for contracts, for suppliers and for customers.
Economists will tell you that productivity and exports are strongly correlated. That’s because exposure to best-in-class global competition brings out the best in domestic firms.
British business owners I talk to say that already they are fighting hard to prove their value to international customers. The best are using the time ahead not only to get ready for Brexit, but also to get match fit for new competitive realities.
Uncertain times may not be good for business investment, but they can be good for business readiness. And now is the right time for UK businesses to study the best around them – their pioneering peers in the UK or other countries. There is much for business to be purposeful about, regardless of drama in Westminster and Brussels.
Now is a time for bi-focal lenses. Prepare for 31 October, but simultaneously see that October is just the end of the beginning.
In Wednesday’s speech, the chancellor began by talking about no-deal preparations, before moving quickly on to measures in pursuit of a decade of renewal. The prize is great, but so is the price if we fail to face the future now.
Main image credit: Getty