It’s no secret poor productivity is partly to blame for the slowing of GDP growth. Official figures from the Office for National Statistics illustrate labour productivity fell by 1.2 per cent in the fourth quarter of 2015 from the third quarter, the biggest drop since the financial crisis in 2008.
The latest ICAEW Economic Forecast downgraded its GDP growth from 2.2 per cent in 2015 to two per cent in 2016. The Office for Budget Responsibility’s own figures, released alongside the chancellor’s Budget in March, finally aligned with this reduction.
To add to the growing burden of underperformance on government shoulders, a Department for Business, Innovation and Skills (BIS) Committee report concluded the government’s “Productivity Plan” lacks clear, measurable objectives. At ICAEW, we’ve spoken to businesses, both large and small, who are content with limited growth. When asked what would encourage companies to grow, however, many cited some form of government action.
So, what now?
Since the financial crisis, successive governments have come and gone but the integral challenge of productivity remains. Productivity has grown at a negligible 0.1 per cent per year on average following the recession. This is a steep decline from the near three per cent productivity growth the UK enjoyed before 2008, with UK productivity currently sitting at 18 per cent below the G7 average.
In our latest report, “Productivity Now: Solving the Great Economic Challenge of our Time”, we lay down the foundations for a solution to the UK’s sluggish productivity performance. We call for the introduction of a national productivity target of two-three per cent, which would help monitor productivity performance and ensure greater accountability for the government’s conduct.
In addition, ICAEW is also calling for businesses to receive “whole of life” export support. By improving SME’s awareness of international markets, the government would strengthen the UK’s connectivity with the global marketplace thus boosting international competitiveness. In a digital age, economic activity takes place online and so the government should commit to improving digital infrastructure as well as physical.
The skills gap has been put under the spotlight and needs to be addressed head on. The government should strengthen the national skills strategy by working with employers. The notion of continuing skills development through the entirety of a person’s career should be introduced by industry and businesses to prevent stagnation in the workplace. Work-readiness should start earlier too. We suggest the government bring education and business closer together and guide pupils with world-class careers advice as well as matching the curriculum with the needs of businesses.
As a chartered accountant, I firmly believe productivity is a numbers game. George Osborne has tinkered with the finances and taxes on businesses to an extent that measuring productivity has been affected too. To encourage productivity-led growth, the government should create an independently monitored proportionate and balanced regulatory environment.
It’s all well and good suggesting the government implements a roadmap but would it help boost productivity? The short answer is absolutely. In 2010, the Singapore government embarked on a 10-year programme to boost the productivity of the city-state’s economy, including the adoption of a productivity growth target of two-three per cent per annum. Productivity roadmaps were set up for each priority sector, which has stimulated a much larger national dialogue and understanding on what is needed to achieve it.
Whether UK government chooses to implement a productivity roadmap is entirely up to the judgement of key policy makers. However, Osborne’s long-term economic plan is desperately in need of a lifeline to help pull it through any looming storm clouds. A productivity roadmap, guided by a national productivity target, could just be it.