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Reigniting productivity growth in the UK requires greater investment and better coordination of policy. An effective strategy should address inequalities across the country, as well as considering the institutions, skills and technologies needed to bridge the gap with comparable advanced economies.

Newsletter from 26 January 2024

Productivity growth in the UK has been flatlining since the global financial crisis of 2007-09. Turning the tide on poor productivity is one of the greatest challenges for our economy, so unsurprisingly the topic has featured heavily in articles on the Economics Observatory over the past few years.

We’ve addressed questions on how Covid-19 affected productivity, the relationship between productivity and working from home, the importance of skills for productivity, how climate change affects productivity, productivity in Wales and Northern Ireland, the housing market and productivity, and the role of policy in boosting productivity.    

At the end of November 2023, the Productivity Institute ran a national campaign called National Productivity Week, an initiative set up to raise awareness of the importance of the UK’s productivity and its impact on the economy, society and the environment.

The inspiration for this came from the UK’s National Productivity Year campaign, which ran for a year from November 1962. This initiative, which was organised by the government-funded British Productivity Council, was supported by businesses and trade unions, and endorsed by the then prime minister Harold Macmillan and leader of the opposition Hugh Gaitskell. The Post Office even issued a special set of commemorative stamps to mark the occasion.

In the 2023 iteration, various events were held across the UK. For example, as part of National Productivity Week, Be the Business and the Productivity Institute joined forces to help businesses to think about how they can deploy artificial intelligence (AI) to boost productivity.

Events were held in each of the devolved nations as well as in Cambridge, London, Manchester, Sheffield and Warwick. In Belfast, the Productivity Forum held a business breakfast to launch the 2023 Northern Ireland Productivity dashboard and a new report on management practices and productivity.

The main event of National Productivity Week was the launch of The Productivity Agenda, a blueprint for boosting the country’s productivity. This report, which was co-edited by one of our lead editors Diane Coyle (Bennett Institute of Public Policy, Cambridge), highlights the key policy areas on which government and businesses should focus to improve the UK’s productivity and living standards.

The various chapters of this blueprint have been summarised in a series of Economics Observatory articles over the past few weeks.

First, Bart van Ark (University of Manchester) and Mary O’Mahony (King’s College London) diagnose the UK’s flatlining productivity growth and its poor performance relative to comparable economies in recent decades. They highlight underinvestment, inconsistent policy and strategy, and insufficient diffusion of knowledge and practice as being at the heart of the country’s productivity puzzle.

While the UK is lagging behind other countries, there are some regions and cities that are struggling more than others, as discussed by Andy Westwood (University of Manchester) and Michael Kenny (Bennett Institute). They argue that policy churn, extreme centralisation and a lack of strong institutions at either the national or local level have all contributed to rising levels of regional inequality in the UK.

The issue of the UK’s lack of investment was explored further by Jagjit Chadha (National Institute of Economic and Social Research, NIESR) and Tony Venables (University of Manchester). This trend, they point out, has been driven by short-term thinking on the part of businesses and government, and will only be reversed by enduring commitments to public spending and policy.

Beyond broad-brush change, specific and targeted policies and innovations will also be needed to turn the tide on the UK’s productivity woes. Here, Andy Westwood sets out an approach for improving education and skills policy to be responsive to the needs of employers in different regions and sectors.

Similarly, Diane Coyle and Richard Jones (University of Manchester) address the role that digital technologies, including artificial intelligence, can play in boosting productivity. They argue that how these innovations are deployed matters most, with complementary investment in skills and infrastructure crucial to their impact.

What’s clear across all of the articles published in this series is the need for joined-up thinking and policy coordination. In response to this deficiency, in the final article, Bart van Ark and Anna Valero (London School of Economics) call for a new institution that puts productivity at the heart of the UK’s growth agenda and to inform, promote and evaluate strategies over the long term.

Authors: John Turner and Ashley Lait
Image by iphotothailand on iStock
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