Britain’s poor productivity record has been highlighted by government figuresshowing the biggest gap with other leading western economies since modern records began in the early 1990s.
Output per hour worked in the UK was 18 percentage points below the average for the remaining six members of the G7 group of industrial nations in 2014, the Office for National Statistics said.
The gap – up one percentage point on the previous year – was the widest since 1991 and showed a particularly marked deterioration since the onset of the financial crisis and deep recession of 2007-09. The shortfall was slightly smaller than the 20-point gap reported in the ONS’s preliminary estimates released in September 2015.
In the first half of the 2000s, the UK narrowed its productivity gap with the rest of the G7 to just 4 percentage points but the period since has seen that trend go into reverse.
The ONS’s final international estimates of productivity in 2014 found that output per hour in the UK was now 36 percentage points behind that in Germany - the biggest gap ever recorded with a fellow G7 country and up two points on 2013.
Britain had a 30-point productivity shortfall with the US in 2014 - up three points on the previous year - and an unchanged 31-point gap with France. Only Japan of the G7 countries had a worse productivity record, the ONS said.
FROM the outside, Britain’s economy looks as if it is ticking over nicely. Last year it grew by 2.8%, more than any other economy in the G7 group of rich countries. Employment has never been higher. And yet a nagging problem bothers its policymakers. Ask any economist what he sees as the biggest risk to the country’s growth prospects and the reply is the same: “productivity”. GDP per hour worked is lower now than in 2007, and flatlining (see chart 1). Mark Carney, the governor of the Bank of England, says that forecasting when productivity growth will return is the trickiest call he has to make. Having steadfastly ignored the issue during the election campaign, George Osborne, the chancellor of the exchequer, now promises a “productivity plan” in his first budget of the new parliament, due in July.
Productivity gains are there in Britain if you look closely enough. But if the outwardly impressive economy is to continue motoring along, firms, people and capital must be freed to move more quickly from unproductive sectors into fizzier ones. Lighter planning rules would enable productive industries to grow: Oxford, for instance, has one of the world’s leading medical schools, but its tight “green belt” of land that is off-limits to developers makes it hard to find space for life-sciences firms to flourish. A social-housing system less reliant on waiting lists would make workers more footloose. And more streamlined bankruptcy laws would allow money to flow out of failing businesses and into growing ones more quickly (the World Bank rates Britain’s insolvency framework 11 out of 16; America and Germany both score 15). Until reforms such as these are passed, Britain will continue to grind forward with the hand-brake on.
