In the run-up to the holidays, we might all allow ourselves a couple of presses of the snooze button in the morning and perhaps let some tasks rest until the New Year. It’s understandable – but addressing the UK’s poor productivity can’t wait.
Earlier this week (11 December), the Office for National Statistics (ONS) published their latest findings on firm-level productivity up to 2022.
Upsettingly, but unsurprisingly, the data showed that “70.6% of workers … worked in firms with labour productivity below the mean”. Once again, the figures show that the UK’s productivity has all but flatlined: since the financial crisis of 2008, our output per worker has increased by the smallest of margins, if at all.
This update comes mere weeks after the Autumn Statement. At first glance, the Statement was a triumphant moment for those advocating for growth and investment, with an announcement of the “largest business tax cut in modern history”. Chancellor Jeremy Hunt’s speech praised the nation’s entrepreneurial spirit (something I can attest to, having spent 2023 travelling across the country to meet small business leaders), presenting productivity as a key ingredient to unlock growth and prosperity.
However, while the Chancellor acknowledged the direct link between the UK’s lagging productivity and stagnant growth, and repeatedly reiterated the importance of improving business productivity through investment, the measures he introduced fell short of supporting significant improvements in this space. Public Sector productivity makes up a fraction of the UK’s overall productivity growth, and the measures introduced for small businesses don’t go far enough.
In the Statement, the Chancellor spoke about defying the dire economic outlook and halving inflation. But as Shadow Chancellor Rachel Reeves rightly pointed out, when we compare our post-pandemic performance with other G7 countries, we consistently lag in the bottom third. This is also true for small business productivity, where the UK ranked six out of seven among our G7 counterparts according to Be the Business’ recent research.
Be the Business’ report uncovered a trend that is undermining our potential to improve – the Confidence-Action gap. We found that, compared to our G7 counterparts, UK business owners feel confident and optimistic about their performance, but critically fail to take the necessary action to realise it. Across key areas such as technology adoption and management and leadership skills, UK businesses had the largest gap between confidence and action among our international peers, which points towards the need for government support to stimulate investment and improvement plans.
With government ministers placing the responsibility for economic growth on businesses, without enough targeted support for productivity-boosting initiatives or the associated behaviour change needed for widespread adoption, we can see concerning reflections of the Confidence-Action trend in government policy. The announcement of a taskforce to explore how best to support SMEs to adopt digital technology to improve their productivity is certainly welcome, but once the exploration is done, what comes next?
To make a tangible difference, the government must introduce long-term strategies, supported with thoughtful and consistent policy solutions. In other words, we need to actively support key productivity drivers to boost the UK’s output and stimulate growth, including leadership and management, innovation, technology adoption, operational efficiency, and skills development.
The government should move away from isolated interventions and deliver a holistic, long-term ‘National Productivity Plan’. It should set ambitious targets for productivity growth in all sectors and establish new institutions, responsible for ensuring continuous improvement in line with the UK’s economic goals.
The Chancellor’s speech made clear that productivity is too important to ignore.
The impact of small business productivity improvements could have a transformative effect on the UK’s economy and prosperity - if every small business employer could improve their productivity by only 1% each year, it would add £94 billion to the UK economy over a five-year period, not to mention £65,000 in turnover to the average SME employer. We need government’s full support to realise this potential, and I’m calling on the Chancellor to introduce a long-term strategy that would match the enthusiasm he has shown for Public Sector productivity in the Autumn Statement. It’s only with this effort that the ONS figures will become less of a rude reminder and more of an optimistic outlook.
By Anthony Impey MBE
CEO of Be the Business