Brexit: Productivity MUST increase

By | 1st February 2018

The National Debt in the UK is £1.83 trillion and rising. There are interest payments of £40 billion per year on this debt. The UK Government has introduced austerity measures which have reduced the annual deficit to around £55 billion from a record high of £151 billion in 2010, however, the fact is that the UK Government has not decreased the National Debt by 1p since 2010. The Natioal Debt annual interest plus the amount borrowed each year means the Government has to find at least £95 billion before anyone gets out of bed. That is, quite simply, a nightmare for everyone in this country. The increase in VAT to 20% in 2011 was a reaction to the UK’s debt. We pay huge amounts of duty and VAT on petrol to offset the debt. Road Tax is diverted to the Treasury to cope with our debt. You’ve heard of pay day loans? The UK’s economy is being run (and most of the developed world’s) like a pay day loan on steroids.

UK Government’s have for years, and years followed the mantra that GDP growth (called simply growth) is the main solution to our problems. Concentrate on “growth” and everything else will be rosy. One of the results of this blinkered policy was observed most recently when Carillion, the “go to” provider of public infrastructure (mostly funded by Private Finance Initiatives or PFI), collapsed, leaving an estimated 47,000 workers looking for a job. PFI’s, allow the Government to boost GDP growth with public money, at the same time keeping that Government spending off the books and away from (too much) public scrutiny. Now that a hard Brexit could become a reality, the UK Government will have to think long and hard about ways to clear the deficit and get to the point where we can start to tackle the National Debt.

An area that could be dramatically improved in the UK is worker productivity. That is the output per worker per hour worked. The UK’s productivity is quite simply awful when compared to the likes of Germany, France, USA, Canada, Italy and others. In 2014 the Office for National Statistics (ONS) said that 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.  Significant improvements in productivity will help the UK make a success of Brexit post 2019.

Low wages play a part in poor productivity. In a low wage economy, it can make sense to hire more workers rather than invest in machinery that allows existing workers to be more productive. The UK has encouraged well over 3 million immigrants to settle in this country. While it is true that over 70% of those immigrants have found work, it is also true to say that it is no coincidence that well over 3 million low paid jobs have been created in the UK this century. Productivity in the UK is worse now than at any time since records began in 1990. The UK needs immigration, there can be no argument with that statement, however, successive UK Governments have used GDP growth as the main argument for immigration. The Blair Government stated that their policy of uncontrolled, mass immigration would add well over £6 billion a year to the UK economy. Not a word about productivity. Not one word. The average number of applicants per low paid, low skill job in the UK at the moment is 24. Higher skilled, higher paid jobs are being chased by around 8 people. There is no pressure on employers to raise wages or invest in efficient working practices.

Productivity gains could really help this country deal with the negative effects of Brexit. Incomes would soar if productivity were higher. In October, the chancellor Philip Hammond said: “If we raised our productivity by just one per cent every year, within a decade we would add £250bn to the size of our economy; £9,000 for every household in Britain.” 

Management plays a significant role in productivity in the UK. Poor quality management practices lead to poor quality outcomes. The UK needs to provide better education opportunities for potential managers. Companies need to focus on the education their managers get. Evidence from the World Management Survey indicates that improvement in key management practices may lead to big improvements in performance. The UK lags behind competitor countries and has scope to improve. Companies should invest more in skills and efficiency too. It seems obvious that larger companies and corporations in the UK are benefiting from the influx of cheap labour brought by immigration, but this isn’t helping the UK’s need to become a high-skill, knowledge-based economy. In order to significantly improve productivity in the UK, we need to focus on the amount of production per hour rather than the number of hours worked. The National Living Wage may help to focus the minds of business owners in this area, however, the UK Government need to ensure that laws relating to wages are strongly enforced in all areas of the country.

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