The collapse in productivity growth underlies many of the problems of the UK economy – from squeezed public services to stagnant living standards, new LSE analysis shows.
Researchers at the Centre for Economic Performance (CEP) point out that productivity growth in the UK has been weak relative to its own past and to its international peers, and that improving productivity is the only route to sustainable improvements in overall growth and living standards.
The CEP election analysis Growth and productivity shows that the UK’s poor productivity performance relative to other countries is mainly due to low capital accumulation against a backdrop of low levels of both public and private investment. One reason for this low investment has been frequent policy changes leading to volatile public investment and an uncertain climate for businesses.
Authors Anna Valero, director of CEP’s growth programme, and John Van Reenen, director of the Programme on Innovation and Diffusion, also find:
- Productivity in the UK is 26% lower today than it would have been if it had followed the pre-financial crisis (1979-2007) trend.
- Productivity growth slowed in the UK, Germany, France and United States since the financial crisis – but slowed most in the UK.
- Low investment played a much greater part in this slow down in the UK than in other countries.
The authors say that a well-designed and lasting growth strategy is urgently needed, and we need to create much more long-term policy certainty.
Dr Valero said: “A strategic approach is also required to ensure that the UK protects and builds on its longstanding strengths in services and advanced manufacturing, and is able to access new opportunities for sustainable and resilient growth as the world tackles the climate crisis. Net zero must be embedded in any new growth strategy for the UK.”
Professor Van Reenen said: “The last 14 years have been shockingly poor in terms of the growth of national income per person. Low productivity growth is at the heart of this problem and has led to stagnating wages and living standards. There is a need for a more radical approach to raise the quantity and quality of investment, especially through planning reforms to help build more infrastructure and housing.”
This election analysis describes the UK’s record on growth and productivity, what underlies its poor performance, and what can be done about it – comparing and contrasting the approaches set out by the Conservative and the Labour parties in recent policy announcements.