LONDON: The UK government announced a package of measures aimed at boosting British productivity, a critical yardstick of an economy’s health that in Britain lags behind other large Western economies and hasn’t improved in eight years.
A centerpiece of the package was aimed at encouraging more building by overhauling planning regulation, which the government says is a key impediment to productivity growth. It says smoothing the process for securing permission to build houses and factories will make it easier for people to relocate to take better jobs and for companies to tap into new pools of workers.
But the government faces a key challenge in tackling the sharp slowdown in the UK’s productivity over recent years: many economists, including the country’s top policy makers, admit they don’t fully understand the cause.
The UK isn’t alone in experiencing weak productivity growth — it is also vexing policy makers in the US and China. But the slowdown in Britain has been more severe, marking it out as a special case, and worsening a pre-existing shortfall in productivity with other advanced economies.
Productivity measures how efficiently people and equipment are used to produce goods and services. Improvements in productivity are an essential fuel of long-term economic growth and the driving force that propels living standards.
In 2014, British workers produced about 25 per cent less than their US counterparts for each hour of work, and 13 per cent less than the average of the Group of Seven industrialized economies, which includes the UK, according to the Organisation for Economic Cooperation and Development.
Productivity growth in the UK slowed sharply during the recession and has sputtered since, despite a 2 1/2 year-old economic recovery. The result: output per hour in the first quarter of 2015 was still marginally lower than it was in the first quarter of 2008, according to Britain’s Office for National Statistics.
Productivity is “the challenge of our lifetime,” George Osborne, the chancellor of the exchequer, said.
The government Friday published a 90-page report detailing dozens of initiatives — some of which have previously been announced — aimed at making the British economy more efficient.
That included measures intended to ensure most businesses and households have access to fast Internet connections; additional investment in infrastructure; identifying areas of science research to pour extra resources into; and pushing students to take rigorous math and science classes to raise workers’ skills.
The government on Friday highlighted the proposals designed to encourage more building. But, the move could prove controversial as by establishing a system to provide automatic planning permission it could sideline the local authorities that traditionally have given approval. Some economists cast doubt on whether planning constraints are a critical factor restraining productivity growth.
It’s an issue but it’s not a productivity issue. It’s a housing market issue,” said Peter Dixon, UK economist at Commerzbank AG. More generally, Mr Dixon said the UK’s productivity problem was better addressed by the private sector.
The responsibility for improving things like productivity in the UK is going to rely on the private sector. Governments can only do so much at the best of times,” Mr Dixon said.
How successful the chancellor’s proposals will be at restoring productivity is unclear, in part because of the lack of understanding about what is causing it.
We may never solve the productivity puzzle,” Jon Cunliffe, the Bank of England’s deputy governor for financial stability, said in a recent speech.
Economists have offered a range of explanations, some of which describe why the recession may have driven the slowdown in productivity and others that suggest the causes run deeper.
