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East Midlands Chamber News

Chamber Welcomes Plan to Crack UK’s Productivity Puzzle

June's Business Network Cover - the Productivity PuzzleA package of measures aimed at boosting the UK’s productivity, raising living standards and improving Britain’s competitiveness on the global stage has been unveiled.

Business Secretary Sajid Javid MP today launched the Chancellor’s long-term productivity strategy, called Fixing the Foundations: Creating a More Prosperous Nation, aimed at equipping businesses with the tools they need to invest, recruit and expand, to create wealth and prosperity.

It includes measures to boost business investment, equip the workforce with the skills and attributes needed by local businesses, upgrade the country’s transport, energy and digital infrastructure, help more firms to innovate and export and give regional cities more say over their economic futures.

For many years, the UK has been less productive than its major competitors. Since 1995, the country has sat behind the likes of Germany, Italy, France and the US and ahead of only Canada (since 2001) and Japan in the league of G7 nations.

There was a brief spike in productivity during the New Labour years as a result of the short-lived financial services boom, but since the recession, it has taken another turn for the worse and now sits some 16% below the level it would have been at, had it continued along its pre-crisis trend line.

The East Midlands doesn’t fare much better. Despite emerging over the past five years as a key driver of economic growth and job creation in the UK, productivity in the region as a whole sits well below the national average and has done so since at least 2004, although Derby – as the home of Toyota and Rolls-Royce – remains a national hotspot.

Although many highly productive businesses are located in the East Midlands, the latest available data shows the region’s level of Gross Value Added (GVA) per hour worked – the simplest measure of productivity – has hovered between 88.6 (in 2004) and 87.5 (2013), below the English average of 101.6 in 2013. By comparison, it was 129.2 in London, 114.3 in Derby and 109.3 in the South East.

And according to research from the East Midlands Chamber (Derbyshire Nottinghamshire, Leicestershire) via its Quarterly Economic Survey, the percentage of firms reporting that they are operating at their full capacity currently stands at only 38%. Its high point since the recession was 41% (in Q2 2014).

Percentage of firms at full capacity - Q4 2009 - Q2 2014

Chris Hobson, the Chamber’s Director of Policy, said: “It’s important to stress that low productivity doesn't equate to low growth. The East Midlands has emerged as a national leader in terms of driving economic growth over the past five years, and we’ve been creating jobs here faster than anywhere else, which will weigh down our productivity levels.

“However, the limited changes in productivity, especially among the manufacturing base, has the potential to weaken our regional competitiveness and needs to be addressed on several fronts.

“Improving the skills of employees is essential and needs to be tackled at the same time as widening the talent pool of young people coming into the sectors in which we have real strengths, such as advanced manufacturing and engineering, transport and logistics, low carbon, automotive, rail, aerospace and bioscience.

“Harnessing the disruptive power of technology is a sure way to increase efficiency and output, while innovating in how businesses are run – from lean process improvement to softer factors such as team dynamics, motivation, company culture and reward – can bring huge improvements in productivity. Increased productivity leads to higher wages and ensures that these pay levels are sustainable.

“Several key themes for business - such as export support, compensation for those affected by infrastructure schemes, planning reform, and transport - were conspicuous by their absence in the Summer Budget, so it was good to see them addressed today.

“While the productivity puzzle isn’t a clear cut issue to which there is a single silver bullet cure, businesses in the region stand ready to ensure that the Government fulfils its ambition of making the Midlands the UK’s ‘Engine for Growth’, but they need to be given the tools and support to be able to fuel that engine. The measures unveiled today will go some way to addressing that.”

The Chamber has also welcomed plans to revolutionise the planning system in a bid to boost housebuilding and other developments. Read the full story here.