Productivity has to be at the core of the next Government’s agenda

To make sure that productivity is at the heart of the next Government’s agenda, the UK needs a broad-based and integrated set of policies. These policies should, above all, support business and public investment in skills, innovation, and the transition to a net-zero economy across all sectors, devolved nations, and regions in the UK. While there is still scope to grow the economy faster by increasing workforce participation and creating opportunities for older workers to keep working longer, as acknowledged in the parties’ manifestos, raising economic growth will be difficult without significantly increasing the productivity of our labour force.

Labour productivity, measured as GDP per hour worked, is currently on a slow growth trajectory of about 0.5 percent. In order to match the growth of the economy during the 2010s, productivity growth needs to be doubled to one percent. However, for us to afford the much needed public investments in the economy without having to raise taxes dramatically, productivity growth will need to climb to 1.5 to two percent. This is achievable, as the UK demonstrated during much of the 1980s, 1990s, and early 2000s.

The Productivity Institute's Election 2024 report outlines the top 10 policies for the next UK Government focused on productivity.

The key issues

A new Government should aim to realise another big acceleration in productivity, especially one that underpins inclusive growth to the benefit of all. The key issues to address, as laid out in The Productivity Institute’s Productivity Agenda, are:

1. Countering the chronic underinvestment in business investment which has been weakening since the mid-1990s.
2. Where businesses, cities and regions are excelling at productivity, there needs to be greater diffusion of best practices and better leveraging of cluster effects in city areas beyond London.
3. Britain needs to tackle its institutional fragmentation by improving communication between the public and private sectors and other groups. This fragmentation results in a lack of joined-up policies, often at a devolved nation or regional level.

What do the manifestos say about productivity?

The election manifestos, published in the second week of June 2024, sparsely recognise the importance of productivity, but they all identify key policy areas that could be impactful if fully implemented, properly funded, coordinated and committed for the long-term. The proof of their effectiveness will lie in the actual policy details revealed in the coming months.

For now, the Conservative Party manifesto presents policies that support innovation, infrastructure development, and regulatory reform, which are components of a broader industrial strategy even though such a strategy is not explicitly mentioned. The Liberal Democrats and the Labour Party both have dedicated sections in their manifestos outlining their industrial strategies, with a focus on providing businesses with certainty, fostering partnerships, and aligning policies with long-term growth and environmental goals.

The top 10 policies for the next UK Government focused on productivity

1. Create a stable set of economic policies geared towards These include supporting business investment in skills, innovation, and the transition to a net-zero economy.
2. Attract high-value investment Spearhead research and development initiatives and attract investment focused on addressing national challenges like infrastructure, healthcare and the transition to net zero.
3. Focus on inclusive growth Develop policies that strengthen well-being and engage people currently out of the labour market or without a job, including supporting hybrid work.
4. Boost public sector productivity Introduce initiatives to deliver public services better and faster, not just to save money but also to help people, firms and places improve their productivity.
5. Regulate better Simplify and speed up planning processes, make land use more flexible, and tackle other regulations that currently hinder investment. And benefit from the new Digital Markets, Competition and Consumers Act to broaden the productivity gains from the digital economy beyond large “winner takes all” firms.
6. Improve trade and foreign investment Agree better trade deals, especially with the EU, to ensure British firms face less cost and red tape in exporting and that foreign investment creates broader productivity gains for the economy.
7. Streamline business support Develop a simpler and more effective business support network by consolidating existing offerings, and provide grant support for larger firms to collaborate with and support smaller businesses (SMEs).
8. Foster collaboration for local innovation systems Implement measures to encourage networking and knowledge sharing between businesses in the same areas.
9. Invest in skills at the local level Invest in public sector training programmes at regional and local levels to enhance capabilities across the country and empower English regional mayors with greater authority over skills formation in their regions.
10. Promote coordinated policy efforts and address fragmentation Set up a new Growth and Productivity Institution on a statutory footing and develop a framework of institutions that allow for aligning pro-productivity policies between UK-wide, devolved nations, regional and city levels.

Find out more

• Read Election 2024: A productivity plan for the next UK Government by Bart van Ark and Nicola Pike , with contributions from Diane Coyle ( Bennett Institute for Public Policy ), Jagjit Chadha ( National Institute of Economic and Social Research (NIESR) ), Jonatan Pinkse ( King's Business School ), Bridgette Wessels ( University of Glasgow, College of Social Sciences / University of Glasgow Adam Smith Business School ), Philip McCann ( 英国曼彻斯特大学 - 曼彻斯特商学院 ), nigel driffield ( 英国华威大学 - 华威商学院 ), Stephen Roper ( Enterprise Research Centre (UK) ), Adrian Pabst ( National Institute of Economic and Social Research (NIESR) ), Melanie Jones ( Cardiff Business School ), and John Turner ( Queen's Business School ).
• Read The Productivity Agenda from The Productivity Institute, edited by Diane Coyle , Bart van Ark and Jim Pendrill .

The Productivity Institute??

The Productivity Institute is a UK-wide research organisation exploring what productivity means for business, for workers and for communities - how it is measured and how it truly contributes to increased living standards and well-being. It is funded by the ESRC: Economic and Social Research Council .