‘The biggest barrier to growth’: Businesses set out plan to fix productivity puzzle

Some of the UK’s most high-profile businesses have set out a roadmap to improve productivity growth, including reforms which could boost the economy by £82bn over the next five years.

The Building Back Britain Commission, which included representatives from Vodafone, PIC and British Land, looked at productivity across the entire country, finding five key areas for reform which could “revive UK productivity” and grow the economy.

“The biggest barrier to growth… is poor productivity,” the commission’s chair – and Starmer’s former director of policy – Claire Ainsley, said.

The UK has performed poorly relative to other Western economies in terms of productivity growth: it’s in the bottom half of the ranking in the OECD (Organisation for Economic Co-operation and Development), and between 2010 and 2022 the average annual average growth in UK GDP per hour worked was just 0.5 per cent.

“The government’s primary mission for the UK to grow its economy in places right across the country is ambitious but possible… That means better targeting of existing public funds as well as creating a smarter and pro-growth regulatory system that unlocks private investment,” Ainsley said.

A nationwide focus is ‘key’

The pillars of the report included access to healthcare services, educational standards, the quality of digital infrastructure, the availability, affordability, and quality of housing, and access to public transport.

Crucially, the data found stark regional inequalities in performance across all five pillars. Describing the UK economy as “uneven”, Ainsley said that key regional interventions could create significant change.

The UK is one of the OECD’s most unequal countries regionally, with huge disparities in terms of wealth, health and resource allocation. London’s productivity is 170 per cent of the UK average.

Craig Beaumont, executive director at the Federation of Small Businesses (FSB), urged reform to ensure “change is felt locally, not just in corporate cashflows or academic analysis”.

The report recommended tackling the inequality in the UK using targeted investment in each productivity pillar, with bosses of companies across the country weighing in on their field.

Simon Carter, chief executive officer of British Land, said: “Access to affordable housing in mixed and balanced communities is key to unlocking productivity growth, allowing people to live closer to their places of work in well-designed, energy efficient homes, and creating great places.”

“This is particularly true in London and the South East which, while productive in relative terms, have high housing costs and pockets of deprivation which require investment to support these places and the people who live in them to achieve better outcomes.”

High-ups at Mastercard, Microsoft and Vodaphone similarly urged the government to take a nationwide approach to tech, calling it essential to modern economic growth.

Unlocking £82bn in the UK economy

Each local authority “has the potential to improve its productivity”, the report said, but the analysis identified 146 local authorities where “immediate action could see improvements to boost their economic output”.

The commission found that targeted reforms like transport, connectivity, or provision of homes in just under half of the UK local authorities could deliver £82bn of potential gains over the next parliament.

The figure is based off a one per cent increase in productivity per authority per year.

FSB’s Craig Beaumont said: “Empowering everyday local entrepreneurs will drive these productivity gains, in the areas with most potential.

“It’s small businesses that will take on those furthest from work; expand to a second premises; launch an online presence; or create and transport new products – all major ways to lift productivity in every local community.”