First Productivity Commission report launched

The real cost of the UK productivity underperformance has been laid bare by the first report of The UK Productivity Commission, hosted by The Productivity Institute’s partner, the National Institute of Economic and Social Research.

The UK’s productivity performance has deteriorated relative to other G7 economies throughout much of the post-war period, which seems to indicate a deep structural problem. Productivity fell significantly at the peak of the financial crisis in 2008. Since then, productivity has been growing, but at a significantly lower rate than its pre-crisis trend rate. And though this growth slowdown has been experienced by other advanced economies, it appears to be more accentuated in the UK.

If productivity had continued to grow at two per cent per year in the last decade, it would have meant an extra £5,000 per worker per year on average. This huge number, which is around 20% of average annual earnings, masks a considerable number of regional, sectoral and rural-urban factors that add up to this loss.

The UK is already the most inter-regionally unequal major high-income economy amongst the advanced OECD countries. There is a persistent gap between London and the South-East and the rest of the UK regions and cities. Despite productivity growth in London flatlining after 2007, other regions throughout the UK failed to make ground. Whilst the Greater South-East has been identified as one of the most productive parts of Europe, the effect of cities such as Manchester, Birmingham and Glasgow punching well below their weight, is estimated to cost the UK economy £50 billion per year.

Professor Jagjit Chadha, NIESR’s Director, said:

“This report, the first from The UK Productivity Commission, lays bare the systemic issues surrounding the poor productivity performance of the UK economy. We have, through the evidence sessions we have held, clarified some of the challenges we face and started to identify the areas that need to be addressed. Not least, the mistaken focus by policymakers on the costs of low productivity, rather than on measures to enhance productivity through investment in regional infrastructure, skills and innovation. We will, as we enter our second year, explore these areas further and provide government with suggestions as to how UK productivity could be improved.”

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