Productivity in the UK Evidence Review – Productivity Commission
Established to examine the UK’s poor productivity performance and provide policy solutions to address the shortfall, this report summarises the written and oral evidence received by The UK Productivity Commission in its first year, together with material from other sources where relevant.
- The evidence that we have taken underlines the importance of productivity, its impact on living standards, and the need to improve productivity growth in the UK. In the three decades since the Second World War, the average annual productivity growth rate (output per hour worked) was around 3.6 per cent. The following three decades saw this fall to around 2.1 per cent. From the start of the financial crisis in 2007 to 2019, this declined even further to 0.2 per cent. Demonstrating the importance of productivity for the economy and living standards, the Office for National Statistics (ONS) told us that 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.
- There was some disagreement about whether the slowdown in UK productivity growth started before or after the financial crisis. However, the bulk of evidence indicates that it started circa 2007-08, around the time of the financial crisis. As reported by the ONS, there was a very sharp slowdown in output per hour worked in the UK after the financial crisis.
- The UK’s productivity performance has been uneven across the country. There is a persistent gap between London and the South-East and the rest of the UK regions and cities. Human capital is highly concentrated in London and broader South-East. A view presented to The Commission is that productivity growth has been held back by ‘productivity laggards’ in the long tail. The alternative view also presented is that the gap between the high- and low-productivity firms did not increase substantially since the financial crisis. Rather, it is frontier firms, which often export, that have struggled to bounce back and boost productivity growth.
Numerous policies were suggested to improve the UK’s poor productivity performance by tackling structural problems, which include over-centralisation, weak and ineffective institutions and policy churn, institutional and policy silos, as well as short-termism and poor policy coordination.
Find out more about the Productivity Commission.