United-kingdom-unleashing-productivity-oecd-main-findings-presentation

www.oecd.org/eco/surveys/economic-survey-united-kingdom.htm
OECD
OECD Economics
OECD ECONOMIC SURVEYS:
UNITED KINGDOM 2015
Unleashing productivity
London, 24 February 2015

Growth is strong, the fastest in the G7 in 2014
2
Source : OECD (2015), OECD Economic Outlook: Statistics and Projections (database), February.
2.6
1.8
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
United Kingdom OECD G7
Real GDP growth
Per cent, 2014
United Kingdom

But labour productivity is subdued,
holding back living standards
3
1. Latest data point shown for labour productivity and real wages is an average of the first three quarters of 2014. Labour productivity is defined as output per worker
(i.e. real gross value added (GVA) divided by total employment).
Source : OECD (2015), OECD Economic Outlook: Statistics and Projections (database), February and ONS (2014), "Labour Productivity, Q3 2014", Office for National
Statistics, December.
30
40
50
60
70
80
90
100
110
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
Labour productivity, wages and GDP per capita
Index 2007 = 1001
Labour productivity Real wages Real GDP per capita

Main Findings
o The sustainability of economic expansion and further progress in living
standards rest on boosting productivity
o Greater private infrastructure spending is needed to ease capacity
constraints
o Business lending remains tight
o Housing supply has not risen to meet demand resulting in price increases
4

Key Recommendations
o Implement further structural reforms to revive labour productivity
o Pursue fiscal consolidation and ensure efforts are fair
o Expand the National Infrastructure Plan and leverage public money with
private investment
o Strengthen competition among lenders to boost lending
o Review land planning regulations to enhance housing supply
5

Well-being is comparatively high
7
http://dx.doi.org/10.1787/888933188968
Source : OECD (2014), OECD Better Life Index , www.oecdbetterlifeindex.org.
Better Life Index, 2014
Indicator range from 0 (worst) to 10 (best)
0
1
2
3
4
5
6
7
8
9
10
Income and wealth
Jobs and earnings
Housing
Work and life balance
Health status
Education and skillsSocial connections
Civic engagement and
governance
Environmental quality
Personal security
Subjective well-being
United Kingdom
G7 (excluding UK)
Reviving labour productivity

Growth is remarkably jobs-rich
8
http://dx.doi.org/10.1787/888933189049
1. Total employment also comprises unpaid family workers and those on government-supported training and employment programmes. Data for Q4 2014 refer to the
period between September and November 2014.
Source : ONS (2015), "Labour Market Statistics, January 2015", Office for National Statistics.
-1 250
-1 000
-750
-500
-250
0
250
500
750
1 000
1 250
1 500
1 750
2008 2009 2010 2011 2012 2013 2014
Contributions to the change in total employment since Q1 2008
Thousand1
Full-time employees Part-time employees
Full-time self-employed Part-time self-employed
Total employment Private sector employment

9
But labour productivity growth is weak
http://dx.doi.org/10.1787/888933189133
1. Labour productivity is defined as output per worker (i.e. real gross value added (GVA) divided by total employment). Contributions to growth are calculated using a
weight of 0.67 for employment and 0.33 for productive capital; total factor productivity is calculated as a residual. Productive capital excludes investment in housing.
Source : ONS (2014), "Labour Productivity, Q3 2014", Office for National Statistics, December, ONS (2014), "Capital Stocks and Consumption of Fixed Capital, 2014",
Office for National Statistics, November and ONS (2015), "Labour Market Statistics, January 2015", Office for National Statistics.
-5
-4
-3
-2
-1
0
1
2
3
4
1998 2001 2004 2007 2010 2013
Labour productivity growth with contributions
Percentage points1
Capital-to-employment ratio
Total factor productivity
Labour productivity growth

Reviving labour productivity:
Strengthening the real sector

Investment ratio is low
11
Reviving labour productivity: strengthening the real sector
1. In nominal terms. Investment refers to gross fixed capital formation. Latest data point shown is an average of the first three quarters of 2014.
Source : OECD (2015), OECD Economic Outlook: Statistics and Projections (database), February.
10
15
20
25
30
35
40
45
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
Investment ratio
Per cent of GDP1
OECD range United Kingdom OECD G7

12
http://dx.doi.org/10.1787/888933189214
1. Figures refer to the following question: How would you assess general infrastructure (e.g., transport, telephony, and energy) in your country (from 1 = extremely
underdeveloped—among the worst in the world to 7 = extensive and efficient—among the best in the world)? The aggregate for G7 countries excludes the United
Kingdom.
Source : World Economic Forum (2014), The Global Competitiveness Report 2014-2015 , Geneva.
1
2
3
4
5
6
7
POL
SVK
MEX
ISR
GRC
ITA
CHL
HUN
CZE
IRL
AUS
SVN
TUR
NZL
EST
NOR
GBR
OECD
KOR
CAN
SWE
G7
BEL
USA
DNK
LUX
ESP
PRT
DEU
FRA
JPN
ISL
AUT
NLD
FIN
CHE
Perceived quality of overall infrastructure
Index value from 1 (worst) to 7 (best)1
2014
Average of 2006-2014
Perceived quality of infrastructure
is lagging
 Continue to
improve long-term
strategy to attract
private investors

Further easing product market regulation
would support entrepreneurship
13
 Relax licence and
permits system
and reduce
barriers in services
http://dx.doi.org/10.1787/888933189191
1. For antitrust exemptions the PMR score of the average of 5 best OECD countries is zero (i.e. least restrictive).
Source: OECD (2013), OECD Product Market Regulation Database .
0 1 2 3 4 5
Admin. burdens for sole proprietor firms
Communication and simplification of
rules/procedures
Antitrust exemptions
Legal barriers to entry
Admin. burdens for corporation
Barriers in network sectors
Barriers in services sectors
Licence and permits system
Barriers to entrepreneurship (overall)
Product market regulation (PMR) score
Index scale from 0 (least restrictive) to 6 (most restrictive)1
United Kingdom
Average of 5 best OECD countries

Mismatches in employment are high
14
1. Data for the United Kingdom refer to England and Northern Ireland. Workers are classified as mismatched by qualification if they have higher or lower
qualifications than required by their job and by field of study if they are working in an occupation that is not related to their field of study. The category of other
includes mismatches by qualification only and by the combination of literacy, qualification and field of study.
Source : OECD (2014), OECD Employment Outlook 2014 .
0
20
40
60
80
100
FIN
AUS
AUT
DEU
NLD
BEL
EST
POL
CZE
SVK
SWE
KOR
NOR
DNK
CAN
IRL
JPN
FRA
USA
ITA
GBR
ESP
Total mismatch among youth (16-29) by type of mismatch
Per cent of all youth in employment1
Field of study and qualification Field of study only Other
http://dx.doi.org/10.1787/888933189188
 Improve skills to
reduce workplace
mismatches

Housing investment is historically low
15
Source: Department for Communities and Local Government, ONS (2014), "Annual Mid-year Population Estimates, 2013", Office for National Statistics, June and Datastream.
45
50
55
60
65
70
0
100
200
300
400
500
1950 1957 1964 1971 1978 1985 1992 1999 2006 2013
Permanent dwellings completed by tenure and population
Private enterprises (left scale)
Housing associations (left scale)
Local authorities (left scale)
Population (right scale)
Thousand Million
http://dx.doi.org/10.1787/888933189316
 Relax land
planning
regulations

Real house prices have risen significantly
16
 Greater housing
supply is essential
to balance the
housing market
Source: ONS (2015), "House Price Index, December 2014", Office for National Statistics, February and ONS (2015), "Consumer Price Inflation, January 2015", Office for
National Statistics, February.
0
100
200
300
400
500
600
700
1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Real house prices
Index Q1 1969 = 100
House prices, United Kingdom House prices, London

Reviving labour productivity:
Ensuring sustainable financing

Important progress made to strengthen banks
18
o Prudential regulation has been overhauled and bolstered
o Important measures taken to uphold underwriting standards for mortgages
o Banks’ capitalisation has improved
o Major reform to separate banks’ core and other activities (ring-fencing)
o There are discussions about raising banks’ loss-absorbing liabilities
Reviving labour productivity: ensuring sustainable financing

Business loans are low
19
Source: ECB (2015), "MFI Balance Sheets", Statistical Data Warehouse , European Central Bank, January and OECD (2015), OECD Economic Outlook: Statistics
and Projections (database), January.
0
10
20
30
40
50
60
POL
SVK
CZE
HUN
GBR
BEL
DEU
EST
FIN
IRL
SVN
FRA
AUT
NLD
SWE
ITA
GRC
ESP
PRT
DNK
Loans to non-financial corporations
Per cent of GDP, September 2014
 Boost competition
for business
lending by widely
sharing credit
information
http://dx.doi.org/10.1787/888933189276

Business loans are still shrinking
20
1. 12-month growth rates. SMEs are defined as those with an annual debit account turnover on the main business account of up to GBP 25 million. Those with an annual
debit account turnover on the main business account above GBP 25 million are termed "large businesses".
Source: Bank of England (2015), "Monetary and Financial Statistics", Statistical Interactive Database , January.
-7
-6
-5
-4
-3
-2
-1
0
1
2012 2013 2014
Loan growth of monetary financial institutions
Per cent1
SMEs
Large businesses
 Support and
regulate new
credit providers to
enhance credit
availability
http://dx.doi.org/10.1787/888933189078

21
Government plans are to raise infrastructure
investment by 25% of GDP by 2020 and beyond
Source: HM Treasury (2014), "National Infrastructure Pipeline 2014", December.
0
50
100
150
200
250
300
Research Waste Flood Digital Water Transport Energy
Infrastructure pipeline 2014
GBP billion and number of programmes and projects
Value
Number of programmes and projects
 Further develop
public-private
partnerships and
public guarantees
http://dx.doi.org/10.1787/888933189252

Real wage growth has recently turned positive
23
Macroeconomic policies
1. Three month average for average weekly earnings. Regular pay excludes bonuses and arrears of pay.
Source: ONS (2015), "Consumer Price Inflation, January 2015", Office for National Statistics, February and ONS (2015), "Labour Market Statistics, February 2015",
Office for National Statistics.
0
1
2
3
4
5
6
2008 2009 2010 2011 2012 2013 2014 2015
Average earnings and consumer prices
Year-on-year percentage change1
Consumer price inflation Regular pay growth

Spare capacity has narrowed
24
Source : ONS (2015), "Labour Market Statistics, January 2015", Office for National Statistics.
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011 2012 2013 2014
Vacancies by industry
Per 100 employee jobs
Manufacturing Construction Wholesale and retail trade Accommodation and food services
 Start normalising
interest rates when
inflationary
pressures emerge
http://dx.doi.org/10.1787/888933189098

Capital should be allocated more efficiently
25
 Higher interest
rates would
encourage needed
corporate sector
restructuring
http://dx.doi.org/10.1787/888933189155

Recovery is insufficiently tax-rich
26
Source : OECD (2015), OECD Economic Outlook: Statistics and Projections (database), January.
36
38
40
42
44
46
48
50
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Budget deficit
Per cent of GDP
Deficit Expenditure Revenue
 Broaden the tax
base, notably by
taxing more
the self-employed
http://dx.doi.org/10.1787/888933189103

Further efforts are needed to reduce public debt
27
1. For details of the scenarios used see Figure 18 in the OECD Economic Survey: United Kingdom 2015.
Source : Calculations based on OECD (2015), OECD Economic Outlook: Statistics and Projections (database), January and Office for Budget Responsibility (2014),
"Fiscal sustainability report", July.
0
20
40
60
80
100
120
1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040
Debt simulations
General government gross debt, Maastricht definition, per cent of GDP1
Baseline
No productivity growth
Less consolidation
Less consolidation and no productivity growth
http://dx.doi.org/10.1787/888933189123

Equity effects of consolidation measures
28
1. Cumulative overall impact of public service spending, tax and welfare changes on households in 2015-16 as a percentage of 2010-11 net income (including
households’ benefits in kind from public services). Net income quintiles adjusted for household size.
Source : HM Treasury (2014), "Impact on households: distributional analysis to accompany Autumn Statement 2014", December.
-4
-3
-2
-1
0
1
2
3
Bottom 2 3 4 Top All
Equivalised net income quintiles
A. Equity effects of UK consolidation
Cumulative impact on households in 2015-16, per cent of 2010-11 net income, by income
distribution1
Change in tax Change in tax credits and benefits Change in public service spending Net position
 Ensure fiscal
consolidation
is fair
http://dx.doi.org/10.1787/888933189117

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