The Power of Productivity
and UK Prosperity
by Ross Harling
f like me you run a business, we face more new challenges every day, and an increasingly
uncertain future. The good news is that by 2022 the size of the UK economy, or Gross
Domestic Product (GDP), will edge back to where it was in pre-Covid 2019. The bad news is
that Britain’s national Productivity score is still in decline.
Now that the 2021 Treasury spending review is clear, financial experts calculate that a
combination of tax increases, inflation and imminent interest rate rises, signifies no real wage
growth for another 3-4 years. This means that after a decade of austerity since the 2008
banking crisis, followed by two years of Covid pandemic setbacks, the UK standard of living
will not have increased for a record 16 years!
For UK business owners and shareholders, profits might not necessarily increase, or even
shrink. Held back by the combination of higher national insurance, corporation, and dividend
taxes, along with more costly and cautious bank lending. At the same time, and despite more
taxpayer funding, the declining level of health, social and public services seem irreversible
without significant performance and productivity improvements.
Why is the decline in UK productivity so important?
Economists, governments and global
organisations like the IMF, World Bank, and
the OECD, repeatedly stress the importance
of ‘productivity’. Often its assumed to be an
alternative term for other business
measures like profitability, efficiency, or
operating margin, but that is not the case.
Productivity is the main engine for
economic growth and regulates the
financial health of the country. It underpins
rises in living standards as well as the
competitiveness of commercial businesses.
Productivity is also a key score used by investors and banks for comparing economic health,
growth potential and competitive ability. Higher productivity also allows for wage increases
that don’t drive up inflation and, in a virtuous cycle, eventually raises the standard of living
enjoyed by all citizens, whether employees or not.
Calculating a basic productivity score for country or industry league tables uses the ratio of
the gross value of goods or services produced over time compared with the number of
resources, particularly working hours, needed to produce them.
However, there are more precise methods for different industry sectors such as Construction,
Retail, Public, and Knowledge Services. Knowing the best way to measure the productivity
score for your company or department means you can check for tangible improvements when
making targeted changes. For example, upgrading business processes, technologies,
employee skills or the working environment.
Is the UK’s ‘Productivity Problem’ permanent?
Britain’s infamous ‘productivity problem’ has been with us for so long that we might assume
mere mortals can’t change it. However, that is simply not true. There is a broad range of well-
proven methods, from investing in advanced technologies, such as robotics and AI, to low, or
even zero, cost techniques. Hence, any organization, including startups, mature companies,
and public services, can raise productivity levels should it be determined to do so. But it
requires a different, more comprehensive approach to avoid the pitfalls and unforeseen
consequences of narrow-minded drives for efficiency or digitalization at any cost.
Indeed, if since 2008 Britain had focused more on productivity, rather than just sustaining its
financial size, we would now be in the ‘Top 5’ of the most productive countries in the world.
Not at 13th
position in the productivity league table between the pocket-sized workforces of
Austria and Iceland.
Using the latest 2021 OECD data, Britain’s productivity is now 24% lower than the average of
the ‘Top 5’ and a massive 32% behind the current leader, the small but hyper-productive
Norway. Back in 2015, then Chancellor George Osborne pointed out that a 20% increase would
be worth an extra £21,000 a year per household.
Despite the scant focus in his budget, the present Chancellor, Rishi Sunak, also stressed its
importance in the summer’s Government strategy document “Build Back Better”:
“In the long run, productivity gains are the fundamental source of improvements in
prosperity. Productivity is closely linked to incomes and living standards and supports
employment. Improvements in productivity free up money to invest in jobs and
support our ability to spend on public services.”
What’s more, the multiplier effect of tiny rises in productivity can be life-changing for everyone.
As economist Duncan Weldon* pointed out, even a 1% rise across the UK economy has an
“(1%) could reduce the annual government deficit by around £8 billion, add £250 a
year to the average wage packet and increase annual profits across the nation by
almost £3.5 billion.” (*Stoddart Review)
Such a modest change in a country’s productivity scores can influence currency exchange
rates, major decisions by investors, and those companies seeking overseas expansion. Many
years past, I worked with global energy companies helping to decide multi-billion£
investments in oil refineries and chains of new petrol stations. We did this by looking for early
signs of growth in a country’s productivity, and thus wage levels. In those less environmentally
aware times, increases in wages correlated directly with a population’s choice of personal
transport from bicycles to fossil-fuel consuming buses, motorcycles and eventually cars.
Can businesses alone change the national situation?
‘Every company targets bigger profits; great ones make higher productivity their
purpose’. Setting a target of adding 10% to our current scores within the next 2 years would
put Britain far closer to the productivity ballpark of our two nearest pre- and post-Brexit
competitors, France, and Germany.
Aside from raising the bottom line of every business, it would add a massive £200 billion a
year to our national output, cut debt and potentially prevent more hastily conceived taxes for
modest improvements in national Health and Social Care.
Furthermore, the scheduled 2022-23 rises in Corporation and Dividend taxes, which will hit
small to medium firms and their shareholders hardest, are avoidable if a combination of better
wages, extra consumer spending power and business profits boosts HMRC tax revenues to
much higher levels.
Raising productivity also has environmental and social benefits.
There are valuable social and environmental benefits from raising productivity. More efficient
use of materials and resources causes far less environmental damage as well as lowering costs.
With an innovative approach, productivity improvement projects can accelerate progress to
increasing sustainability and reducing environmental impact, as potential benefits and savings
could offset the costs of sustainable transition and carbon taxes.
When it comes to motivating the workforce to share goals, research shows that clear
communications about the widespread benefits of small productivity improvements, can
increase staff involvement, and reduce resistance to change.
As for the overall ‘Happiness and Well-being’ of the population, detailed studies* now shows
that citizens of high productivity countries also have superior ‘satisfaction with life’ scores.
*European Social Survey
With increased profits and lower costs, companies can increase the pace of innovation as well
as raise workforce skills and wages. Higher productivity also gives businesses, large and small,
added resilience and extra capabilities to compete more effectively on price, quality, and
Unleashing the Power of Productivity in your organization
When planning productivity improvements, five factors differentiate these from routine