Britain has a productivity problem – but we have the tools to solve it
Budgets come and go. There is a huge buildup, the papers are filled with speculation and leaks, and in the days before excitement in Westminster reaches fever pitch. It is one of the few times when you will find all backbench MPs avidly reading government documents in detail because they know the details matter.
Most of the announcements of any budget are a series of judgements on terrain that is well understood – taxes, infrastructure, borrowing, government spending in departments – and consequently the economic and political decisions are often quantitatively but not qualitatively different from year to year.
Rishi Sunak’s latest budget was different, it was economically transformative and designed to supercharge productivity as we navigate a society bruised from the pandemic. Help to Grow, one of the cornerstone policies which received less attention than its flashier cousin, the super deduction.
The UK has a productivity problem, it is not new, yet attempts to address it have often lacked creativity. Andy Haldane, Chief Economist of the Bank of England, in a seminal speech three years ago, laid out the fundamental reasons for our stubbornly low productivity compared with our G7 competitors. The productivity gap between the top- and bottom-performing companies is materially larger in the UK than in France, Germany or the US, Haldane explained. In the services sector (80% of UK GDP), the gap between the top- and bottom-performing 10% of companies is 80% larger in the UK than in our international competitors. This productivity gap has also widened by far more since the crisis – around 2-3 times more – in the UK than elsewhere.
Despite ranking consistently in the top-5 for innovation, the UK ranks only 38th globally for communicating knowledge on how to innovate, a skill technically known as knowledge diffusion. So, how do we do this more effectively? There are two key ways, through the adoption of new technology and the best utilisation of human capital, in other words, the people who work for the business. Help to Grow makes both of these issues a priority and we have evidence it works.
In designing the scheme, Treasury officials spoke with Singaporean civil servants about their own very successful programmes, which provide extensive technological and managerial assistance to SME owners and managers – all of which help to make it one of the most successful economies in the world.
Help to Grow is specifically targeted at helping SMEs adopt new technology. Help to Grow’s digital offer will create a new online platform for free advice on technology that will help businesses to save time, reduce costs, and reach more customers. Eligible SMEs will also be given vouchers to get up to 50 per cent off the purchase of new productivity-enhancing software, up to £5,000 each.
The most important part of communicating ideas and innovations across countries and companies is through people. As workers transition between companies, their expertise and experience is transferred with them. According to the Bank of England, one of the key indicators of company productivity is management skills. In the UK, these skills are lower than in competitor countries.
Help to Grow addresses this by giving SMEs targeted management training courses and providing online training seminars to support firms. Help to Grow has been set up to empower SMEs to become more productive in the short and long term by providing access to some of the UK’s top business schools. Firms will have access to digital and management services under the new scheme, which is expected to run in 12-week programmes. SME bosses will be offered 50 hours of tuition from the country’s leading business schools, as well as one-to-one support from a business mentor.
These measures will have a positive practical impact. The days of feel-good schemes with little real life results are gone. Help to Grow is one of the most significant investments in the UK’s productivity in a generation and any and all small business owners should be leaping at the opportunity.