Car production line

It’s odd, when you hear politicians talk about the UK economy they invariably forget to mention the most serious problem of the lot. Data out a few days ago highlights how serious the problem is, and how urgently we need to grapple with it.

 

Total output across an economy is determined by two factors. How many people are working, and how much they are producing. Alternatively, you can look at how many hours people are working in total, across the economy, and how much is being produced per hour.

The UK ticks the first box, total employment is at an all time high, percentage unemployment, the lowest since the mid 1970s, but output per worker is, well maybe the best word to use to describe it is ‘lousy.’

According to the Office of National Statistics, output per worker in the UK was 15.4 per cent below the G7 average in 2016. Workers in the US produced 26.5 per cent more than the average UK worker. In France they produced 11.5 per cent more, while Germans managed 8.5 per cent more. In fact, of the G7, only in Japan is output per worker lower. So the US has got it right then, we need to be more like Americans, right?

Not so fast, in fact the country in the G7 with the second highest level of output, behind the US, is Italy, but of course unemployment in Italy is horrific (around 11 per cent) versus 4.3 per cent in the UK).

Maybe the key is not so much to be like the US, where the working week is longer, and holidays shorter, but where hours worked are shorter, but output per hour worked is much higher.

The G7 country with the highest level of output per hour worked is Germany – 25.6 per cent greater than in the UK. In France it is 22.3 per cent greater, 21.8 per cent higher in the US, 9 per cent higher in Italy, but lower in Canada and Japan.

We don’t want a labour market like France where unemployment is over 9 per cent, but in Germany unemployment is even lower than in the UK.

If the UK’s output per worker could be as high as it is in Germany, but everything else as it is, the UK economy would be 25 per cent bigger, there would be no public deficit, and funding for the NHS would be much greater – it would still be in crisis of course, our demand for health care is always more than we can afford.

But take another look at the figures and a surprising result is turned up. Productivity growth in the UK in 2016 was above the G7 average. The truth is, that while the UK has it especially bad, poor productivity growth is a problem across the G7, and has been since 2007.

What is the fix?

Entrepreneurs may have the solution – although better roads, trains and internet access would no doubt help the UK a good deal.

Entrepreneurs have to be productive, or else their business does not survive, they also bring new ideas, new ways of working and new products to the market. UK plc can close the productivity gap, and across the G7 productivity can rise much higher, but first we need entrepreneurs and entrepreneurial spirit.