By Jonathan Davies
There are seven key ways to boost the UK's growing problem of lucklustre productivity, according to a new report published by the All Party Parliamentary Small Business Group and supported by the Federation of Small Businesses (FSB).
The report’s recommendations are designed to help close the productivity gap between the UK and other G7 countries like France, Germany and the US.
The report said that the UK currently faces a large and longstanding productivity challenge. When the economic crisis hit, productivity fell sharply, as in other countries. However, while productivity has rebounded elsewhere, the UK continues to lag behind.
Recent FSB research shows that small firms’ productivity levels finally began to turn a corner at the end of 2014, but there is still a long way to go. UK productivity levels are currently 17% lower than the G7 average.
Seven ways to boost productivity:
1. Incentivise business investment: Simplifying the business tax system, setting the Annual Investment Allowance and other investment incentives at attractive and stable levels, and improving access to finance will encourage more firms to invest in new products and processes. This in turn will drive productivity gains and business growth.
2. Universal access to high quality, affordable broadband: Digital technologies are fundamentally altering the nature of business, and firms that aren’t connected will struggle to grow and even survive. Better broadband for small businesses is essential if the UK is to compete in high-value global markets and close the productivity gap with our competitors.
3. Invest in regional growth: Investment should be targeted on infrastructure to connect regions and create new opportunities for local firms, while Local Enterprise Partnerships need to be strengthened and made more locally accountable if they are to become better agents of economic growth in England
4. Support innovative businesses: To help knowledge transfer to the private sector Government should increase the Higher Education and Innovation fund to £250 million. The application process for businesses to access tax credits for research and development should be improved, and equity investment, which is beneficial to these businesses, should be promoted.
5. Address skills and training shortfalls: Government and business should work together to increase the number of high quality apprenticeships, forge closer links with local schools and universities, and encourage more small firms to invest in training to upskill their workforce.
6. Ambitious public procurement policy: We need to see more small businesses bidding for and winning public sector contracts to drive competition and innovation, and deliver new growth opportunities for local firms. The National Audit Office should publish regular performance data on the number and value of public contracts going to small, medium and micro-firms.
7. Get more businesses exporting: UK Trade and Investment should be supported for the long-term so it can adequately support small and start-up businesses’ ambitions to export, while the British Business Bank should also play a greater role in providing tailored export finance to small firms.
Mike Cherry, FSB National Policy Chairman, said: “This cross-party report concludes that while ultimately improving productivity is an issue for the private sector, the next Government has an important role to play in addressing this long-standing weakness, regardless of which party or parties form the next administration.
“Closing the productivity gap is the best way to boost the long term health of the UK economy. It is key to reducing the budget deficit, and delivering higher wages and living standards. What is clear is these efforts require a long-term effort and focus, which is why the FSB is arguing for the establishment of a UK Small Business Administration to provide that role."
Brian Binley MP, Chair of the APPG for Small Businesses Productivity Inquiry, said: “This report marks the first time a concerted effort has been made to assess the drivers of productivity within small businesses specifically. Small businesses have been responsible for much of our recent economic growth and addressing the barriers that hold them back and giving them the right support is crucial to closing the UK’s productivity gap.”
Annemarie Morris MP, Chair of the All Party Parliamentary Small Business Group said: “The UK’s comparatively poor level of productivity is one of the biggest challenges facing our economy. We have a lot of catching up to do in order to keep pace with other leading economies. This report has identified a number of practical recommendations that could be taken up by the next Government. Solving the UK productivity puzzle is critical to helping employers increase wages and boosting the long-term wealth and prosperity of the nation.”