By Jonathan Davies
The government has launched its 'productivity plan' that sets the agenda for the whole of government over the parliament to reverse the UK’s long-term productivity problem and secure rising living standards and a better quality of life for our citizens.
It expands on brief details outlined by the Chancellor George Osborne during Wednesday's Summer Budget.
Secretary of State for Business, Sajid Javid, launched the plan at a Speech at Birmingham.
While raising productivity is a global challenge, a large and widening productivity gap exists between the UK and leading advanced economies.
Narrowing this gap is a prize worth striving for. For instance, matching the productivity of the US would raise GDP by 31%, equating to around £21,000 per annum for every household in the UK.
The government’s framework for raising productivity includes 15 key areas, built around two pillars: first, encouraging long term investment, and secondly, promoting a dynamic economy.
Business investing for the long term
- Tax changes: including cutting corporation tax to 18% in 2020, saving businesses £6.6 billion, and increasing the personal allowance to £12,500 and increase the higher rate threshold to £50,000 by the end of the parliament.
- Rewards for saving and long-term investment: including permanently raising the Annual Investment Allowance to £200,000, committing to a new business tax roadmap, and engaging with the country’s most senior business leaders, led by Sir Charlie Mayfield, as they develop their proposals for improving business productivity and with some of the largest institutional investors to support companies in investing for the long term.
Skills and human capital
- A highly skilled workforce: including introducing a new compulsory apprenticeship levy requiring large businesses to invest in their own future, and radically streamlining further education qualifications.
- World-leading universities, open to all who can benefit: including removing the student cap and ensuring the sustainability of investment in universities by replacing maintenance grants with loans for new students
- A modern transport system: including the creation of a new Roads Fund from 2020-21, financed from Vehicle Excise Duty, and a plan to get Network Rail and the rail investment programme back on track.
- Reliable and low carbon energy: ensuring that the UK attracts necessary investment to guarantee secure energy supplies and a review of business energy tax policy to improve and simplify the landscape.
- World-class digital infrastructure: including ensuring that superfast broadband is available to 95% of UK households and businesses by 2017 and making it easier for the market to roll out fixed and mobile infrastructure with proposals to reform planning rules on taller masts.
Ideas and knowledge
- High-quality science and innovation: including delivering our science capital commitment, investing £6.9bn in the UK’s research infrastructure and developing the UK’s network of Catapult centres for commercialising technology
A dynamic economy
Flexible, fair markets
- Planning freedoms, more houses to buy: including introducing a new zonal system to give automatic permission on suitable brownfield sites, taking tougher action to ensure that local authorities are using making land available for housing, and working with the Mayor of London to bring forward proposals to remove the need for planning permission for upwards extensions for a limited number of stories up to the height of the adjoining building.
- A higher pay, lower welfare society: including the introduction of a new National Living Wage to help move to a higher wage, lower tax, lower welfare society.
- More people with a chance to work and progress: including doubling the free entitlement to childcare to 30 hours a week for working parents of three and four year olds, and reforming the Employment and Support Allowance to ensure the right incentives and support are in place for those taking steps back into work.
- Financial services that lead the world in investing for growth: including driving financial services competition by creating a PRA/FCA New Bank Unit and embedding the importance of ensuring the supply of finance to support productive investment in the Financial Policy Committee’s 2015 remit
Openness and competition
- Competitive markets with less regulation: including by cutting £10 billion of red tape, introducing clear new principles for switching and publishing a new Digital Transformation Plan to support the adoption of digital technologies across the economy.
- A trading nation open to international investment: by mobilising the whole of government behind exporting, working alongside a more effective UK Trade and Investment (UKTI) and better export finance, building stronger trade links with emerging markets and helping to deliver a more dynamic and outward focussed Europe.
- A rebalanced economy and a thriving Northern Powerhouse: including devolving further powers and responsibilities to the elected Mayors of London and Manchester, and to work towards devolution deals with Sheffield, Liverpool, and Leeds, West Yorkshire and partner authorities. And by putting Transport for the North on a statutory footing to give it a budget, clear leadership and a focussed remit, including working to introduce Oyster-style ticketing across the North
As part of ensuring that the government can make the finest possible assessment of the UK’s productivity, the Chancellor has also asked former Deputy Governor of the Bank of England, Sir Charles Bean to lead an independent review of the quality, delivery and governance of the UK’s economic statistics, so that we can measure productivity in a modern and increasingly technological economy.
The Chancellor of the Exchequer, George Osborne, said: "The only way to sustainably raise the living standards of the citizens of our nation is to confront the challenge of our lifetime, to raise productivity.
"This will not be achieved over night and will require a truly national effort by government, business and working people.
"But with this blueprint to fix the foundations of our economy, I believe that we have taken the vital first step towards securing the prosperity and a livelihoods of generations to come”.
Secretary of State for Business, Sajid Javid, said: "This is a bold and ambitious plan, to achieve our vision of a more dynamic economy, with a business environment that fosters long-term investment, raising our living standards and become the best of all the major economies by 2030.
"The plan we are publishing today shows we are taking the decisions necessary to address issues of productivity and build a foundation for Britain’s future.
Communities Secretary Greg Clark said: "The top-down targets of the past planning system did nothing to deliver the homes our country needs. In contrast, putting local people in control has led to record numbers of homes being granted permission and support for housebuilding to grow.
"Today’s proposals ensure we go further and faster, removing the barriers so we can keep the country building and support hard-working people to achieve their dream of home ownership."
John Allan, national chair of the Federation of Small Businesses (FSB), said: "As we proposed prior to the Budget, the FSB would also like to see further ideas on how the tax system could be made to drive productivity improvements through incentives and simplification. We see the upcoming review of small business taxation by the Office of Tax Simplification as the ideal opportunity to do this.
“Two standout wins for small business in today’s report were the introduction of the Leadership and Management Degree Apprenticeships and the package of measures for small house builders. The FSB has long advocated such reforms to boost productivity. The first recognises the important role vocational training can play in improving the leadership and management skills of tomorrow’s business leaders. The second will be particularly welcome to our members in the construction sector who have long struggled with the UK’s sclerotic planning system.”
James Sproule, Chief Economist at the Institute of Directors, said: “It encouraging to see the Government set out proposals which are long-term in nature and will help businesses well beyond the life of this Parliament. Companies’ investment horizons span decades not months and years, and it is vital that government policy recognises this. A flexible labour market and simple tax code are crucial components of a competitive economy, as they encourage people to move jobs or start businesses in new and exciting industries, and make sure labour is allocated as efficiently as possible across the economy.”