Tory rule has left Britain’s productivity in peril: Paul J. Davies

In this penetrating analysis by Paul J. Davies, the ramifications of 14 years of Tory governance on Britain's economy, society, and global stature are dissected. With productivity dwindling, attributed to a mix of planning restrictions, scant public investment, and post-Brexit political tumult, the challenges ahead loom large. The narrative unravels the complex web of factors stifling growth and underscores the imperative for bold, sustained action to reignite Britain's economic engine..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Paul J. Davies.This is part of a series on what 14 years of Tory rule have delivered for Britain's economy, society and standing in the world. The challenges awaiting the next government are numerous. .___STEADY_PAYWALL___.Britain inarguably has a productivity problem, and the big debate is about why it's worse here than in other big economies. There are no simple answers, but years of heavy planning restrictions, weak public investment and the Tory party's own chaotic and volatile politics since the 2016 Brexit vote have all hurt business sentiment and the economy. .Read more: Britain's economic past offers insights for America's future: David Fickling.Debates about productivity can get complex quickly, but at heart it's just about how much economic output we get for the work we put in. Better technology and tools, more energy-efficient buildings, and more knowledge about how to do things better all help grow our productive capacity, and that usually comes with rising wages and living standards. When productivity isn't rising, the overall economic pie isn't expanding and that creates tougher tradeoffs between spending on public services and taxation or borrowing. Low productivity growth also makes an economy more vulnerable to bouts of inflation..Between 1997 and 2007, most of the life of the last Labour government, Britain's economic output per hour worked grew at a healthy pace. Then the global financial crisis hit, UK productivity growth tanked and, unlike in the US and other major economies, it never recovered..Since 2010, British productivity has fallen further behind the US, lost touch with other Group of Seven peers and even been overtaken by the 19 euro-area countries, according to data from the Organization for Economic Cooperation and Development. Britain's GDP per hour worked is at least one-fifth lower than it would have been had the country kept to its pre-2007 growth rate..The important — and thorny — question is why..Part of the reason the drop in productivity looks so severe is because it came after a period of unusually strong growth from manufacturing, which may have boosted the performance of the wider economy. One theory about the good years is that less productive firms and activities closed and manufacturing became more specialized and integrated with global supply chains. But those gains didn't last and the consequent loss of jobs in some regions might have helped fuel support for Brexit..It wasn't only manufacturing that drove the slowdown either. This came from many industries and had a common theme: The decline in growth was biggest in places most dependent on technology, intellectual property and knowhow. That includes finance, software design and publishing, as well as manufacturing of things like pharmaceuticals. The pace of innovation in several industries started to slow before 2007, even in the US, but in Britain the drop has been deeper, broader and longer lasting, according to economists Peter Goodridge and Jonathan Haskel..Read more: 🔒 Britain's assimilation triumph: A diversity royal flush defying racism – Adrian Wooldridge.One explanation for less innovation is that business investment, including R&D and training, was hurt by the financial crisis and subsequent Tory policies. Austerity after the crisis and the ongoing government habit of cutting back or canceling major projects made public investment weak, volatile and unpredictable. The opposite is needed to "crowd in" private investment alongside public spending, according to Dan Hanson, UK economist at Bloomberg Intelligence..And if uncertainty was a problem for business investment before the Brexit vote, it only got worse after. It has flatlined since 2016 as the Tories changed leader four times and struggled to work out a coherent trading relationship with Europe and the rest of the world..Trade has suffered widely as a result, and likely so has the dispersion of ideas and knowhow within the UK economy, adding another major brake on productivity. As Britain goes it alone, the need to be more self-reliant means diverting more resources back into lower-value manufacturing, such as food, according to Gregory Thwaites, research director at the Resolution Foundation. That could mean another hit to headline productivity..Lastly, one of Britain's biggest restraints on both investment and the distribution of people and skills throughout the country is its highly restrictive planning regime, which severely limits the building of new homes, offices and laboratories that are necessary for industry to grow. Uniquely among G7 countries, the UK hasn't added to its overall area of built-up land per capita since 1990, according to OECD data quoted by Thwaites. The cost of planning applications is five times higher now than in 1990, according to Thwaites, and their outcomes more uncertain..This is the fault of successive governments, but large elements of the Tory party and its members of parliament have consistently opposed easing these restrictions. Liz Truss, Britain's shortest serving prime minister, is the one leader who pushed radical planning reform in her growth agenda. Unfortunately, she had to buy the chance to do that with promises of totally unrealistic tax cuts. What Britain got from this episode was just more volatility..The cure for Britain's productivity problem lies in fixing politically tricky issues with planning, investment, trade and the spread of knowledge. What the next government must do, at the very least, is create a more stable political environment, stick to whatever investment plans it can afford, and ensure new property can be built in the parts of the country that are straining to grow. There is no quick fix and no easy bargains. .Read also:.🔒 Britain's assimilation triumph: A diversity royal flush defying racism – Adrian Wooldridge🔒 Ending stagnation report reveals Britain's economic decline, urges critical reforms – Matthew BrookerBritain's water woes: Tories' failure to fix infrastructure plunges nation into chaos – Martin Ivens.© 2024 Bloomberg L.P.

Tory rule has left Britain’s productivity in peril: Paul J. Davies

Related Stories