The Government’S Productivity Plan

Part of the debate – in the House of Commons at 2:04 pm on 28th February 2017.

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Photo of Iain Wright Iain Wright Chair, Education, Skills and the Economy Sub-Committee, Chair, Business, Energy and Industrial Strategy Committee 2:04 pm, 28th February 2017

I am going to talk about scale in relation to the size of firms, as opposed to the size of nations, but the hon. Lady makes an important point.

This is not a dry and dusty economic treatise. I am talking about real, unsatisfactory productivity growth across the UK that is affecting the living standards of the constituents of hon. Members on the Committee and of Members across the whole House. That is why the Committee wanted to examine the Government’s productivity plan. This is not about dragging London and the south-east back; it is about moving the regions and nations closer to the economic performance of the capital.

The distinctive structure of our economy could also be acting as a drag on our economic performance. About four-fifths of our economy is made up of services, which is higher than in any other G7 country. It is clear that the service sector has driven the economic recovery since the downturn in 2008, but in the main the sector tends to have lower productivity than manufacturing. Moreover, in the past 30 years, we have seen a shift in the nature of jobs in this country. For every 10 middle-skilled jobs that disappeared in the UK in the 1990s and the first decade of the 21st century, about 4.5 of the replacement jobs were high-skilled and 5.5 were low-skilled. In Ireland, the ratio was 8:2 in favour of high-skilled jobs; in France and Germany, it was about 7:3. The nature of our economy and our skills set means that our major economic rivals are moving away from us and going higher up the value chain than we are. That is clearly having an adverse impact on productivity and living standards.

In addition, Britain is a nation, if not of shopkeepers, then certainly of small businesses. That is a great thing. In the 21st century, the number of businesses in the UK has increased by an average of 3% per year, to reach 5.5 million, which is 2 million more businesses than in 2000. However, the proportion of firms that employ people has fallen in the same period from about a third of companies in 2000 to around a quarter today. Micro-businesses—those enterprises employing fewer than 10 people—account for 96% of all businesses in the UK. The domination of small businesses in our economy has implications for productivity levels. They are unable to take advantage of economies of scale, they are more likely to face difficulties in accessing finance for new product, for process development or for scale-up activity, and they may find it difficult to find the time not merely to fulfil existing orders but to identify opportunities and secure bigger contracts for domestic and export markets. Those companies cannot afford armies of procurement and export teams.