We can – and must - do better than this

Simon Haskel on a major gap in the Chancellor’s Autumn Statement

I was disappointed that George Osborne only mentioned ‘productivity’ once in his Autumn Statement. Over the past six years output per hour in the UK has fallen by 3%, while at the same time rising in France, Germany, Italy and the US – the latter by 7.6%. I assume therefore, that the government view weak productivity as the price worth paying for the kind of labour market we have created. 

Productivity determines our standard of living – something that has always risen as productivity has risen. By ignoring it, the Chancellor condemns us to yet more stagnation in our standard of living. Or perhaps the government is hoping for the best? Hoping that as demand strengthens, so our productivity performance will improve. This is a gamble the government should not be taking when action to raise productivity would benefits all.

I recently asked a question in the Lords on how much would be saved in housing benefit paid to those in work if their productivity went up by 1% and was equally shared between employer and employee. The Minister didn’t have a number, but he thought it a good idea. Two days later I received a letter from a Professor of Economics with a calculation: £210 million. A nice contribution to reducing the cost of both housing benefit and welfare.

The government’s policy of subsidising low pay to encourage employment has, in the short term at least, certainly helped raise the number in work. But it has downgraded the quality of jobs in the medium term. Surely this is one reason why our productivity has been stagnant. More than two-fifths of the jobs created since the last general election have been self-employed. Many more are part time, with most in an expanding service economy that lacks the strong investment needed to raise productivity. 

Ministers will point to the rise in GDP which the government has also encouraged. But GDP considers investment and consumption in the same way, not differentiating between money spent on research or new equipment with money spent on going on holiday or a haircut. Indeed, GDP also includes value destroying expenditure like pollution or traffic jams. It does nothing for productivity.

The Low Pay Commission has said that raising the minimum wage alongside improved training, could even help raise the UK’s productivity. What we do know is that raising productivity will create new and more worthwhile jobs, instead of just mopping up spare labour. Jobs that will increase the tax intake and reduce the welfare subsidies. Help exports and reduce the deficit – all stated aims of this government.

So why is this not in the Autumn Statement? Perhaps the Minister thinks that getting business to raise its game and be more productive is anti-business interference. Not at all. It is pro- a business community that wants to raise its game, and improve its performance, engineering and technology. A community that wants to be competitive, scale up and be in it for the long term. Because without all of this we are in danger of marginalising our economy and moving to the fringes of a globalised world.

The Autumn Statement is a missed opportunity to change our focus from short term rises in GDP fuelled by low paid, unskilled subsidised jobs to rising ambition through productivity, rising investment, rising standards of living and rising tax receipts. Raising the living standards of us all. This is where the next government – a Labour government – will have to turn its attention.

Lord Simon Haskel is a backbench Labour Peer

Published Thursday 4^th December 2014