Mend the gap: solving the UK’s productivity puzzle

The UK is the world’s sixth largest economy. But would it surprise you to learn that outside of London, the South East and a handful of major cities, many areas of the UK are just as poor as swathes of Eastern Europe?

The disparity between different regions of the UK is stark, and not only in terms of living standards and educational attainment – but, crucially, also in the productivity of its workforce.

The productivity gap is one of the most serious and vexing economic problems facing the government of the day, and Brexit is adding uncertainty to the mix.

Close the productivity gap between the most and least successful regions of the UK, and the GDP of UK PLC will invariably rise. Allow it to remain at current, stagnant levels – or, even worse, let the gap widen – and it’s not only our place in the world rankings that suffers, but also the UK’s economy, infrastructure, educational standards and health, as well as other indicators of social cohesion, such as child poverty and rising crime rates.

Put simply, productivity fires the engine of our economy – and we all need to mind the gap.

The UK’s ‘productivity puzzle’ is what concerns Dr Maria Abreu from the Department of Land Economy. She’s working with colleagues from universities around the UK as part of the Productivity Insights Network funded by the Economic and Social Research Council (ESRC) and led by the University of Sheffield. The group of economists, geographers, management experts and other scientists are taking a place-based approach to a problem HM government is desperate to solve.

Last year, the government published a 256-page Industrial Strategy that placed the productivity gap at its centre and is looking to the Network to provide policy recommendations, explains Abreu.

“There’s a narrative that the UK is a very rich country, but many regions of the UK outside the capital are poor,” she says. “We have a few of the richest regions in Europe and some of the poorest. It’s a delusion to say we’re rich.

“All the growth in the economy is centred on London, the South East and a few other cities. But growth is low or negative in the rest of the UK, and overall that means there is nearly no growth whatsoever. We are standing still.”

Compared with other OECD countries, the UK has had low productivity performance since the 1970s.

The gap with other countries closed significantly during the Labour governments of the late 1990s and 2000s: GDP per hour worked grew at an average rate of 2.1% until 2007 when the global financial crisis began.

Since then, however, productivity growth has been negative (-1.1% per year for 2007–9) or very low (0.4% per year from 2009–13), and the gap with other OECD countries has increased again despite employment rates remaining relatively strong, leading to the so-called productivity puzzle.

The three-year ESRC project is divided into distinct themes, and Abreu is leading on researching how the skills of the UK labour force, developed from preschool to life-long adult learning, go hand in hand with the rise (or fall) of productivity – and how place is a crucial, determining factor in all of this.

Figures from the Office for National Statistics showed that labour productivity in 2016 was significantly above the UK average in London (+33%) and the South East (+6%), but below average in all other regions and nations, and particularly low in the North East (-11%), the West Midlands (-13%), Yorkshire (-15%), and Wales and Northern Ireland (-17%).

“My group is looking at education and teaching standards, and what might be causing the regional disparities,” says Abreu. “We are also looking at graduate migration because we have some excellent northern universities, but those regions lose a lot of people after graduation.

“London and its surrounding areas are very successful in attracting graduates and highly skilled workers from around the UK, as well as migrant workers from abroad.

“The capital’s productivity is enormous, but this means it is decoupling from the rest of the economy. We can link this directly to globalisation in the 1980s and the offshoring of certain industries. Most of the new jobs have been in hi-tech industries concentrated in only a few places.”

Abreu suggests the dismantling of the Regional Development Agencies and the move to LEPs (Learning Enterprise Zones) from 2010 has come at a huge cost to large areas of the UK that are no longer covered by a consistent development strategy.

She passionately believes that increasing education standards across the country is vital if the UK is ever to close its productivity gap. She also argues for proper development strategies for all regions of the UK – as well as investment in education.

The extent to which parents are engaged with their children’s schooling also displays strong regional variations. Areas that are better off attract better teachers. The benefits and drawbacks of this regionalism become self-perpetuating and that affects everyone.

“These disparities in productivity, education and living standards affect us all,” says Abreu. “It matters if you have one region that far outpaces everywhere else. Regions get left behind, become very socially and politically unstable, and low productivity translates into low wages and deprivation. Families do badly at school and this entrenches poverty and poor social mobility, which impacts the rest of the country.”

Migrant workers and domestic labour

A study by the Department for Business, Innovation and Skills in 2015 found that migrant workers brought benefits to UK employers that led to productivity boosts. What happens after Brexit?

Professor Catherine Barnard from the Faculty of Law believes that too much of the Brexit debate has been taken up with the discussion of trade – manufacturing amounts to only 15% of the economy – rather than the impact of the migrant workforce.

 “We know there are sectors that are highly dependent on EU labour such as agriculture, which is often low-paid, seasonal work where the incentive to UK workers is not that great,” says Barnard. “We also know that 10% of
the NHS, especially in London, is made up of migrant workers. At Cambridge University, it’s 27% at postdoctoral level.”

 Barnard, working with Dr Amy Ludlow and Sarah Fraser-Butlin, has been looking at the issue of immigration and the labour force, funded by the ESRC. They have focused on the East of England, visiting schools in Spalding as well as attending town hall meetings in Holt and Sheringham. Barnard says: “You get a very different view of the world. When I have given evidence to parliament, I can talk about these towns and their experiences of Eastern European migration – which are very different to the experiences of a town like Cambridge.

 “The reason people can’t get a hospital appointment or a school place is partly to do with migration, but it’s also because of the underfunding of public services. Local councils have lost 40% of their funding from central government since 2010.”

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