Britons lose £5k a year during lost decade of productivity growth

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Britain’s productivity growth has lagged the rest of the G7 “throughout much of the post-war period, which seems to indicate a deep structural problem,” according to the National Institute of Economic and Social Research (NIESR) and the UK Productivity Commission, the report’s authors (Photo by Christopher Furlong/Getty Images)

Workers have lost an average of £5,000 every year over the last decade due to the UK’s meagre productivity growth, reveals a new report published today.

Britain’s productivity growth has lagged the rest of the G7 “throughout much of the post-war period, which seems to indicate a deep structural problem,” according to the National Institute of Economic and Social Research (NIESR) and the UK Productivity Commission, the report’s authors.

The missing income represents 20 per cent of average annual earnings, illuminating the scale of lost improvements to UK living standards caused by the country’s so-called “productivity puzzle”.

Productivity measures output per hour worked. 

Productivity growth is typically characterised by economists as the key to improving living standards, boosting overall output and controlling inflation.

Although there is contention over how to improve productivity, investment in human capital, such as education and skills, and plants, machinery and infrastructure are often identified as factors that can lift productivity.

Professor Jagjit Chadha, NIESR’s director, said: “This report, the first from the UK Productivity Commission, lays bare the systemic issues surrounding the poor productivity performance of the UK economy.”

“The mistaken focus by policymakers on the costs of low productivity, rather than on measures to enhance productivity through investment in regional infrastructure, skills and innovation” has contributed to weak growth, he added.

Britain is the most inter-regionally economically unequal rich country in the Organisation of Economic Co-operation and Development, the report said.

Despite London – historically the country’s growth engine – productivity expansion flatlining after the financial crisis, other regions have failed to make up ground.

This lack of growth in cities such as Manchester and Birmingham has further entrenched economic gulfs between UK regions, costing the country £50bn per year, the report found.