My Lords, in the decade from 2010, the UK economy saw the lowest productivity growth since the Napoleonic Wars, which led to the lowest growth in living standards ever recorded. This Government also inherited a situation where public sector productivity was 7.2% below pre-pandemic levels. Reversing that poor productivity performance is the number one mission of this Government. As part of our growth strategy, we have set out measures to increase productivity, including reforms to planning and skills, record levels of investment in R&D, new investment in transport connectivity, a modern industrial strategy and a 10-year infrastructure strategy.
My Lords, I thank the Minister for his reply. Low productivity has indeed been a running sore for almost 20 years now. Frankly, there are no real signs of progress, which is why the OBR is poised to downgrade its trend forecast and leave the Chancellor with an even deeper black hole. We need a major reset, so is it not time to set up an office for productivity alongside the Office for Budget Responsibility if we want to achieve per capita growth and fiscal discipline? This would be an office with experts with first-hand industry experience delivering on productivity, including how to lead, manage, train, set targets, and reward and incentivise our workers in public and private sectors.
I am grateful to the noble Lord for his question and suggestion. On the progress that has been made, he will know that the drivers of productivity are fundamental and deep-seated challenges that exist in our economy, that they are long-standing, and that obviously we cannot come in, click our fingers and improve that productivity performance—it will take time. For example, investment is one of the most important drivers of productivity. That requires changes to our planning system and the planning Bill is still going through this House, so of course it is going to take time. As I say, the productivity performance that we inherited from the previous Government has been too weak. Austerity, Brexit and the Liz Truss mini-Budget have left deep scars on the British economy that are still being felt today, but those past mistakes do not need to determine our future. That is why, as part of our growth strategy, we have set out measures to increase productivity in the British economy.
My Lords, on the point from the noble Lord, Lord Londesborough, would the Minister consider looking at how the figures are compiled? Personally, I think that the contribution from the services sector is underplayed and undervalued in the calculation of productivity. Would the Minister also recognise the contribution from the 13 leading business representative bodies—indeed, pretty much every business in the UK—that the Employment Rights Bill will reduce productivity and growth?
On the noble Lord’s first point, I am very aware of some issues around the data, and I believe the ONS has been reviewing it along the lines he suggests. On the Employment Rights Bill, he will know that labour supply is also a fundamental component of driving productivity, and that a more motivated and more secure workforce is a more productive workforce. I hope he will take that into account.
My Lords, we hear this week that only 11% of UK SMEs say they use technology to a great extent to automate or streamline operations. Do the Government understand that the slow pace of adoption of new technology by SMEs—many of which have not even adopted first-generation technology—lies at the heart of our productivity problem, which is why it remains incomprehensible that the Government keep adding burdens on SMEs? I know the Minister cannot tell us what is in the Budget, but can he at least tell the House that he recognises the problem?
Yes, I absolutely recognise the problem and I agree with 90% of what the noble Baroness said. The only part I disagreed with was when she criticised the Government. I agree: digital adoption and AI adoption will be central to solving the productivity problem. SMEs are vital to that. It is why digital adoption was a key part of our small business strategy. I hope we can work together on this important issue.
My Lords, the period from 1970 to 1990 was a time of rapidly increasing productivity, of rapidly increasing Japanese investment in particular, and of great reduction in trade union restrictive practices, which the Japanese would not put up with. What lessons does he draw from that for today?
I am grateful to the noble Lord for his insight from that period. He is absolutely right. It was a time of high productivity; it is a shame that the second Conservative Government after that did not maintain it. We now have to deal with the inheritance from that Government. He is right to say that private sector investment is a key driver of productivity, so the lesson I draw from that period is that we have to encourage greater levels of private sector investment. Under the previous Government, private sector investment fell to the lowest in the whole G7. We have so far welcomed £120 billion in private investment and a further £150 billion during the US state visit last month alone.
My Lords, does my noble friend the Minister agree that we are very good at telling other people what to do? Is it not time that we started having a look at our practices and productivity to see whether we can run Parliament and the Commons much more effectively than we are at the moment?
My Lords, the Minister will know that, with 52% of the adult population having numeracy levels at or below those of a primary school leaver, low numeracy acts on a drag on the UK economy, leading to a critical skills gap and, ultimately, limiting productivity. Does he agree that unless we address low numeracy, as we have addressed core reading skills, we will struggle to achieve the economic growth that is at the core of his Government’s ambitions?
I am grateful to the noble Baroness for her question. I agree. Fundamental skills are vital to improving our productivity. Labour quality is a key driver of productivity. The skills agenda is vital to that. That is why we recently set out measures to tackle that in the skills White Paper. I hope the measures she speaks about will also be looked at carefully.
My Lords, I very much agree on skills, but a large part of the productivity problem in the UK has been in the public sector. This is hardly surprising, since the Government awarded huge public sector pay rises last year without a direct productivity link. Civil service numbers have also increased. Low productivity and growing headcount are not a happy state of affairs. How does the Minister plan to improve that rather dispiriting situation?
The noble Baroness is correct to say that public sector productivity is a major issue. I know that it is something she cares about deeply. Obviously, she will be aware that the Government inherited a situation where public sector productivity was 7.2% below pre-pandemic levels; that is obviously and clearly unacceptable. She said that pay rises were awarded without any link to productivity. That is factually incorrect. At the spending review, the Government established a programme of public sector service reform to drive greater productivity. Every department has committed to at least 5% savings and efficiencies over the spending review period, with the Office for Value for Money working closely with departments to agree bespoke targets. This will result in savings and efficiencies equivalent to nearly £14 billion a year by 2028-29, and public sector productivity has already risen by 1.5% since the election.
My Lords, in 1964 the then Labour Government sought to separate the Treasury into two pieces: one to look after the short-term fiscal tax-raising element and one to look at economic development. The same tension exists today. Can the Minister tell your Lordships how the Treasury is balancing them? At the moment, it looks as if short-term fiscal concerns are outweighing long-term economic needs.