Trade is the key to tackling productivity

In his Mansion House speech this week, the Chancellor, Philip Hammond, sketched out a new “plan” to raise productivity. He’s quite right to be concerned, says David Smith. “The expression ‘lost decade’ is thrown around a lot, but in the case of productivity, is entirely appropriate”: the latest figures show that output per hour in Britain is now “fractionally lower” than in 2007. Since productivity normally grows by 2% a year, it’s “hard to overstate” how unusual this is – and how worrying, given the link between productivity and living standards. The Government’s domestic initiatives to tackle the problem are just fiddling round the edges: “the key to raising productivity is trade”. Hammond knows this, which is why “he has emerged as the voice of realism” on Brexit. But there is only so much he can do. Britain still faces “a loss of EU trade and the highly uncertain prospect of compensating for it with trade deals with the rest of the world”. Hammond’s plan for a transitional arrangement to avoid a Brexit “cliff edge” is better than the alternative, but it does not alter the basic truth: we could face “another lost decade of productivity”.