As regions fall behind, we need to invest in our future
AS ONE of the regions that experiences low productivity, Yorkshire will have been brought little cheer by the latest Office for National Statistics’ figures on the topic.
Year-to-date output per hour of UK workers has fallen by 0.6 per cent, but more worryingly, it remains lower than before the financial crisis.
In comparison with our international peers, the UK’s performance is, to put it bluntly, dismal. In the context of the UK’s current negotiations with the EU, it’s worth noting workers in Germany and France produce between one fifth and one quarter more output per hour than their UK counterparts.
But it’s not only on the international stage where the inequalities are striking. London’s output per hour stands some 32 per cent above the national average. Yorkshire is trailing behind.
Clearly, industry differences explain part of this – London’s dominance in financial services propels it to the top. Yet, the South-East outperforms in terms of output-per-hour even in manufacturing sector productivity.
And the problem is set to get worse. According to TUC estimates, Yorkshire and Humberside is projected to see its share of GDP fall by 0.5 points to 6.1 per cent in the next five years. By contrast, London and the South-East will together account for two fifths of the UK economy by 2022, up from one third in 1997.
So, what can be done to boost productivity? And most importantly, how can we ensure it is not restricted to a handful of regions?
While UK workers are less productive than their French counterparts, the level of unemployment at home is less than half. One explanation could be the UK’s relatively flexible labour laws and, up to now, plentiful supply of overseas labour.
These factors have enabled firms to hire staff to meet additional demand, rather than invest in plant and equipment. The result is the highest number of people in work, when measured as a share of the labour force, since records began.
High employment is not a bad thing, but without rising productivity, employers are often unwilling or unable to raise wages in real terms.
This begs the question: why can’t we have both low unemployment and high productivity, something Germany seems capable of? The answer is, we can, but it will require significantly more investment to enable the UK workforce to realise its potential.
Investment aimed at raising productivity is not just a task for firms: the Government also has its part to play.
When the UK leaves the European Union, an industrial strategy backed with significant investment will become imperative. I take encouragement from the fact that the Chancellor looks to be following in his predecessor’s footsteps by championing a regional strategy.
Investment in infrastructure and training should be immediate priorities. The UK is a world leader in a number of industries, but we must build on this success as new ones emerge.
More progress is needed in transport infrastructure. It is worrying to note that transport spending per head in Yorkshire and the Humber is roughly just one tenth of that in London.
Improving transport links across the whole country will improve interregional connectivity, trade and bring more of the workforce within reach of more jobs. Steps are being taken in the right direction, with the Chancellor announcing £300m for rail improvements in the North during the Conservative party conference.
According to the British Chambers of Commerce, some 70 per cent of UK businesses experience problems with mobile coverage in their local area. Such poor connectivity in some parts of the UK is likely hampering growth opportunities and causing unnecessary delays.
The Government’s £400m Digital Infrastructure Investment Fund should help to address some of these problems, but it shouldn’t stop there.
Training is often overlooked. An unskilled workforce is not a productive one. More money is always welcome, but a more effective route might be to give more power to regional bodies to decide how best to use existing resources. Each region in the UK has its strengths and weaknesses, which should be identified and the workforce upskilled accordingly.
Targeted investment at a regional level is needed to help rebalance productivity in the UK. Closing the gap between the South-East and regions like Yorkshire could in turn encourage further investment and help lift productivity for the country as a whole, thereby developing into a self-reinforcing cycle.
Private companies have their part to play, but a strong approach from the Government, encompassing targeted investment at a regional level, must lead the way. With borrowing costs at historically low levels, the time to invest has arguably never been better.
As the UK prepares to leave the EU, increasing our productive potential is the best way to ensure that regions like Yorkshire can reap the benefits of the UK continuing to compete and succeed on a global stage.