The government’s long-awaited productivity plan: why it raises more questions for employers

So at last we know the government’s take on the so-called ‘productivity puzzle’ of a growing economy and stagnant productivity. Even more critically, we know what it proposes to do to tackle it.

The new ‘productivity plan’ is no five-year Stalinist economic plan, pinpointing the number of tractors to be produced by 2020 in Scunthorpe. Instead, it outlines a range of (mostly existing) government policies that align with key productivity driver and highlights 15 areas for action.

This includes a modern transport system, planning freedom and more houses to buy, resurgent cities and a trading nation open to international investment.   

After reading the plan’s 82 pages, what strikes you is the government’s limitation in tackling productivity. The most revealing aspect is a throwaway comment in George Osborne’s introduction that confidently states that “the drivers of productivity are well understood“. 

While the drivers are commonly agreed upon, successive studies show that it’s the way these drivers interact that have the impact, and that different circumstances require different interactions. This plan makes no reference to this, which is understandable on one level, as it’s a complex issue.

However, the plan’s proposals are like throwing all the right ingredients into a bowl and expecting to make a cake. It needs someone to mix and prepare the ingredients; and that’s where employers come in.

The plan announces that Sir Charlie Mayfield, chairman of the John Lewis Partnership, will lead a business-led action group to identify practical, direct action to enhance productivity in different sectors. This will report by the end of the year, so we’ll have to wait and see to what extent this addresses the plan’s fundamental weakness.

The actions around one of the areas – ‘a highly skilled workforce, with employers in the driving seat’ underline its limitations. In so many ways, it’s reminiscent of ‘The Learning Age’, the Labour government’s first skills strategy in 1998.

It’s highly utopian – “faced with a growing global competition the UK workforce needs to raise their skills base and so more people need to undertake higher level qualifications”. The fact that this strategy largely failed before doesn’t seem to have prevented the current government from adopting the same approach.

Many people in front-facing, operational roles in the hospitality and retail industries have higher level qualifications. But, as we see time and time again, that doesn’t mean that their qualifications are relevant to what they are doing, that they have the skills to do the job or that businesses are maximising their skills to make them more productive.

Similarly, just because more employers have more money as a result of a ‘more competitive tax system’ it doesn’t mean that they will use it to invest in long-term infrastructure as the government intends.

The plan also includes actions that are unlikely to raise productivity. This includes getting more long-term jobseekers into work - yet France, with its high unemployment and restrictive labour market laws, has higher productivity than the UK.

This is largely because businesses are reticent to recruit staff, as it’s difficult to get rid of them. As a consequence, they are forced to maximise the use of their existing staff. Growth can happen on the back of greater employment but, in reality, productivity is unlikely to increase without unemployment rising – something which is not mentioned in the plan.

So, what does this mean for businesses in our industries?

The plan aims to create the conditions for businesses to think and invest more in the long-term - but the choice to do so, and therefore whether or not productivity will increase, still rests with individual businesses and whether they choose to think differently about how they optimise their staff.

As People 1^st has outlined in its recent Skills and Productivity Problem report, there is a strong case for hospitality businesses to think differently – a productivity increase of just one percent would mean an extra £1.43 billion for the economy.  However, the government’s plan alone is unlikely have a significant impact on encouraging a more long-term approach.

We now await the work of Sir Charlie Mayfield and his team of employers to see how they believe businesses should react.