The UK's productivity puzzle is one of the most thoroughly analysed and least resolved problems in British economic policy. Since the 2008 financial crisis, output per hour worked has grown at roughly half the rate of Germany, France and the United States.
The Causes
Economists identify several contributing factors: underinvestment in capital equipment, a skills mismatch, weak management quality in medium-sized businesses, and regional concentration of high-productivity activity in London and the South East.
The Long Tail Problem
Britain has world-class highly productive firms — and a very long tail of poorly managed, low-productivity businesses. Raising the performance of that tail is the central challenge.
Policy Solutions
Management training, R&D tax incentives, infrastructure investment and planning reform are the measures with the strongest evidence base.
The Time Horizon
Productivity improvements compound slowly. The policies implemented today will not bear fruit for 5-10 years. That makes them politically unattractive — and even more necessary.
