It is no secret that the U.K. economy is not in a great state: A recession (three consecutive quarters of economic contraction) was declared after the last fiscal quarter of 2023, following a decade of borderline economic stagnation, and with annual GDP growth (a measure of all the goods, and services produced) no greater than the two per cent pre-COVID^[1] rate. The picture painted by the U.K.’s GDP per capita is yet more dire, with an increase of no more than 0.4 per cent in 2021 due to some population growth during that period. With inflation hovering consistently at a far-from-ideal 4.2 per cent, the overall economic state appears nothing short of dire. Underscoring all of this is productivity (a measure of how efficiently resources are used within the economy); In the U.K., it has not grown significantly in the last fifteen years, only 1.7 per cent above the level recorded in 2007. Productivity is an important statistic as it has far-reaching implications on almost all other economic indicators. As such, any significant change would have to start with a marked increase in productivity.

The most significant way for the United Kingdom to increase productivity is through diversifying the economy. At the moment, the business services sector – comprising of services such as law, finance, and accounting – contributes eighty-one per cent of GDP²  .When compared to sectors such as manufacturing and construction, increasing productivity in services is far harder. This is because the services industry relies on people to a greater extent, each of whom can only work a set number of hours in a day. Take for example a lawyer working in the city of London. Each day, they may spend most of their time taking calls from clients and responding to e-mails. Finding ways for them to be significantly more productive is not easy. On the contrary, a factory employing around a hundred workers can increase its output and productivity massively if it is able to adopt novel technological means of production. McKinsey Consultants estimates that “at a macro-economic level…automation [in manufacturing] could raise productivity growth by as much as 0.8 to 1.4 per cent annually.” ³

While most industrial processes in the U.K. are already heavily automated, manufacturing in Britain has seen a slow, but certain, decline since the 1970s.  Throughout the decade of the 1990s alone, the share of the economy attributed to services grew from seventy per cent to eighty-one per cent, while the share attributed to manufacturing (including the natural resource extraction industry) fell from seventeen per cent to nine per cent² in the same period. The decline of British manufacturing came largely as a result of globalisation; Companies realised they could save significant sums if they moved their manufacturing to countries with lower labour costs. Increasing productivity is simplest in manufacturing as processes are constantly being refined, and new technologies are being rolled out. While some may argue that technology holds the key to increasing productivity in the services industry, it is not true to the same extent as for manufacturing. The aforementioned lawyer could begin to use Artificial Intelligence for his e-mails, or for helping him prepare his cases, but the technology available now is not advanced enough for it to be of much use. At the moment, it is unclear if such technology will ever sufficiently assist. Thus, it is a far safer bet to increase the share of GDP attributed to manufacturing so to increase productivity as a whole. 

In order to tackle the issue of U.K. productivity, it is important to assess the part of the economy which is least productive, that being the public sector. Despite greater sums being poured into it every year, and greater numbers being employed, outcomes have changed very little. Since 1997, productivity in public services has grown at an average of 0.2 per cent per annum⁴ – far below that of the rest of the U.K. economy. Moreover, the productivity in public services is now around 0.3 per cent lower than it was before the pandemic. These figures are largely a result of ballooning numbers of people being employed in public sector roles, and the outdated I.T. systems still widely in use. Of these three problems, the most difficult to solve is the outdated technology. While the technology to streamline the delivery of public services already exists, overhauling current systems comes with a substantial upfront cost that many feel may not be worth it. However, due to the prevalence of the outmoded technology, and the significant savings in the long term, this cost is certainly warranted. Some of our public services have already proven the value of rebooting their technology systems. For example, following a digital overhaul in 2022, the Passport Office improved its waiting times significantly⁵, with public satisfaction growing as well. Simply through removing outdated technology, and replacing it with more modern substitutes, a previously inefficient department made a major improvement in efficiency. This could quite easily be replicated across the public sector provided the government is willing to foot the bill. 

Little to no growth in productivity is one of the main reasons that the U.K. economy is in a tough position currently. This is largely a problem of our own making, given our recent focus on the services industry, which is now struggling to grow its productivity further. While new technology may seem like a quick fix, we should be cautious about relying on them too heavily, given their unknown limits. While they may seem to be getting better every week, there must be a boundary to this growth. 

References

^[1] World Bank Open Data. (n.d.). World Bank Open Data. [online] Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2022&locations=GB&start=2008[Accessed 1 Mar. 2024].
²  Panjwani, A. (2023). Industries in the UK. commonslibrary.parliament.uk. [online] Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-8353/.
³  EXECUTIVE SUMMARY. (2017). Available at: https://www.mckinsey.com/~/media/mckinsey/featured%20insights/digital%20disruption/harnessing%20automation%20for%20a%20future%20that%20works/a-future-that-works-executive-summary-mgi-january-2017.ashx.
⁴ www.ons.gov.uk. (2023). Public service productivity, UK – Office for National Statistics. [online] Available at: https://www.ons.gov.uk/economy/economicoutputandproductivity/publicservicesproductivity/articles/publicserviceproductivityuk/1997to2022.
⁵  Davies, G. (2024). Improving productivity could release tens of billions for government priorities – NAO insight. [online] National Audit Office (NAO). Available at: https://www.nao.org.uk/insights/improving-productivity-could-release-tens-of-billions-for-government-priorities/#how-can-we-make-public-money-work-harder [Accessed 3 Mar. 2024].