Bad management blamed for sluggish UK productivity growth

But positive news on employment and wages – particularly for the over-50s – as official figures belie Brexit uncertainty

Poor management practices and lack of investment in skills are among the factors to blame for Britain being the only large advanced economy likely to see a decline in productivity growth this year, experts have said.

The UK’s labour output per hour is predicted to grow just 0.2 per cent in 2019, down from 0.8 in 2017 and 0.5 in 2018. This represents a widening gap between the UK and other large, mature economies, said the Bank of England, which also pointed the finger at Brexit-related uncertainty as it released the figures.

Jon Boys, CIPD labour market economist, said productivity was the “driving engine of prosperity” for UK businesses, which made the figures particularly concerning. In the absence of productivity growth, he added, it would be difficult to improve pay for workers or, by extension, their standard of living. 

“The interesting thing is that many businesses believe it’s a macroeconomic problem and it’s not something they can do at a firm level – and that just isn’t true,” said Boys. “There is plenty that businesses can do. There is more evidence and more voices speaking about the role of structured management practices and in particular people management practices [in raising productivity].”

Andy Haldane, the Bank of England’s chief economist, blamed poor management practices for the sluggish productivity growth. He added that businesses refused to invest in skills, lean management practices or new machinery.

“Some companies haven’t updated from paper to email – family firms are particularly bad. Low productivity is seen across regions and across industries. Mismeasurement accounts for perhaps half a per cent of GDP growth,” said Haldane.

Boys agreed business investment was “way below” the expected levels and added: “Compared to our competitor countries like France, Germany and the US we have poor management quality but we have many people in work and that’s a good thing. France may be more productive, but the UK wouldn’t want their employment rate.”

Figures released today by the Office for National Statistics (ONS) appeared to back the assertion that businesses have invested in hiring and rewarding workers rather than upskilling them or improving processes. Its latest quarterly earnings update, covering the period to the end of February, found total earnings rose by 3.5 per cent on an annual basis, the highest rate of growth since 2008.

The ONS said Brexit was one of the factors prompting the decision to hire, in the knowledge it would be easier to downsize the employee base in the event of a downturn than to disinvest in equipment.  

Among the more positive aspects of the news was the revelation that more than 70 per cent of the growth in employment over the past year was accounted for by the over-50s. 

“It’s not entirely clear why certain groups have benefited from the extraordinary strong employment growth over the past year,” said Gerwyn Davies, the CIPD’s senior labour market analyst. “Changing demographics is undoubtedly a factor, but another possibility is that employers are being forced to widen their recruitment channels and make work more accessible in response to the tightening labour market.

“The recent extraordinary strong growth in well-paid, permanent, full-time jobs suggests that many employers are shrugging off any concerns about the availability of skilled staff and any Brexit-related uncertainty,” added Davies.