Fresh economic strategy urgently needed to boost UK productivity and growth

The challenges

A bolder vision for economic growth is needed, given the multiple challenges facing the UK. These include:

• skills and labour shortages
• stalled productivity and falling real wage growth
• an ageing workforce
• endemically weak business investment in skills and technology
• the need to transition to a net zero economy.

The paper’s analysis finds that the government’s primary focus on boosting investment in research and development (R&D), high-tech and green growth sectors will only support relatively small sectors and limited numbers of firms. For example, it highlights that 75% of private R&D spend in the UK takes place in just 400 firms and that of the three million active UK firms, just 60,000 claim R&D tax credits.

Similarly, the analysis in the paper finds that plans to develop more clusters of high-tech, new industries, while important, are unlikely on their own to bring a general economic revival.

It suggests that the current narrow government focus for economic growth ignores the need to improve productivity in ‘everyday economy’ sectors such as retail, hospitality, transport, logistics and social care which employ millions of workers.

The paper finds that unless the government’s innovation and growth plans are broadened to include these everyday economy sectors, which account for at least 40% of overall employment, efforts to raise overall UK productivity and prosperity will fail.

It suggests that there is need for new thinking and policies to stimulate and support wider investment in technology, management capability and workforce skills development across all sectors of the economy.

The paper, written by Professor Ewart Keep, was launched at a roundtable in London attended by economists, public policy specialists, and representatives from a range of organisations. These included the Institute for Government, the Institute of Directors, the British Retail Consortium, the Association of Colleges and ACCA Global.

It argues that a different approach is needed to improve performance in everyday economy sectors through boosting incremental, ‘bottom-up’ workplace innovation. This has the potential to enhance products and services and productivity across much broader swathes of the economy.

This approach to innovation is key to the successful adoption of new technologies and is supported by improvements to work organisation, skills development and changes to people management capability and practices.

Wider adoption of key people management and development practices can also improve job quality and help efforts to keep people with health conditions in employment and widen labour market participation to tackle skills and labour shortages.

In response, the paper concludes there is an urgent need for a broader and long-term approach to economic growth and for a revitalised industrial strategy if we’re to address the challenges we face as a nation.

This would need to be underpinned by changes to a range of policy areas including skills, innovation, business support, digital adoption, green transition and labour market enforcement. These collectively affect the business environment and firms’ management capability and investment behaviour over time.

Key recommendations

The CIPD’s recommendations include:

• Developing a bold, broad industrial strategy that integrates interdependent areas of policy such as skills, job quality, workplace innovation, business support, digital adoption and green transition.
• Learning from best practice approaches toward business support and improvement, from overseas and from small-scale interventions already run in the UK.
• Establishing a range of pilots to test and then scaling-up effective approaches to improving management capability and business performance at local and sectoral levels. For example, building on insights from the CIPD’s HR support pilots for small firms, Be the Business and Help to Grow Management.
• Developing coherent industry level and local employer partnerships to boost adoption of technology and best practice people management and development practices across ‘everyday economy’ sectors and all regions.
• Transforming labour market enforcement with a much stronger focus on supporting employer compliance and raising employment standards overall, given the link between job quality and productivity.