Rachel Reeves, the new Chancellor of the Exchequer, has been preparing for her first budget. She needs to make very difficult decisions that have to be made in a grueling two-week window. Not surprisingly, this budget discussion has led to serious alarm about the immediate productivity situation in the UK. A growing cadre of economic experts are turning their focus to this inclement storm of an issue.
As Reeves pointed out in a recent Radio 4 programme, this is an important point. We need to bring down the productivity problem in the UK. The Chancellor confirmed that our independent forecaster, the Office for Budget Responsibility (OBR), was widely tipped to downgrade its forecast for UK productivity growth. This change will have a major impact on projections for the next few years. This expected change further highlights the urgency of the productivity challenge before our nation.
The brightest minds in the economic policy world came together to discuss these topics. Chris Giles, an economics commentator for The Financial Times, highlighted the implications of lowered productivity growth on the broader economy. He continued to warn that stagnating productivity would eventually be felt on wages and living standards, creating upward pressure on policy makers.
Helen Miller, the Director of the Institute for Fiscal Studies, gave her reflections. She talked about what the OBR’s changed forecast could mean for the future. As a result, she continued, a drop in expected productivity growth would require difficult fiscal decisions in the next budget. Each of these choices will shape future public services and investment patterns that can help move the needle on productivity gains.
Economist and author Duncan Weldon was a great addition to the discussion. He made the key point that the only way to have truly sustainable economic growth is to address productivity. He argued that without a focused effort to enhance productivity levels, the UK risks falling behind other economies in terms of growth and competitiveness.
“A proper industrial strategy will create specific, targeted interventions,” said Greg Thwaites, Research Director at the Resolution Foundation, supporting these calls for a more focused approach. He stressed that increasing productivity will need a serious multilateral effort with the right government policy and a whole lot of private sector innovation.
Today’s debate on Radio 4 brought out all the ambiguities surrounding UK productivity, and what this means for planning future budgets. As Labour’s Shadow Chancellor Rachel Reeves prepares to take some fateful decisions with the benefit of new economic forecasts, she fully understands that meeting the big challenges with productivity will be at the heart of reshaping the UK’s economic prospects.