Is time is running out to solve the UK productivity problem?

Government data shows UK productivity has flatlined since the financial crisis a decade ago, affecting the country’s ability to compete on the world stage at a critical time.

manufacturing factory robot automation productivity - STOCK
Productivity affects a country’s ability to compete on the world stage.

As Brexit approaches, the UK needs to move up the rankings, but in last year’s World Economic Forum Global Competitiveness Report, it slipped one place to eighth in the league tables. The UK will not make up ground until productivity improves.

This is a complicated debate, with all sorts of factors driving productivity, but confronting two particular challenges would be a huge step forward in boosting the UK’s competitiveness.

The first issue is that the UK is not currently producing enough people with the right skills, particularly in the manufacturing and engineering sectors. Employers continue to find it difficult to recruit workers with the knowledge required to be as effective as possible in the job.

This applies at every level of industry. In recent years, many universities have broadened their courses, as employers have looked for wider commercial skills as well as technical abilities, but we still need more specialist graduates with in-depth knowledge of key disciplines.

At the top end of UK companies, many management teams are still trying to get to grips with how to exploit emerging technologies such as robotics and automation.

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Chart 1: Firms with good management practices tend to be more productive

Labour productivity by management score decile (2016)

Santander Oct - Chart 1 - Firms with good management practices tend to be more productive

Source: ONS – Management and Expectation Survey 2016

The second big issue holding back UK productivity is that we do not invest enough in new equipment and technology. UK manufacturers invest significantly less in machinery and equipment than their European counterparts – we lag Germany, France and, to an even greater extent, Italy.

In part this is related to the skills shortage. Industry leaders and decision-makers in manufacturing and engineering are struggling with knowledge gaps, so they do not have the confidence to invest enough in new equipment and technology. This is to the detriment of business – research conducted by the ONS shows a significant correlation between management practices and labour productivity.

By solving problems like these we can make progress, many businesses have the financial firepower to invest if they understand where best to deploy their resources.

For example, while the UK is the ninth largest manufacturing nation in the world, it ranks in 22nd place for investment in robotics. This means workers in the UK are spending more time on manual tasks that could be automated, rather than the higher-value work for which their counterparts in competitor nations have more time.

Confronting these two difficulties – skills shortages and under-investment – will not be straightforward, particularly given the time constraints that Brexit is now imposing on the UK. However, it is important that more businesses rise to the challenge if the UK is to achieve its ambitions of broadening its export base and internationalising more of its best companies.

Chart 2: The UK’s robot density is lower compared to its international counterparts

Number of multi-purpose industrial robots per 10,000 employees in the manufacturing industry

Santander Oct - Chart 2 - The UK's robot density is lower compared to its international counterparts

Source: International Federation of Robotics (2015)

This will require manufacturing and engineering businesses in every sector to leverage the widest possible networks as they seek to close the gaps and secure both financial and non-financial support. The banking sector must also step-up to the challenge, providing a broader range of assistance from its position at the centre of the support ecosystem.

Collectively, the UK’s leading manufacturers can achieve much more on the world stage, even if it takes time to solve the problems underlying slow productivity growth. Working together for the greater good, and collaborating with key partners such as their banks, they can seize this exciting opportunity.

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Halil Bedevi, Head of Aerospace, Defence & Advanced Manufacturing, Santander UK.Halil Bedevi is the Head of Aerospace, Defence & Advanced Manufacturing sub-sectors within the Manufacturing Sector Team at Santander UK.

Halil is a Chartered Engineer with 30 years’ experience in the manufacturing industry ranging from engineering to board level senior management. He is a Visiting Fellow and Advisory Board Member of Cranfield University and Member of the IET.