On the 30th of October, new Chancellor, Rachel Reeves delivered her first budget, which set out the direction of travel of the Labour government
There appear to be many challenges, however, one key theme seems to be lacking in the chancellor’s budget speech: productivity! More precisely, the UK’s decreasing productivity rates.
Tackling productivity rates
Research undertaken by the Nuffield Foundation, reveals that between 2007 and 2019 illustrates that UK workers are working increasing hours relative to their peers in other OECD nations, yet, labour productivity per hour in the remainder of the OECD is 4.8 points ahead of UK outputs.
What we actually have here is a labour supply increase in the UK – likely due to households facing cost pressures and trying to maintain the standard of living as disposable income in real terms has been consistently decreasing since 2010. But clearly, more hours no longer guarantees more valuable economic activity in which goods and services are produced.
Some recent work undertaken by Foundations takes a rather holistic, yet grim view of the situation. They argue that the UK is comparatively poor at building new housing in areas which have the capacity to support employment and as a country, we are far too slow in developing transport infrastructure to enable a mobile workforce.
Even the railways which we have at present are some the most expensive in Europe and some routes are actively demand managed to reflect the fact their capacity is far below demand. Demand managed is an indirect way of saying put the prices up to get people off the trains. Despite this, little is said about developing capacity on UK railways, indeed High Speed 2
However, this is a very literal interpretation of the idea of labour force mobility. The term can also encompass the ability of workers to move between jobs in different roles and sectors, in similar or different locations.
Enough Work, the Right Work, and Fit to Work
Key enablers of workforce mobility include affordable housing, transportation infrastructure, and remote work, which support geographic flexibility. Training, upskilling, and streamlined qualification recognition facilitate occupational mobility, which can be enhanced by the availability of impartial career advice and efficient job-matching platforms, which in some crux industries are lacking.
In some parts of the UK there is no shortage of jobs; but rather a shortage of the right jobs. There is variation across regions of the UK in terms of employment rates as well as labour force activity rates.
However, unemployment is not the only element of a problem, a job may not be the right work to befit that person’s skill set, ergo they are employed, but underemployed. Data collected by the Health Foundation indicates an increasing level of underemployment in the UK which seems persistent despite generally falling levels of unemployment. This suggests an increasing taking of what one can get rather than suggesting that the labour market can match skill sets with productive and meaningful jobs.
A recent BBC news article claims that weight-loss jabs will be a game changer in getting people back to work. Whilst the idea is a little farfetched that one injection will cure our sickness problems, it has a reasonable logic as the illness is a major factor in explaining why some people who want to work are unable to do so.
As of March 2024 8.74 million cases were referred for treatment and waiting for consultant-led treatment to begin in NHS England. To take a deeper dive, let us examine referrals to Ear Nose and Throat Services. Here, in March, 922,418 patients were referred to the service, of those, 724,485 (78.54%) were waiting for treatment to begin.
What matters is the ability to gain timely medical treatment which delivers a cure rather than a sick note. The latest Office for National Statistics data indicates that 38.4% of those who are not working but intend to work are excluded from the labour force due to sickness. 15% of those are short-term sick, and likely able to return to work pending treatment. This underscores, the need for speed in terms of NHS treatment, as for the working-age population, this is key in terms of maintaining a supply of fit workers to the labour market.
Perhaps some of the issues in the NHS stem from not just a lack of money, but a short-termism use of money over the last decade leading to heightened underinvestment. HM Treasury allows the Department of Health and Social Care to transfer Capital Funding in the NHS to revenue budget lines (up to a certain amount), since 2014, around £4.3 Billion has been siphoned from long-term investment in the NHS, to prop up day to day activity at the expense of capacity building or replacing ageing facilities. Love Chancellor has promised £2.5 Billion, it does not make up for the lost opportunities, nor does it guarantee that capital transfer will not take place again.
This encapsulates a situation where there is a failure to address long-term needs and address the long-term constraints on capacity and high waiting periods for treatment.
All in all, the budget hints at increased spending in many key areas car yet the Chancellor’s speed does not seem to address the underlying need for investments in certain areas which determine our country’s long-term productivity long long-term economic growth potential. Perhaps the Office for Budgetary Responsibility should take the last word: this budget supports short-term growth that will have no lasting effect beyond five years. Therefore, long-term productivity requires urgent further attention.