London Daily

Focus on the big picture.
Saturday, Mar 07, 2026

Rishi needs to make our productivity problem his number one priority

Rishi needs to make our productivity problem his number one priority

Apparently, there’s not much on television tonight so, for those who find themselves at a loose end, I can heartily recommend a read of the Office for Budget Responsibility’s (OBR’s) March 2021 economic and fiscal outlook.
There are pages and pages of useful charts and tables. What more could you possibly need on a cold Monday night?

For those who do opt to read this compendium of economic soothsaying, there’s a lot to absorb. In a case of prophets prophesying profits, our official forecasters tell us there will be a strong post-lockdown recovery later in the year. Consumers will be spending. Businesses will be investing, not least because of Rishi Sunak’s so-called tax “super deduction” on investment over the next couple of years.

Thanks to the Chancellor’s assorted tax increases and the Government’s public spending discipline (which may quickly come unstuck if NHS workers successfully overturn a meagre one per cent pay award), the budget deficit is, over the medium term, brought under control.

All of which sounds like rather good news. There are, however, a few rather more sobering observations. The balance of payments is mostly awful, made worse in the short term because our speedy vaccine programme means the UK economy will be recovering faster than others. That means more in the way of imports even as exporters struggle. The OBR thinks the current account deficit in the near term will be the biggest since the end of the Second World War. Meanwhile, even with a strong economic rebound, the OBR thinks the UK economy will be permanently scarred by Covid (thanks in part to reduced output from those unfortunate enough to be suffering from “long Covid”). In the OBR’s “central case”, we are collectively three per cent poorer than we would otherwise have been.

There’s another oddity lurking at the bottom of page 68, one third of the way through the OBR’s modern day take on Nostradamus. Our soothsayers write briefly about the UK’s productivity performance, observing it’s been a bit bumpy during the pandemic. Productivity will recover but, thanks to the aforementioned scarring, it will be lower than might have been hoped pre-pandemic.

This observation is remarkable as much for its brevity as for anything else. Any view on the health of the public finances and, indeed, on the broader economy has to take productivity into account.

Commonly measured as “output per hour”, it is the “secret sauce” which determines how quickly our living standards improve, how rapidly a government’s tax revenues rise and, by implication, how generous a government can be with its public spending plans. So much of what the OBR says about the future state of the public finances depends on productivity, yet so little attention is paid to it. If an economic cake is expanding quickly, everyone can end up with a bigger slice, whether or not their share is rising or falling. If the cake refuses to get any bigger, we end up in an unseemly debate about “yours being bigger than mine”.

And this is precisely where we are. In the Seventies, productivity rose at an annual rate just shy of two per cent. In the Eighties and Nineties — consistent with the idea of a “supply-side” revolution— productivity rose at a 2.5 per cent annual clip, implying a doubling of living standards every 30 years.

In the Noughties, the annual pace slowed to1.5 per cent before fading further (blame the global financial crisis) to a mere 0.5 per cent in recent years, implying a doubling of living standards only every 140 years.

The OBR assumes there’ll be a return to the Noughties pace in coming years. Indeed, given that the Chancellor plans to increase the tax burden to a level not seen since the late-Sixties — with a particularly steep increase in corporation tax two years from now — it might well be that productivity continues to limp along at a thoroughly miserable pace.

The Government still has time to address the productivity issue but, as with the apparent breakdown of royal relations, merely assuming the problem will go away may not be enough. Post-pandemic, dealing with productivity — or the lack of it — should become the Government’s number one economic priority.
Newsletter

Related Articles

0:00
0:00
Close
Starmer Defends UK Role in Iran Conflict After Renewed Criticism from President Trump
Blue Owl Reveals £36 Million Exposure After Collapse of UK Lender Serving Wealthy Clients
UK Asylum Reform Plan Triggers Fierce Debate Over Border Control and Humanitarian Impact
US Stealth Bombers Head to UK Base as Trump Issues Stark Warning to Iran
UK Deputy Prime Minister Says Legal Case Could Exist for British Strikes on Iranian Missile Sites
Investigators Link Mysterious Parcel Fires Across Europe to Russian Intelligence Operation
Debate Intensifies Over Britain’s Legal Justification for US Military Operations Launched From UK Bases
Britain Faces Heightened Energy Price Risks as Iran-Linked Tensions Threaten Global Oil and Gas Supplies
British Counter-Terror Police Arrest Four Suspected of Spying on Jewish Community for Iran
Axel Springer Agrees $770 Million Deal to Acquire Britain’s Daily Telegraph
Iceland Supermarket Drops Trademark Challenge Against Icelandic Government in Long-Running Naming Dispute
UK Defence Secretary Visits Cyprus Following Scrutiny of Britain’s Response to Drone Attacks
Questions Grow Over Britain’s Military Readiness as Response to Iran Conflict Draws Scrutiny
UK Offers Failed Asylum Seeker Families Up to Forty Thousand Pounds to Leave Voluntarily
Saharan Dust Could Bring ‘Blood Rain’ to Parts of the UK as Weather Systems Shift
UK Deploys Additional Typhoon Fighter Jets to Qatar and Helicopters to Cyprus Amid Rising Middle East Tensions
Experts Urge Britain to Accelerate Renewable Energy Push as Global Conflicts Drive Up Costs
British Public Shows Strong Reluctance to Join Wider War in Iran
First UK Evacuation Flight Departs Middle East After Lengthy Delay
United Kingdom Imposes New Visa Requirements on Travelers from St. Lucia and Nicaragua
Iran Conflict Strains U.S.–U.K. Alliance as Trump and Starmer Clash Over Military Strategy
UK Interest Rates Could Rise Above Four Percent Again if Energy Shock Continues, Think Tank Warns
Starmer Defends Britain’s Iran Strategy as Badenoch Urges Stronger Military Support
Labour MP Says She Saw No Sign Husband Broke Law After Arrest in China Espionage Investigation
UK Jobless Rate Overtakes Italy’s for First Time in Years as Labour Market Weakens
United Kingdom Suspends Student Visas for Four Countries in Unprecedented Immigration Move
Campaigners Warn UK Student Visa Ban Could Push Migrants Toward Dangerous Channel Crossings
First U.K. Charter Flight for Stranded Nationals Set to Depart Oman Amid Middle East Crisis
France and United Kingdom Deploy Warships to Eastern Mediterranean as Middle East Conflict Escalates
U.K. Arrests Three Men Including Lawmaker’s Partner in Suspected China Espionage Investigation
Trump Says UK–US ‘Special Relationship’ Is Diminished Amid Middle East Dispute
UK Economic Forecasts Face Fresh Strain from Middle East Conflict and Rising Energy Costs
UK Reaffirms Close US Ties After Trump’s Public Criticism
Reeves Stresses Stability and Fiscal Discipline in UK Budget Update as Growth Outlook Shifts
UK Deploys Royal Navy Destroyer HMS Dragon to Cyprus After Drone Strike on RAF Base
Green Party Surges Past Labour in New UK Poll as Traditional Party Support Crumbles
Majority of Britons Oppose U.S. Use of UK Military Bases in Iran Conflict
UK Intensifies Evacuation Efforts from Oman, Working with Airlines to Boost Flight Capacity
Trump Condemns UK and Spain in Unusually Sharp Rift Over Iran Military Action
Trump Repeats UK Claims That Diverge from Verified Facts Amid Diplomatic Strain
UK Arrests Prominent Figures Linked to Epstein Network as Questions Mount Over US Action
Trump Says UK ‘Took Far Too Long’ to Approve Use of Airbases for Iran Strikes
Scope of Britain’s Role in the Expanding Middle East Conflict Comes Under Scrutiny
Trump Says He Is ‘Very Disappointed’ in Starmer Over Iran Comments
U.S. Embassy in Riyadh Struck by Drones Amid Escalating Iran Conflict
Starmer Confronts Strategic Test After Drone Strike Near British Base in Cyprus
Rolls-Royce Chief Signals Openness to Germany Joining UK-Led Fighter Jet Programme
UK Stocks Slip as Escalating Iran Conflict Triggers Global Market Selloff
UK Overhauls Asylum System to Make Refugee Status Temporary
Starmer Warns of ‘Reckless’ Iranian Strikes Amid Escalating Regional Tensions
×