London Daily

Focus on the big picture.
Sunday, Nov 02, 2025

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
King Charles Relocates Andrew to Sandringham Estate and Strips Titles Amid Epstein Fallout
Two Arrested After Mass Stabbing on UK Train Leaves Ten Hospitalised
Glamour UK Says ‘Stay Mad Jo x’ After Really Big Rowling Backlash
Former Prince Prince Andrew Faces Possible U.S. Congressional Appearance Over Jeffrey Epstein Inquiry
UK Faces £20 Billion Productivity Shortfall as Brexit’s Impact Deepens
UK Chancellor Rachel Reeves Eyes New Council-Tax Bands for High-Value Homes
UK Braces for Major Storm with Snow, Heavy Rain and Winds as High as 769 Miles Wide
U.S. Secures Key Southeast Asia Agreements to Reshape Rare Earth Supply Chains
US and China Agree One-Year Trade Truce After Trump-Xi Talks
BYD Profit Falls 33 % as Chinese EV Maker Doubles Down on Overseas Markets
US Philanthropists Shift Hundreds of Millions to UK to Evade Regulatory Uncertainty in Trump Era
Israeli Energy Minister Delays $35 Billion Gas Export Agreement with Egypt
King Charles Strips Prince Andrew of Titles and Royal Residence
Trump–Putin Budapest Summit Cancelled After Moscow Memo Raises Conditions for Ukraine Talks
Amazon Shares Soar 11% as Cloud Business Hits Fastest Growth Since 2022
Credit Markets Flooded with More Than $200 Billion of AI-Linked Debt Issuance
U.S. Treasury Secretary Scott Bessent Says China Made 'a Real Mistake' by Threatening Rare-Earth Exports
Report Claims Nearly Two Billion Dollars in Foreign Charity Funds Flowed into U.S. Advocacy Groups
White House Refutes Reports That US Targeting Military Sites in Venezuela
Meta Seeks Dismissal of Strike 3’s $350 Million Copyright Lawsuit
Apple Exceeds Forecasts With $102.5 Billion Q3 Revenue Despite iPhone Miss
Israel's IDF Major General Yifat Tomer-Yerushalmi Admits to Act Amounting to Aiding Hamas During Wartime (Treason)
Shawbrook IPO Marks London’s Biggest UK Listing in Two Years
UK Government Split Over Backing Brazil’s $125 Billion Tropical Forest Fund Ahead of COP30
J.K. Rowling Condemns Glamour UK Feature of Nine Trans Women as 'Men Better at Being Women'
King Charles III Removes Prince Andrew’s Titles and Orders His Departure from Royal Lodge
UK Finance Minister Reeves Releases Email Correspondence to Clarify Rental-Licence Breach
UK and Vietnam Sign Landmark Migration Deal to Fast-Track Returns of Irregular Arrivals
UK Drug-Pricing Overhaul Essential for Life-Sciences Ambition, Says GSK Chief
Princesses Beatrice and Eugenie Temporarily Leave the UK Amid Their Parents’ Royal Fallout
UK Weighs Early End to Oil and Gas Windfall Tax as Reeves Seeks Investment Commitments
UK Retail Inflation Slows as Shop Prices Fall for First Time Since Spring
Next Raises Full-Year Profit Guidance After Strong Third-Quarter Performance
Reform UK’s Lee Anderson Admits to 'Gaming' Benefits System While Advocating Crackdown
United States and South Korea Conclude Major Trade Accord Worth $350 Billion
Hurricane Melissa Strikes Cuba After Devastating Jamaica With Record Winds
Vice President Vance to Headline Turning Point USA Campus Event at Ole Miss
U.S. Targets Maritime Narco-Routes While Border Pressure to Mexico Remains Limited
Bill Gates at 70: “I Have a Real Fear of Artificial Intelligence – and Also Regret”
Elon Musk Unveils Grokipedia: An AI-Driven Alternative to Wikipedia
Saudi Arabia Unveils Vision for First-Ever "Sky Stadium" Suspended Over Desert Floor
Amazon Announces 14 000 Corporate Job Cuts as AI Investment Accelerates
UK Shop Prices Fall for First Time Since March, Food Leads the Decline
London Stock Exchange Group ADR (LNSTY) Earns Zacks Rank #1 Upgrade on Rising Earnings Outlook
Soap legend Tony Adams, long-time star of Crossroads, dies at 84
Rachel Reeves Signals Tax Increases Ahead of November Budget Amid £20-50 Billion Fiscal Gap
NatWest Past Gains of 314% Spotlight Opportunity — But Some Key Risks Remain
UK Launches ‘Golden Age’ of Nuclear with £38 Billion Sizewell C Approval
UK Announces £1.08 Billion Budget for Offshore Wind Auction to Boost 2030 Capacity
UK Seeks Steel Alliance with EU and US to Counter China’s Over-Capacity
×