London Daily

Focus on the big picture.
Saturday, Apr 04, 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
Prince Harry and Meghan’s Australia Visit Set to Draw Heightened Global Attention
UK Considers Entry Fees for Overseas Visitors at Major Museums Ahead of 2026 Travel Season
UK Prime Minister and Kuwait Crown Prince Coordinate Security Response After Regional Escalation
Calls Grow to Expand Fully Paid Maternity Leave for UK Teachers Amid Workforce Pressures
UK Secures Tariff-Free Access to US Market in Landmark Pharmaceuticals Agreement
Trump Projects Strength in Critique of UK Leadership and Naval Readiness
UK FinTech Setback as VibePay and Smartlayer Cease Operations Amid Funding Pressures
UK Leads Global Coalition of Over Forty Nations to Address Strait of Hormuz Crisis
UK Firms Urged to Accelerate Preparation as New Sustainability Reporting Rules Take Shape
UK Moves Rapid Sentry Air Defence System to Kuwait After Drone Strike Escalation
Transatlantic Relations Tested as UK Seeks Balance While Trump Reshapes Strategic Approach
Trump’s Strategic Pressure on UK Seen as Push for Stronger Alignment and Fairer Terms
UK Focuses on Trade Finance to Secure Critical Materials for Defence and Energy Sectors
Majority of UK Businesses Hit by Middle East Conflict While Confidence Holds Firm
UK Royal Navy Faces Renewed Scrutiny as Debate Intensifies Over Capability and Readiness
Reform UK Faces Mounting Distractions as Policy Agenda Struggles to Gain Traction
Investigation Launched Into Northern Cyprus IVF Clinics After UK Families Receive Incorrect Sperm
International Meeting Issues Unified Call to Safeguard Navigation Through Strait of Hormuz
Potential Strait of Hormuz Closure Raises Concerns Over UK Food and Medicine Supply Chains
UK Leads Coalition of Over Forty Nations Urging Iran to Reopen Strait of Hormuz
UK Secures Tariff-Free Access for Medicines in Landmark US Pharma Trade Agreement
King Charles III Invited to Address Joint Session of U.S. Congress in Rare Diplomatic Honor
Debate Grows Over Whether Expanded North Sea Drilling Can Reduce UK Energy Bills
UK Faces Heightened Risk of Jet Fuel Shortages, Airline Chief Warns
UK Ends Police Investigations into Lawful Social Media Posts After Review Finds Overreach
Abramovich Moves to Establish Charity for Frozen Chelsea Sale Proceeds Amid UK Dispute
Starmer Reaffirms NATO Commitment While Responding to Trump’s Strategic Critique
UK Aid Reductions Raise Fears of Severe Human Impact Across Parts of Africa
UK Signals Renewed Push for EU Cooperation as Iran Conflict Reshapes Security Landscape
Bank of England Signals Caution as Bailey Advises Markets Against Expecting Rate Hikes
UK to Convene Global Coalition to Restore Shipping Through Strait of Hormuz
Trump Signals Possible NATO Reassessment, Emphasizes Stronger U.S. Strategic Autonomy
Australia Joins British-Led Efforts to Reopen Strait of Hormuz Amid Escalating Tensions
King Charles Plans US State Visit as UK Strengthens Ties with Trump Leadership
UK Regulator Launches Investigation Into Microsoft’s Business Software Practices
Kanye West Set for High-Profile Return to UK Stage at Wireless Festival
Trump Presses Europe to Strengthen Commitment as Iran Conflict Escalates
UK to Deploy Additional Troops to Middle East Amid Rising Regional Tensions
UK Authorities Face Claims of Heavy-Handed Measures in Monitoring Released Pro-Palestine Activists
Trump Calls on UK to Secure Its Own Energy as Iran Conflict Intensifies
Nigel Farage Declines Invitation to UK Conservative Conference Led by Liz Truss
Trump Warns Allies to Take Responsibility as Rift Deepens with UK and France Over Iran Conflict
How Britain’s Prime Minister Controls U.S. Bomber Access in Escalating Iran Conflict
Trump Urges Allies to Secure Their Own Oil Supplies as Hormuz Crisis Disrupts Global Energy
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
×