Britain’s fundamental problem is one of lousy productivity, says Ross Clark

British employees slow in returning to offices after Covid (Image: Getty) So, Britain has finally had a pay rise. Figures from the Office for National Statistics this week show that while prices are up 6.8% in the past 12 months, earnings are up 7.8% – meaning wages are rising in real terms for the first time since the winter of 2021/22. This won’t be the experience of everyone, of course. Wages are rising faster in some sectors than others. Many workers won’t have had a pay rise at all. Nevertheless, it will bring some relief in the cost of living crisis, with more people able to keep their heads above water. No one should imagine, however, that Britain is out of trouble. While the Consumer Prices Index may have fallen from its peak of 11.1% last October, the monster that is inflation is far from being tamed. On the contrary, this week’s earnings figures will seriously worry the Bank of England. In its latest Monetary Policy Report it showed it is working on the assumption the annual rise in earnings will fall back to 6% by the end of the year. If it doesn’t – and it is now looking less likely – then the Bank will have to go back to the drawing board and contemplate even higher interest rates. Markets currently expect rates to peak at or a little below 6%. Britain’s fundamental problem is one of lousy productivity. If the economy cannot produce more, then in the long term, wage rises are always going to be illusory. In a static economy, inflation will always eat away at wage rises. It is nature’s device for ensuring that we cannot get something for nothing. And the ONS figures for productivity are thoroughly miserable. In the first quarter of 2023 the average worker produced 0.6% less value for every hour worked compared with a year earlier. Yes, we are producing less in spite of the economy apparently recovering from the pandemic. It continues a long story. Until 2008, productivity in the UK was growing strongly. Following the 2008/09 crash, it never recovered and inched up only slowly over the next decade. Since the pandemic, however, it has been pretty well static, and is now just 0.6 higher than in 2019. In public services, productivity is, shockingly, lower now than it was in 1997, the year that Tony Blair came to power. It doesn’t necessarily mean that workers are working less hard. The effort put in by individuals is only part of the equation. Another part is working practices. If workers are being hampered by bureaucracy or out-of-date technology they are inevitably going to produce less. But it is hard not to come to the conclusion that attitudes towards work are part of the problem. British workers were much slower to return to the office after the pandemic, and even now many continue to work from home. HMRC this week was revealed to have fewer staff working in the office than during lockdowns. HMRC has fewer staff working in office than during lockdowns (Image: Getty) It is not that people can’t be productive when working at home – I’ve been doing it myself for over 30 years. But for too many people suddenly allowed the freedom of not going into work, the temptations to avoid work are too great. Moreover, younger workers need contact with others in order to learn on the job. If they or their bosses are absent from the office it makes it harder. Plus, many older workers who gained a taste of retirement while furloughed during the pandemic have not returned. Around 400,000 workers have simply gone missing from the workforce. Another factor is the lack of investment. Economies grow richer by systemising work – through automation or the use of machines or devices to improve output. Yet, over the past 15 years, investment in more efficient production seems to have come to a halt. Partly, this was a result of a seemingly endless supply of cheap labour from Eastern Europe. Luddite unions, too, have played their part. We could greatly reduce the cost of running the railways, for example, by doing away with guards and, on Underground trains, drivers. But the unions have not been tackled over this. The message should be clear: if we want to enjoy higher real-terms wages we have to work harder or more effectively. If we don’t want to work so hard, we are going to have to put up with being poorer. We keep hearing the phrase ‘work-life balance’ without anyone accepting the inevitable: if we work less it means less money to enjoy our lives outside work. Inflation has dominated the news for the past year. It is time we all took a bit more notice of the underlying problem: static or falling productivity.