As a country we are not growing as we should be. There are of course many reasons for this but one of them certainly relates to what is known as “productivity”. The UK is in the midst of a productivity crisis. In Q3 2024 (Jul-Sep), productivity in the UK fell by a very significant 1.8% compared to the same quarter a year earlier.
In this two-part series we will explain what this means, describe what effect it is having on us all, and look at what might be done to improve things.
Part I (This report) : Productivity – How big is the problem and how does it affect us all financially? Part II - Public sector productivity – The problem here is far, far, worse – what is this costing us?
What is “productivity” and why is it important to us all?
One of the most important factors in determining living standards is productivity – how much output is produced for a given input. A country’s ability to improve its standard of living over time is almost entirely dependent on productivity growth.
Let's take the analogy of a home bakery
"If I start baking cakes by hand in my family kitchen to sell locally, I can produce 10 a day. If I buy a bigger cooker with more automated mixers I can make 20 a day.
My labour productivity has doubled and I have twice as many cakes to sell so I earn more. It is true some of extra money pays off the new equipment over time, but I am better off after costs.
The same is true if I employ a kitchen assistant. Now we have introduced the principle of the 'division of labour', with each of us doing the tasks which best match our strengths. We become more efficient and can bake more cakes, so productivity and thereby profit rises even after paying the assistant's wages. The customer can also benefit if I am able to sell my cakes at lower prices.
"Just as I can earn more from making more cakes, so the economy as a whole can earn more if each worker can produce more by working smarter or by using more automation to help. Just look at how much more quickly builders can install heavy structures with mechanical diggers and cranes compared to using shovels, ropes and pulleys."
Productivity and GDP
Productivity is also crucial in determining long-term GDP growth rates of an economy. This, in turn, increases tax revenues and lowers government budget deficits. Of course, lower productivity growth results in the opposite: lower GDP growth and higher budget deficits.
In short, productivity rates give a good feel for how well off we are becoming as a country. Depending on a country’s tax regime, this also gives a good indication of how wealthy we all feel from one year to the next. In many ways this is a measure of our standard of living – a phrase not used as often as it once was.
So, high productivity is good, whereas stagnant, low or falling productivity - particularly in comparison with competitor countries - is most definitely bad. And unfortunately the news is not good.
Productivity – then and now
Historically, UK labour productivity has grown by around 2% per year. Then came the 2008/2009 recession, following which the rate of growth slowed (see chart below). Unfortunately we then had the Covid crisis just over 10 years later with the extraordinary lockdowns imposed by Government which accompanied it.
Putting aside the obvious difficulties encountered by statistics agencies in measuring productivity during lockdowns, the slower rate of productivity has continued at its new, lower rate.
In the latest figures from the ONS for Q3 (Jul-Sep) 2024, produc15pxtivity was estimated to be 1.8% lower compared with a year ago (Q3 2023), according to the latest flash estimate. This is almost a mirror image of what it should be as a minimum : +2%.
Of this 1.8% drop in productivity, 0.8% of it was when the latest quarter is compared with the previous quarter, which suggests the problem may be getting worse, not better.
Brexit Facts4EU.Org Summary
1. Productivity – Output per hour worked, 2014 - 2024
NOTE : The ONS have provided their numbers over time in indexed form, where 2017=100
© Brexit Facts4EU.Org 2025 - click to enlarge[Source : Office for National Statistics, latest data to Q3 2024.]
Internationally the most commonly used measure of productivity is GDP per hour worked. For international comparison purposes, the OECD expresses this as the average in US dollars per hour, Purchasing Power Parity (PPP) converted, at current prices.
Many international organisations take notice of productivity, particularly the way it is trending in each country. Below we show the OECD’s numbers (in dollars) for the G7 group of countries in 2023, the last year for which it has produced a report.
Brexit Facts4EU.Org Summary
2. The international perspective – how did the UK do last year (2023)?
International Productivity – Output per hour worked in dollars, G7 countries compared
© Brexit Facts4EU.Org 2025 - click to enlarge[Source: OECD, latest data for 2023.]
As can be seen, the US is the leader of the pack and in fact the latest information out of the States is that 2024’s figures will be even better. What is more troubling for the Government is the lead which both France and Germany have over the United Kingdom.
Differences in productivity numbers always look low, possibly insignificant. The problem is that just like economic growth (GDP) figures, small percentages can soon add up over time because of the compound effect.
That old ‘Brexit is to blame for everything’ chestnut has been out in force.
It will surely come as no surprise to readers that even the House of Commons Library spent some time in its report to MPs raising Brexit as a cause for the UK’s deteriorating productivity figures. We will first publish what they wrote and then demolish it.
“The impact of Brexit on productivity will be felt principally via trade and investment. Economic theory and academic literature show a link between an economy’s degree of openness to foreign trade and investment and its productive capacity.“The UK’s new trading and investment relationships in a post-Brexit world, and its impact on the amount and pattern of trade and investment that takes place, will be important in determining Brexit’s impact on productivity and economic growth.
“The end result of all the changes to the UK’s trading arrangements with the EU and rest of the world will take time to develop and come into effect. Given the importance of UK-EU links in trade and investment a majority of economists believe that the final post-Brexit settlement will leave the UK economy less open, likely lowering the UK’s long-term productivity and growth rates compared to a scenario where the UK had stayed in the EU.”
Facts4EU.Org's demolition of these unreformed Remainer-Rejoiners
1. “A majority of economists” – Well, yes. The “majority of economists” are all part of the ‘metropolitan elite’ bubble and the majority of them voted Remain. Their Remainer forecasts before the Referendum have all been proven to be totally false, but this hasn’t stopped them looking around for something they think they can blame on Brexit.
2. Unfortunately for them, the official figures on productivity show this problem started many years before the Referendum was even a twinkle in Nigel Farage’s eye.
3. As we showed in our report on Tuesday, Brexit Britain now has trade deals with 36% more countries worldwide than the EU.
4. Exactly which “economy’s degree of openness to foreign trade and investment” did these economists have in mind? As it clearly can’t be the globally-facing Brexit Britain.
5. We are unclear why the House of Commons Library team chose to discuss exports. Apart from anything else, less than 10% of UK businesses export, so this seems simply to be an attempt to deflect.
6. The facts are that UK trade and GDP both increased after 2016, rather than falling like a stone as the economists predicted.
Coming up in Part II...
Tomorrow, in the second and final part of this productivity mini-series, we focus on the scandalous figures for the public sector and reveal some shocking numbers. So bad are they, we asked a former, senior government minister and experienced businessman to give readers his take on it all.
This report is unmissable.
For this article in pdf with several charts, please click here:
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