The London School of Economics and Political Science has conducted new analysis, revealing that UK productivity is lower compared to France, Germany, and the United States. The analysis indicates that a significant portion of this productivity gap is due to a lack of investment in capital and skills.

Following the global financial crisis, the UK experienced a larger slowdown in productivity than other nations, with roughly half of the slowdown attributed to inadequate investment in capital and, to a lesser extent, in skills. The analysis also demonstrates that the United States is 28% more productive than the UK, while France and Germany are 13% and 14% respectively more productive than the UK.

Additionally, recent figures from the Office for National Statistics reveal that productivity in the third quarter of this year was 24% lower than it would have been if the long-run trend in productivity growth from before the global financial crisis had continued. This extended period of low productivity growth has been a major contributor to stagnant real wages over the same period.

Reforms aimed at boosting business investment were a focal point in the recent Autumn Statement, including the permanent full expensing of capital investment and a commitment to addressing planning delays. John Van Reenen, the report co-author and director of POID, expressed optimism about these business reforms’ potential to increase capital stocks and growth over time.

However, he highlighted concerns about future cuts to public capital investment, emphasizing that the UK’s productivity problem can be summarized as an issue of inadequate investment.