Lloyds Banking Group

UK businesses at risk of getting stuck in 'productivity slow lane'

16 November 2016

  • More than half of UK firms (58%) are worried about a lack of productivity in the economy; but only one in four (25%) believe it is an issue for their own business.
  • Half (49%) recognise that their own lack of investment is the main problem, however, only a third (33%) plan to increase investment, over the coming year.
  • Two fifths (44%) admit concerns about their level of innovation, blaming a lack of ideas, risk aversion and unavailability of skills.

British businesses are failing to take crucial steps to boost their productivity through investment and innovation - because they believe that low productivity is only an issue for the wider economy - according to a new report from Lloyds Banking Group and the Manufacturing Technologies Association.

The report, Understanding the Puzzle, examines the views of more than 1500 businesses across the UK – and comes at a time when Government and industry bodies have expressed concerns that UK productivity is falling far behind the rest of the G7 nations.  

Andrew Bester, Group Director and Chief Executive, Commercial Banking, Lloyds Banking Group said: “Productivity is one of the defining economic issues of our time. The UK’s low level of productivity compared to its G7 peers remains an unsolved puzzle, and it is crucial that we seek to understand how businesses view the problem in order that we can try to fix it.” 

Perception of the problem

According to the research almost six in ten firms (58%) recognise falling productivity is an issue for the UK economy at the moment but just one in four (25%) believe it is a problem for their own businesses. A fifth (21%) say that they do not know whether it is a problem or not, because they do not measure it. 

Six in ten firms (60%) say they do have a plan in place to improve their productivity, but of the remainder, 20% do not have a plan yet, and 20% say they will never have one. 

Investment – significant obstacle to productivity growth

Firms cited a range of obstacles that they believe are hindering their own productivity growth – some of which they can control, and some of which they cannot.

Almost two thirds (58%) said that the big issue is a shortage of skilled labour, while more than half (53%) mentioned concerns over regulation.  Almost half (47%) said that quality of management in their businesses is an issue, while two fifths (42%) cited inadequate R&D and a similar number (40%) mentioned restrictive labour practices.

The key obstacle cited, which businesses can control, is investment. Half (49%) recognised that their own lack of investment is the main factor hindering their productivity growth, however, most do not appear to be making firm plans to invest for the future .  Only a third (33%) of respondents plan to increase their investment spending over the next twelve months, while two fifths (37%) are freezing it and one in ten (10%) are making cuts.

This reining in of investment appears to be happening for a number of reasons.  Two fifths (39%) cite economic uncertainty; a fifth (20%) worry about the cost of investing; 16% feel there is a lack of available skilled labour in which to invest; and 14% say they are simply unsure of the benefits any investment would provide.

Among those firms that are planning investment, only a third (32%) plan to do so with the specific goal of improving productivity.

The key targets for investment to boost productivity are skills and training (42%); software development (32%); buildings and infrastructure improvements (20%); automation (20%); production machinery (19%) emerging technologies (17%) and big data (13%).

Innovation

The study also examines the issue of innovation – the extent to which businesses are developing better systems and processes - which is widely seen as a key to any increase in productivity.  Two fifths of businesses (44%) say that a lack of innovation is an obstacle to productivity for them and they say innovation is being stifled by a number of factors including: a lack of ideas (21%); their business’ attitude to risk (19%); their firm’s culture (16%) and a lack of skills (15%).

Government measures

Businesses believe that there are a number of measures that Government should be taking in order to help ensure productivity can grow in the face of ongoing uncertainty. A quarter (27%) say that their main request is for the Government to maintain economic stability, while a fifth (23%) mentioned the need for a tax regime that encourages innovation; and a further 15% pointed to a need for less onerous regulation. 

Andrew Bester added: “UK firms do recognise that productivity is an issue for the wider economy, but this research indicates they are less convinced there is a problem within their own businesses. While many firms do have a plan in place to boost productivity, most are not investing enough to overcome the barriers to productivity growth.”   

“It is hard to overstate the importance of productivity growth in securing the economic prosperity of our nation – and we must do everything possible to avoid the risk of getting stuck in the productivity slow lane. That is why - through our Helping Britain Prosper Plan - we are working hard to help our customers grow at home and overseas.”

Notes to editors:

The research for the report was carried out amongst a sample of 1500 businesses in July 2016.

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