Britain’s manufacturers have called on the government to make faster progress on its industrial strategy to help address a slump in productivity in key sectors.
The EEF said an independent industrial strategy council – promised by the business secretary, Greg Clark, in last autumn’s white paper – should be created immediately and given the “urgent task” of setting clear goals for boosting Britain’s manufacturing performance.
The employers’ organisation said growth in manufacturing productivity, or output per hour worked, had fallen from 4.7% a year on average between 2000 and 2007 to 1% a year on average since 2008 – but said there had been big variations between different sectors of industry.
In a study comparing the UK with three other EU countries – Germany, Spain and Italy – the EEF found that Britain’s chemicals sector was becoming more competitive but that the pharmaceuticals sector had lost ground since 2008.
Clark’s white paper received a tepid welcome from industry lobby groups after its publication last year. The Chartered Institute for Personnel and Development said the level of investment and ambition, “particularly relating to skills and how they are used in the workplace, is inadequate, given the scale of the productivity challenge facing the UK”.
The Institute of Directors called the white paper a “big first step” while the TUC, the trade union representative body, questioned whether the £725m of investment outlined in the report was likely to prove adequate.
The EEF said that, overall, Britain’s manufacturing productivity had been the weakest of the four countries since 2009, following a period in which it had performed more strongly.
Lee Hopley, the chief economist at the EEF, said: “We’ve known about the productivity problem for some time, with various attempts made to try to fix it across the whole economy. Productivity growth matters for wages and international competitiveness yet 10 years on from the start of the financial crisis these attempts have not delivered a major shift and we need to tackle the challenge in a different way.
“Manufacturing offers a good area to get gains on productivity growth. The industrial strategy council should now be created urgently and put to task to identify how the overall strategy can improve productivity in those industrial sectors where it has lagged.”
Government efforts to tackle Britain’s weak productivity have so far concentrated on economy-wide solutions such as increasing spending on infrastructure and improving skill levels. The EEF said its report, Unpacking the Puzzle, showed there was no one factor that could explain the productivity performance across all manufacturing subsectors and called for targeted solutions.
The EEF said its initial assessment of the reasons for disparities in productivity performance had identified four factors:
- Size mattered, with larger companies able to exploit economies of scale. Sectors with a higher share of larger firms tended to outperform internationally.
- Boosting capital investment was not a silver bullet solution, so for some sectors significantly investing more may not bear fruit. Italy had higher levels of investment in capital equipment compared to Germany but productivity levels in Italy were weaker.
- More UK manufacturing sectors undertook ancillary services as part of business operations compared to international counterparts. This suggested UK manufacturers were more likely to be at the end of value chains where the opportunities for productivity growth could be lower but profits higher.
- Management practices across UK manufacturing did not reflect international best practice, with a long tail of companies with poor management practices. Evidence suggested companies with better management capabilities were more likely to have higher rates of productivity growth.
