How could the Chancellor help raise productivity?

The budget is billed as helping drive productivity higher. That would be a good idea. If we work smarter as a country then each person can earn more. The government seems to have in mind labour productivity in its plans, though making productive use of capital, energy and other inputs also matters and can help make a country richer if done well.

The way to encourage smarter working and higher earnings must begin with fair taxation with low rates of tax on enterprise and effort. Politicians of all parties regard work as a good, yet all agree it must be taxed. Given the volume of public service we want as a country, it is true there has to be some tax on work. It is also true that if you tax work too highly you send it abroad, you persuade higher earning people to value leisure time more, you encourage early retirement. I trust the leaks about higher National Insurance for the self employed are just Treasury officials greedy for revenue and not inspired briefing. Starting a productivity drive with a big increase in taxes on some of the most productive people in the economy is not a great idea. Small and new business offers us scope for major adjustments in our economy and improvements in its performance. It is the new fast moving smaller businesses that often pioneer the modern more productive techniques and technologies, offer the new goods and services, and use labour well.  Cutting marginal rates of tax on enterprise, employment and business success will encourage more of what we need.

In both manufacturing and clerical work providing more machine power and computer power at the elbow of each employee raises productivity. UK productivity in factories in recent years has surged as elsewhere in the advanced world. What was done by hand and arm power in a sixties factory is now often done by robot or mechanical power. What was done in an office by people on typewriters, calculators and adding machines is now done by computers and electronic programmes with less human intervention. The full internet revolution has further to run to automate and take more of the routine out of office and factory working. The new jobs will be in machine minding, programming, managing and reviewing the output, and in designing and selling.

The waves of change that are often ascribed to imports and foreign competition also have been driven by automation. A more productive economy has to welcome these waves of technical progress and adopt more machine power to compete. It is then equally important that those who have lost their jobs as a result ar helped and trained to undertake the many new roles a machine driven culture produce. What can a  Chancellor do to bring this about?

He can and should concentrate on helping the public sector to adopt the new ways of doing things that will be smarter, higher quality and more efficient by using computer power. Productivity performance has been disappointing in the public sector this century.  He can and should  with the rest of government to do more to ensure the casualties of such changes are also winners, by backing retraining and recruitment into the new more productive jobs investment can spawn.

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37 Comments

  1. Peter Wood
    Posted March 7, 2017 at 5:50 am | Permalink

    Good Morning,

    Start with the government departments that spend most; Pensions, NHS, Welfare (?), Education. (See: http://www.ukpublicspending.co.uk/uk_total_spending_pie_chart) An independent audit of each department is needed. Publish results.

    Off Topic, what about ‘Multi-speed Europe’ from Mrs Merkel? Surely the beginning of the end… Please analyse.

  2. Duncan
    Posted March 7, 2017 at 6:00 am | Permalink

    Slash taxes on the revenue earning, profit generating productive sector and slash spending while imposing reform on the dependent, wasteful, union dominated public sector

    In many countries you have 2 competing camps in an economy. On the one hand you have the self-entitled, expectant, arrogant, dependent public sector in which employees expect the world without any regard for the cost of such extracted privileges.

    On the other hand you have the self-reliant, energetic, flexible and productive sector which finances the political spending of the State

    Re-energising the productive sector is not an act of political genius. It is simple economics that a 5 year old could easily understand.

    Of course business has to accommodate the infantile nature of politicians who when in government choose to spend our money in a manner that minimises political inconvenience and trouble (buying off opposition in the public sector as this incites negative media) rather than apportion financing that assists in the creation of the one thing that WE all depend, WEALTH

    • Lifelogic
      Posted March 7, 2017 at 10:22 pm | Permalink

      Indeed a sensible five year old, but apparently it is beyond a 60 year old and a 61 year old with Oxford degrees in History & PPE respectively. Is there perhaps something very wrong with our schools & universities – even the second best one in the UK allegedly?

  3. Newmania
    Posted March 7, 2017 at 6:11 am | Permalink

    The Chancellor is going to put a token amount of funds into Training making it clear that the interest in productivity ( or skills ) is only a rebranding exercise. That’s all.
    Anyhoo ,if drivers are replaceable by machines , why not MPs. I believe a fairly simple programme could make 90% of their utterances. One would merely need to factor self-advancements over a spectrum of views and ,using media algorithms, have them say whatever was popular, even if they were saying the reverse last week.
    Get a simple smiling mannequin to hold giant cheques up in the local paper and Robert est votre oncle as the “foreigners “would have it.

    • Lifelogic
      Posted March 7, 2017 at 10:48 pm | Permalink

      Will these new driver robot machines have to pass a test by writing an English essay by law like UBER drivers?

  4. Richard1
    Posted March 7, 2017 at 6:39 am | Permalink

    I agree with Lord Hague. Let’s repeal the fixed term parliament act and have an election. mr Hammond clearly isn’t going to do anything radical now, so he certainly won’t in the next budgets before 2020. Meanwhile, if the EU knows the government can and will be second guessed by Remainers in Parliament there is very little chance of a good negotiation. As David Cameron demonstrated to such cost – if the other side in a negotiation doesn’t believe you can and will walk away, you will never achieve a satisfactory result.

    • Richard1
      Posted March 7, 2017 at 8:35 am | Permalink

      I just heard Labour’s education spokeswoman Angela Rayner saying how “disgusted” she is at the possibility of some new free schools being selective. She declined to debate with Toby Young. Ms Rayner is clearly a virulent leftist, and one who will not engage in debate with her opponents, preferring to point and shriek, but she was almost comically inarticulate. If this is the calibre of Labour politician to be offered to the public as a potential government we really should get on and have that election!

  5. sm
    Posted March 7, 2017 at 7:08 am | Permalink

    Regarding automation in a somewhat parochial context: yesterday, I spent a very long time waiting in a queue in my local NatWest. The branch has recently been totally refurbished, and there are now more machines for basic tasks, and only 2 ‘counter’ positions. Occasionally, a cashier looked up and asked if those waiting could use a machine instead, but that wasn’t possible for any of us…….because we all had queries or transactions to undertake that depended on individual issues.

    You cannot ask a bank machine questions, you need a human being who is trained to understand the vagaries of an ever-more complex world, who can then, themselves, use the machines.

    • libertarian
      Posted March 7, 2017 at 7:21 pm | Permalink

      Why go to a branch to do that? Online banking and chat service

  6. Mark B
    Posted March 7, 2017 at 7:12 am | Permalink

    Good morning.

    It is not tax that is the problem, it is government spending on things that can be done by the private sector instead.

    The government needs to understand some simple things outlined in our kind hosts article. The need to realise that making labour more expensive along with other costs will lead to companies moving abroad or automating the process in order to remain competitive. This will result in a lower tax take. Government needs to recognise that it simply cannot spend, spend, spend. It has to realise that, like companies themselves they too are in a competitive market. It seems to me that at least one person realise this – President Trump. He is not a business man. He knows that to create jobs and wealth you need lower taxes and less regulation. Trump is going to make America great again by being leaner. And that is what all good business people do. Sadly we have very few people with real business experience in government. Just another bunch of pen pushers.

    • Mark B
      Posted March 7, 2017 at 7:17 am | Permalink

      Oops! Should say, he is a businessman.

  7. fedupsoutherner
    Posted March 7, 2017 at 7:18 am | Permalink

    As the rest of Europe is obsessed with climate change and all the renewables crap how about making the UK a cheaper place to manufacturer goods and give them real competition by repealing the climate change act and introducing cheaper ways of generating power???

  8. Leslie Singleton
    Posted March 7, 2017 at 7:20 am | Permalink

    Dear John–Having just been reminded on the Daily Mail site of the litany of gimmicky and inconsequential but ultra confusing drivel promulgated by Osborne I could have wept and am now even more firmly in the camp that believes the Government causes more problems than it solves.

  9. Spratt
    Posted March 7, 2017 at 7:32 am | Permalink

    Dear John, I have worked in various parts of the public sector and also have a lot of consumer experience of benefits, social services etc because I act for a close family member who is profoundly disabled. Whilst computerisation can obviously aid collection of data that aids policy makers and helps audit and information provision, I have rarely found that it improves life and service at an individual level. Rather, over-dependence on computers stops the worker engaging their brain with what the service is all about. It strips out professional skills and a focus on inputting data takes the place of social interaction with the service consumer. When the system goes down, work is completely paralysed. We have had many spectacular examples of grotesque waste in failed public sector computer projects because the people who commission these projects seem to lack both technical understanding and understanding of the complexity of the ‘business’ that they want to computerise. As a consumer I would like to see a more competent person who gives a damn dealing with my services rather than a zombie with a mouse.

  10. agricola
    Posted March 7, 2017 at 7:44 am | Permalink

    Make the process of work for individuals and companies more rewarding. Encourage investment in training and plant.

    Curb the power of the unions to disrupt the economy for political ends, particularly in public services like railways.

    Mt views are much in line with your article. However I would add that government should spend much less. Nothing they do is productive so get them off the peoples backs.

  11. Narrow Shoulders
    Posted March 7, 2017 at 7:56 am | Permalink

    In both manufacturing and clerical work providing more machine power and computer power at the elbow of each employee raises productivity.

    This extra machine power is irrelevant unless the user or operator is sufficiently capable. British business needs to be weaned off cheap, taxpayer subsidised foreign labour providing manpower that is cheaper than training its own workforce to be more productive.

    To increase productivity we need a highly skilled, well educated indigenous population. I hope the Free Schools that the money the Chancellor has found are in areas where there is a need for extra places and not where the parents are pushiest.

    Improve vocational and academic education prior to university and make it cheaper to train employees than to saturate the workforce with immigrants.

  12. Less productive now
    Posted March 7, 2017 at 7:57 am | Permalink

    It takes 15-50 times longer to switch on and have my TV go than it did fifteen years ago, It takes my dustbin man seven days longer to empty my bin and yet I assist him by doing most of the heavy labouring job . Mechanisation means he does not need to lift it (empty it ) himself. I do his job , make a good job of it for him, by returning the bin within my garden. I do not derive any job satisfaction by becoming a dustbin man once per fortnight. I remain unpaid for my labour, ongoing. I am not insured by the Local Authority lest I injure myself doing the dustbin man’s job for him. Women seem denied the equal opportunity to do the 5% of the bin emptying job left to the dustbin man.
    Forty years ago my vacuum cleaner lasted well over a decade, even two and performed better. Now no.
    It takes me 23 times longer to get a drink at my local pub…the two nearest have closed down. It takes five times longer for the pub to serve me because the bar staff must …add up my drink bill on the computer and do what the computer asks instead of adding it up in their heads and taking my money immediately.
    My biro pens last very much less than they used to do. The Local Authority makes me less productive in that it wastes my time because it has the ability now to print masses of information and stuff it through my letterbox. Years ago I along with everyone else used telepathy to communicate with the Council. They mind-messaged they would waste money. We received the message instantaneously . We just KNEW!

  13. Lifelogic
    Posted March 7, 2017 at 8:03 am | Permalink

    Well quarterly reporting to HMRC for everyone and every business, as is proposed, will be a total disaster for productivity. Does the chancellor imagine businesses should spend all their time reporting to HMRC rather than doing productive work?

    The sugar tax is clearly absurd and will hit productivity. The workplace pension is another thing that damages productivity, absurdly high taxes (which we have in spades) also damage productivity in spades. As does the governments policy of over expensive energy for bonkers “climate alarmism” religious reasons. HS2 will cause huge disruption for businesses, and the roads. This all for no real value at all for the circa £100 billion it will cost in the end. Insisting on English tests for UBER drivers and attacking their self employed status is another thing that damages productivity. No being able to retire elderly and often past it staff also damages productivity.

    Following the ratting on the £1M IHT threshold each promise it seems there is even a new proposal for additional probate taxes proportional to the estate. Yet more IHT by the back door. Gender pay reporting, central wage controls and workers on company boards will all further damage productivity.

    The government is the problem and the May/Hammond agenda is particularly bad. They are endlessly loading more red tape, inconvenience and taxes on the productive. It seems that destroying productivity is actually the main aim of this essentially socialist, interventionist, government.

  14. Nig l
    Posted March 7, 2017 at 8:12 am | Permalink

    5.5million small businesses in the U.K. 4 million plus are sole traders. Obviously these are making a contribution but no way are they going to thrust our economy forward and I see no reason that they should contribute less in NI than those on PAYE. The answer is to abolish it as a separate tax, which would also reduce public sector cost but politically a hit chestnut that no one will grasp because it would show even clearer the amount HMG takes from the electorate.

    Of the rest many are lifestyle and if you (HMG) were really interested in turning them into a ‘tiger economy’ you would take down the barriers that you have erected. Employment law and especially maternity is a nightmare for small businesses and is the reason many take a conscious decision not to expand. Add the unrelenting outpouring of regulation, requests for information etc (just ask your small businesses to keep every piece of paper they receive) and you will see why so many are totally disenchanted and just interested in looking after self and family.

    Finally Management is the key to success or failure and is often a serious failing in even established businesses let alone start ups and is where HMG should be putting in real money and effort. Currently apart from small targeted programmes, the main support seems to be an army of unpaid mentors or Bank Managers ( as if they have real world experience) Whilst often helpful the ‘doing it on the cheap’ sort of sums your approach up.

  15. Lifelogic
    Posted March 7, 2017 at 8:22 am | Permalink

    The best thing would be for Hammond to resign and to be replaced with someone who actually understands economics, the Laffer curve and what is actually good for productivity and GDP. A freedom loving, low taxing, Milton Friedman type rather than an interventionist, tax, borrow, over regulate and endless waste socialist like himself.

    Unfortunately his boss is just the same as he is. She even wants to keep all the EU employment protection “and build on them”!

    She wants gender pay reporting and workers/customers on company board by law. A totally bonkers hugely anti-business agenda.

    The only real protection for workers is more choice of jobs – they are damaging these prospects at every turn.

  16. John
    Posted March 7, 2017 at 8:33 am | Permalink

    One reason for our reducing productivity is the Personal allowance of £11,000 soon to be £11,500 tax free. We encourage transient cheap migrant labour to earn tax free money here and then take their productivity chain (their earnings) back with them to Eastern Europe.

    For some countries £11,000 tax free equates to double the average earnings in those countries. Imagine if on the continent you could earn between £50 and £60,000 tax free in 6 months! Well that’s that draw to come to the UK. In Latvia average gross is just over £8k and its taxed at 31%.

    Just as if you tax highly you drive workers away, if you don’t tax you can encourage. We need to stop increasing the Personal Allowance to encourage companies in the UK to train our people up rather than tapping into cheap skilled labour from Eastern Europe. Doubt that will be in the budge.

    The Chancellor will say he wants more apprentices whilst discouraging it in the tax system.

    • John
      Posted March 7, 2017 at 12:38 pm | Permalink

      correction 23% tax.

  17. Iain Moore
    Posted March 7, 2017 at 8:36 am | Permalink

    We hear a lot about needing cheap labour to work in farming, which we know is unsustainable. We also occasionally hear of robotic developments that has the potential of doing a lot that work. What we don’t hear about is Government acting as a catalyst to bring together , finance, universities, manufacturers, and farmers to make it happen. The Chancellor and Treasury is in a position to act as the catalyst.

  18. Nigel
    Posted March 7, 2017 at 8:39 am | Permalink

    The first thing that is needed is to reduce the size of the public sector.

    • Lifelogic
      Posted March 7, 2017 at 10:55 pm | Permalink

      and the over taxation and over regulation of the productive sector.

  19. alan jutson
    Posted March 7, 2017 at 8:46 am | Permalink

    All sensible comments John, but why is it I fear most of what you and I recognise as common sense is not replicated by most politicians, who just seem to want more control of our lives and more tax and spend by government.

  20. Bert Young
    Posted March 7, 2017 at 8:47 am | Permalink

    I doubt that Hammond understands what enthusiasm means ; I see no reading between the lines in the statements he has made and the need to stimulate the excellent basis that we have in both manufacturing and services .

    There is a spurt in the main economies of the world and we have to be placed to take advantage of what this offers . Lower taxes and incentives to invest are what is needed ; further hesitancy simply means a bigger catch up gap – the last thing that we should face .

  21. Andy Marlot
    Posted March 7, 2017 at 8:49 am | Permalink

    Q. How could the Chancellor help raise productivity?
    A. Cut the size of the public sector and cut taxes. There is simply no other method that a government can improve productivity. All else is a con job to delude the economically illiterate.

  22. David Cockburn
    Posted March 7, 2017 at 9:36 am | Permalink

    The public sector is a big part of our economy and has a poor record of improving productivit and so hold back the productivity record of the economy as a whole..
    Unless our government is prepared for battles with the big vested interests, in the NHS for example, it is going to be difficult to improve their productivity.

  23. Ian hunter
    Posted March 7, 2017 at 10:51 am | Permalink

    An interesting analysis,but I fear your drive for lower rates of tax is just whistling down the wind.Time was when Conservative politicians repeated the mantra of lower tax,but we have yet to see much of it in the last two Tory administrations.But keep trying, the population at large are waiting for tax rates to be nibbled consistently down giving some clear blue water between the opposition parties.But it needs to start now!,don’t leave it too late or it just may be seen as a bribe,and not a doctrine.

  24. Antisthenes
    Posted March 7, 2017 at 11:16 am | Permalink

    High state spending, vested interests and public opinion especially those influenced by left wing and environmental ideologies work in opposition to improving productivity. In fact the only ones interested in productivity are entrepreneurs and the more rational and enlightened observers. Usually those who are of a right wing political persuasion. The rest would be more than happy to make the government provider of all our needs or implement measures that do not favour wealth creators and would not care at all at the diminution of productivity that would ensure.

    Chancellors budgets and other government policies all affect who the economy benefits and to what degree. When Labour are in government we know they favour socialising society to a degree that undermines the effectiveness of wealth creation. Conservative governments try to effect the opposite but are hampered by strong opposition which means that their measures do not often achieve the full desired effect. In fact sometimes forced to implement socialising measures which increasingly of late can be seen in Conservative chancellors budgets. On Wednesday we will see if Phillip Hammond is going to continue this trend. I suspect he will as we have to toe the progressive line now or be vilified and ranted at.

  25. Ian Wragg
    Posted March 7, 2017 at 11:20 am | Permalink

    Productivity will never increase while you allow half a million mainly low skilled immigrants into Britain annually.
    As for the self employed making them submit accounts quarterly will reduce productivity.
    Get the government out of the way is the best way to increase productivity.

  26. acorn
    Posted March 7, 2017 at 3:12 pm | Permalink

    Not unless he is prepared to increase his deficit spending which, ideologically, he is constrained from even thinking about such.

    Since the start of the Thatcher – Reagan period, US [and UK] workers have received almost none of the gains of increased productivity, which has increased by 143% since around 1975, labour has got about 9%. Globalised Corporatism exported everything to Asia. In the same period there was a trend toward part-time work and contract labour, mergers and acquisitions, with downsizing and lay-offs. The Reagan revolution and Republican “Contract with America” both served to remove power from the working class and transfer it to corporations. (HT Gary Flomenhoft)

    In the space of 10 years, the number of roll-over car-wash machines in the UK has halved – from 9,000 to 4,200. The free-market economic model, combined with a globalised labour market, has produced a kind of reverse industrialisation. Five guys with rags, can undercut a machine that cost tens of thousands of pounds to build, because the entire economic system is geared to distributing the proceeds of globalisation [and productivity] upwards and its costs downwards. (HT Paul Mason)

  27. Lindsay McDougall
    Posted March 7, 2017 at 4:32 pm | Permalink

    I would like to see you discuss the Government’s ‘industrial strategy’ and why latest effort to pick winners is any more likely to succeed than previous efforts. I can remember the Neddies – big and little – of the MacMillan and Heath governments. I can also remember the ludicrous Selective Employment tax introduced by James Callaghan on the advice of two Hungarian economists. It involved levying a tax on employers for each person employed in services, but not for persons employed in manufacturing. The effect on productivity was not what Mr Callaghan wanted. Surprise!

    Experience teaches us that Government assistance in financing seedcorn research can work, but other interventions are mainly counterproductive. Why don’t you f-fade away?

  28. turboterrier
    Posted March 7, 2017 at 5:45 pm | Permalink

    Start with repealing both the fixed parliament act so we can have an election before 2020 and climate change act to give industry the opportunity to compete on an even footing with the EU workers. The Vauxhall workers will need all the help they can get if they are to be competitive to save jobs. Machines and robots still use enormous amounts of power to operate and work areas need lighting, heating and computer power points.

    Revoke all the vanity projects including foreign aid or at least put them on hold till 2020 and start investing in people to encourage self employed start ups things that will earn real revenue and not rely on government subsidies so that taxes can raise money to address the critical areas of concern for the population including reducing the national debt.

    Impose sanctions on all charities and public sector companies to buy British products if they wish to maintain their levels of funding.

    He has to start putting British companies first , second and third.

  29. ian
    Posted March 7, 2017 at 5:46 pm | Permalink

    How do you account for NIs if it was paid in to fund for all employees for entitlements because the 20% income tax workers pay 12% and 40% to 45% income tax workers pay 2% that would mean that the low paid workers would be paying for the high paid workers benefits, your tax system all BS.

  30. turboterrier
    Posted March 7, 2017 at 6:55 pm | Permalink

    18.43 hours. Well that is it John the Scottish news have announced with some gusto that the House of Lords have beaten the Government again over Brexit.

    Well that is it enough is enough, just abolish the House of Lords send them home to their gardens whatever. reinstate the HoL with an elected chamber of less then 300.

    These people are acting way above the realms of reason. They do not care about the rank and file only about themselves and their fully subsidised way of life.

    Parliament has to do it and do it now before they make a laughing stock of this country

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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