Productivity and long term growth
Going for Growth 2014: United Kingdom
The United Kingdom has overall high employment rates and average hours worked, but lags top performers in terms of productivity. Productivity growth has been subdued despite comparatively high investment in knowledge-based capital, good quality of tertiary education, a reasonably well-functioning labour market and a fairly competitive business environment. Key challenges include getting more out of education, infrastructure and controlling health spending but there is also scope for improving employment by helping specific groups of working age to maintain work activities.
Previous Going for Growth recommendations include:
- Improve student performance across social groups and increase low secondary school completion rates by enhancing outcomes and equity in education.
- Improve public infrastructure, especially for transport as low investment in public infrastructure has contributed to the congestion, hampering productivity.
- Reform planning regulations so that planning rules at the local level allow adequate balance between economic, social and environmental considerations.
- Strengthen public sector efficiency by reinforcing competition among health care providers and improving monitoring of educational performance.
- Strengthen work incentives by reforming welfare and childcare policies.
Actions taken: Notable reforms in these areas over past two years include:
- A potentially far-reaching health care reform is under implementation, re-organising care purchasing in England and Wales. Purchasing of care is newly transferred to clinical commissioning groups led by general practitioners and certain part of the public health budget will be transferred to local governments.
- Expansion of childcare under which 20% of 2 years old are entitled to 15 hours a week of care as of last September and the share should double in 2014.
- As of 2013, youth are required to participate in training or education at least until the end of the academic year in which they turn 17 and this will be extended to 18 by 2015.
- Streamlining and integration of social benefits is under implementation with the introduction of universal credit that pools the main mean’s tested benefits. Also, a new work-capacity test is bringing people on disability benefits back to the labour market.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of the United Kingdom, while both the child-care expansion and youth training can have in the short term negative budgetary impact, in the long run they should improve income distribution and reduce inequalities, as would improvements in education for disadvantaged children.