The Office for Budget Responsibility recently released a report revising its estimate of productivity growth down by 0.7 percentage points per year, reducing the potential output in 2021-2022 by 3 per cent. As a result, by 2023, the Office for National Statistics estimates that output per hour will be 27 per cent lower than the 2008 pre-crisis trend.
It is important that this should not be seen as a cry of despair, but a call for action.
The drivers of commercial success — innovation, cost efficiency, price competition, effective distribution and customer service — don’t change. And to achieve the key elements requires a foundation of growing productivity and accelerating exports.
Addressing the productivity problem and driving export performance are the two mission-critical agenda items that require fundamental shifts in both mindset and skillset across government and industry.
Time is not our friend. The world is moving on and adopting digital skills at a rate much ahead of our own. The UK’s global competitors are investing in education to create a workforce fit for today’s purpose and tomorrow’s needs, often benefitting from demographics weighted towards the young, who contribute to wealth, rather than an ageing population that consumes resources. The solutions are easy to identify, but more difficult to implement for they require a culture change— not simply an improvement in capability.
Leadership, talent management, innovation, commercial skills and operational efficiencies all contribute to resolution, but greater effort by management is not, on its own, enough.
If we are to make progress, it requires a two-pronged attack: politicians and business working in close harmony with a plan that extends beyond one term of government. We need a plan that starts with an education policy that is not fixated on university degrees, but begins in junior school, extends through secondary education and recognises both the importance of STEM subjects in early life and the worth of apprenticeships, as well as university degrees, in adulthood.
The UK’s engineering and manufacturing industries have always valued apprenticeships. Indeed, BAE Systems is training 2,000 apprentices and graduates and invests £90 million per annum in training and skills activity. This ranges from engagement with schools through to life-long learning programmes for all employees.
It also needs to be recognised that to capitalise on a better-educated population we must have a long-term industrial strategy that has cross-party support, sustainable content, and supports sectors.
This strategy needs to build on the work that has been achieved with the automotive sector and extends the approach to other parts of the business community. This would include aerospace, defence, security and space — which last year directly employed 363,000 people and contributed £27 billion to the UK’s GDP and generated £37 billion of exports. In this context, BAE Systems’ contribution alone equated to more than £11 billion of the UK’s GDP: 57p in every £100, and £4.7 billion of exports, amounting to almost 1 per cent of total UK exports.
As we develop our capability, we must ensure that our infrastructure aligns with the need to achieve a balanced economy whereby no part of the country feels forgotten and where emerging capabilities are not isolated by last-century communications and transport links.
This new infrastructure needs to ensure that capital investment is made to build the future and is not confused with revenue expenditure to prop up the past.
Clearly the contribution by government must be material, but it will only create the climate for improvement and provide the skeleton of capability on which business must build muscle. Only business can deliver the goods. It is against this background that a number of leading UK businesses, including BAE Systems, decided to step up to the productivity plate, and tackle the problem with practical steps and measurable outcomes.
The programme is designed for businesses to engage with their supply chains and share best practice, partner for improvement and link with leading universities in classroom study in parallel with hands-on exposure. The ambition of the programme is to create outstanding business leaders who engage and enthuse their staff in pursuit of improved performance. By implementing such measures, the performance of BAE Systems has delivered productivity per worker of some 80 per cent more than the UK’s average — a rise of 35 per cent in three years.
Now, more than ever, it is vital that we view productivity as a pathway to business expansion, not employment contraction. It must be seen as a route to exchanging declining tasks for growth opportunities: a springboard to export success — the bedrock of wealth creation and the fuel for funding society’s needs.
There is no alternative.
Sir Roger Carr is the chairman of BAE Systems.