The news surrounding the British economy was extremely positive last year. Growth was extraordinarily good given the fact that the European Union is our largest trading partner and unemployment fell steadily. And yet, the budget deficit remained stubbornly high and the government has clearly failed to meet the promises it made in 2010 about deficit reduction.
The key reason for the lack of progress on the deficit is that wages have hardly increased and so tax revenues have not risen as predicted. One of the underlying causes of the lack of wage rises is Britain’s poor performance on productivity. In the years before the credit crunch, Britain was making good progress on productivity and, if that momentum had been continued post the credit crunch, we would be producing 15% more than in 2008. If we were produced 15% more, wages would be higher and tax revenues too.
In early November, I was in a taxi in Beijing with a Chinese colleague and the taxi driver had the radio on. My colleague began to chuckle and I asked her what had amused her. She said that the newsreader had said that Britain’s economy had grown strongly in the third quarter of 2014, but productivity was flat. This was attributed to the laziness of the British workforce. If only it was that easy. Increasing productivity relies on a number of factors. The most important is to ensure that we have the right level of education and skills. It is apparent that we do not plan properly in this country and largely leave it to chance as to whether we have enough scientists and engineers. Some assessment of what we need for the long term and an attempt to ensure that enough young people take the necessary subjects would be sensible. We could use the university fee system to encourage students to study certain subjects.
The tax regime is another way of helping to improve productivity. We have a system of capital allowances and tax relief for research and development and these allowances could be improved further in order to encourage companies to invest. Infrastructure is also key to a country’s success. A recent World Economic Forum report ranked the UK 24th in the world for the quality of its infrastructure and that simply is not good enough. Recent figures for the construction industry have been poor. By investing in infrastructure, the government could give the industry a boost and help businesses to achieve greater productivity. Trying to move goods around Britain is becoming increasingly difficult as our roads and railways suffer from high levels of congestion and more investment is essential.
How can Money&Co. help with the drive for greater productivity? Small and medium-sized companies need money in order to fund investment and we can provide the cash they need. In a report published by Cambridge University and Nesta at the end of last year, it was shown that nearly a third of companies looking to borrow through sites like Money&Co. come from the manufacturing sector (a far greater percentage than manufacturers represent of the economy as a whole). Much of that money is spent on buying better machinery and improving productivity, another indication that person-to-person business lending is a force for economic good.