Boosting productivity is key to improving living standards

The Institute for Fiscal Studies (IFS) research – (released 4/3/15) states incomes are still below 2007/08 levels and I believe that boosting the UK’s productivity is crucial for improving living standards.

The Institute for Fiscal Studies’ (IFS) report confirms that working people are worse off since 2010 when the current Government was elected and to help tackle this issue I’ve worked with the All Party Parliamentary Small Business Group (APPG) and the FSB* (Federation of Small Businesses) on a report that identifies seven drivers to boost UK productivity.

It’s a bit too simplistic for George Osborne to say the IFS findings, that average household incomes have finally returned to their pre-financial crisis level, mark ‘a major milestone in our recovery’ when, actually, incomes for working age people are still below their 2007-08 level allowing for inflation. The IFS findings show that the median income for those aged between 22 to 30 is 7.6% lower in 2014-15 than in 2007-08, while for those aged 31 to 59 it is 2.5% lower.

This is set to be the first time since the 1920s that people are worse off at the end of a parliament than at the start. We need a recovery that improves people’s earnings across Britain, not one which has left working people worse off!

Boosting the UK’s productivity is key to improving our living standards which is why the APPG/FSB report is so important to this process. The APPG/FSB report’s recommendations, which include my section on the effect late payments have on small companies, are designed to help close the productivity gap between the UK and other G7 countries like France, Germany and the US.

Recent FSB research shows that small firms’ productivity levels finally began to turn a corner at the end of 2014, but there is still a long way to go. UK productivity levels are currently 17 per cent lower than the G7 average. We keep telling small businesses they are the backbone of the UK’s economy and, although I was deeply disappointed by the Government’s failure to do more for them in the Small Business and Enterprise Bill, as MPs we must continue to work together to find ways to help them.

Mike Cherry, FSB National Policy Chairman, speaking about the joint APPG/FSB report,  said: “This cross-party report concludes that while ultimately improving productivity is an issue for the private sector, the next Government has an important role to play in addressing this long-standing weakness, regardless of which party or parties form the next administration.”

“Closing the productivity gap is the best way to boost the long term health of the UK economy. It is key to reducing the budget deficit, and delivering higher wages and living standards. What is clear is these efforts require a long-term effort and focus, which is why the FSB is arguing for the establishment of a UK Small Business Administration to provide that role”  continued Mr Cherry.

The APPG/FSB report identified seven drivers to boost the productivity of small businesses are:

  1. Incentivise business investment: Simplifying the business tax system, setting the Annual Investment Allowance and other investment incentives at attractive and stable levels, and improving access to finance will encourage more firms to invest in new products and processes. This in turn will drive productivity gains and business growth.
  2. Universal access to high quality, affordable broadband: Digital technologies are fundamentally altering the nature of business, and firms that aren’t connected will struggle to grow and even survive. Better broadband for small businesses is essential if the UK is to compete in high-value global markets and close the productivity gap with our competitors.
  3. Invest in regional growth: Investment should be targeted on infrastructure to connect regions and create new opportunities for local firms, while Local Enterprise Partnerships need to be strengthened and made more locally accountable if they are to become better agents of economic growth in England
  4. Support innovative businesses: To help knowledge transfer to the private sector Government should increase the Higher Education and Innovation fund to £250 million. The application process for businesses to access tax credits for research and development should be improved, and equity investment, which is beneficial to these businesses, should be promoted.
  5. Address skills and training shortfalls: Government and business should work together to increase the number of high quality apprenticeships, forge closer links with local schools and universities, and encourage more small firms to invest in training to upskill their workforce.
  6. Ambitious public procurement policy. We need to see more small businesses bidding for and winning public sector contracts to drive competition and innovation, and deliver new growth opportunities for local firms. The National Audit Office should publish regular performance data on the number and value of public contracts going to small, medium and micro-firms.
  7. Get more businesses exporting: UK Trade and Investment should be supported for the long-term so it can adequately support small and start-up businesses’ ambitions to export, while the British Business Bank should also play a greater role in providing tailored export finance to small firms.

Under the section ‘Access to finance’ the report noted the issue of late payment raised by my Be Fair – Pay on Time campaign:

  1. The ability to obtain finance, and of the right type for their stage in the lifecycle, often determines whether or not a firm will grow. Since capital is needed to fund investment, it is also a precondition for business investment, and therefore for individual firms’ ability to expand and raise their productivity. By the same token, a lack of access to external finance can constrain cash flow and ultimately hamper businesses’ investment and survival prospects.
  1. In this context, the FSB among others has noted the important role of payment practices and the growing issue of late payments, particularly by large companies towards their suppliers. This can have a significant impact on affected firms in terms of their profitability, as well as their ability to plan and invest.
  1. Late payment harms cash flow, which in turn inhibits investment in capital and resources. Research from Bacs confirms that the debt of overdue invoices for SMEs now stands at approximately £32.4 billion21. Furthermore, it is estimated that the average business with less than 250 employees is currently owed around £32,000 in unpaid bills. Action to address this issue must be a priority for the Government22. Essentially, late payment amounts to de facto capital held by larger firms to invest in their own activities to the detriment of their suppliers. It can also delay payments through the supply chain to the detriment of other firms. The inquiry committee recognises the measures in the Small Business, Enterprise and Employment Bill to address late payments, but more needs to be done. The current imbalance of power that exists in the relationship between creditors and debtors needs to be addressed, with small firms being given a clear legal justification if they decided to seek redress or reject unfair payment terms.



*The FSB is the UK’s leading business organisation with around 200,000 members. It exists to protect and promote the interests of the UK’s Real-Life Entrepreneurs who run their own business.

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