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Economy: Productivity Measurement

Volume 796: debated on Thursday 28 March 2019


Asked by

To ask Her Majesty’s Government what steps they are taking to modernise the way productivity is measured in the economy.

My Lords, the independent Office for National Statistics measures productivity and has increased the volume and timeliness of productivity data, which can now be accessed by region, with detailed breakdowns of region by industry. We are the only country in the world to produce quarterly, rather than annual, multifactor productivity reports, which take account of capital. We now also have the UK’s first official estimates of aggregate infrastructure and intangible assets, such as research and development.

I thank the Minister for that reply. However, it is not the quantum of data that we need but up-to-date data. The Government’s industrial strategy—if noble Lords remember that—is directed towards raising our productivity by developing the so-called intangible economy and the digital economy. Yet the way we measure productivity is still biased towards traditional industry. It is the same with GDP. As they say, what gets measured gets done. Will the Government show some urgency and speed up, encourage, publicise and conclude the work of modernising these measurements so that we may get a better understanding of exactly what is going on in our economy today?

The noble Lord has a long-standing interest in productivity data, perhaps inspired by the book Capitalism Without Capital by Professor Jonathan Haskel, with whom he has a relationship that is statistically significant. The noble Lord is quite right that intangible assets such as software, research and development and intellectual capital are now just as important as tangible assets. In fact, the annual investment in each is about the same. The ONS regularly engages with leading academics and government departments to ensure that its work meets their needs; there is an annual productivity user forum. Over the next two years, the ONS is investing in improving information, particularly on public service productivity, and I will ensure that it takes the noble Lord’s injunctions on board tomorrow morning.

My Lords, would it be a good idea if the good Professor Haskel turned his attention to productivity in your Lordships’ House, and compared it with productivity in what is fast becoming the House of Chaos at the other end of the Corridor?

It is certainly the case that cost per Member is much lower in your Lordships’ House than in another place, although of course there are reasons for this. So far as productivity in your Lordships’ House is concerned, one possible measure would be the number of questions we get through in 30 minutes adjusted for quality.

My Lords, without bringing the analysis down, it is a fraction; it comes down to that in the end. The denominator is something that the Government like to talk about a lot. Employment levels are high and that is a good thing. However, the numerator is GDP. Last year, we saw GDP grow at only 1.4%—the worst performance since 2009—and the ONS predicts that the figure this year will be 1.2%. Clearly, the chaos we are seeing is driving down GDP growth. How can we ever have the productivity levels that the Government aspire to when the chaos around us prevents investment and confidence in business?

The noble Lord goes back to an issue raised by the noble Lord, Lord Haskel, which is the industrial strategy. Its main thrusts were driving up productivity, backing businesses with high-quality and well-paid jobs, and investing in skills, growth industries and infrastructure. Investment in infrastructure is up 3%. Private sector investment totalled over £358 billion in 2018, combined with public sector investment. We also have long-term partnerships in 10 key sectors, so we are making progress. One reason that productivity has not been as good as it might have been is that, after the downturn, industry tended to keep people on, but at the same time, investment fell. Of course, that had an impact on productivity.

My Lords, it is always a pleasure to see the noble Lord in his place, particularly when he is straying off-piste. He mentioned some of the issues raised in Professor Haskel’s book but he did not touch on the key point raised by my noble friend Lord Haskel, which is that the new technologies do not rely on physical goods but on a different type of trading, which involves platforms, brands and algorithms. What work is being done to try to make sure that that aspect of the new technologies is being caught? The second point made in that excellent book is that people measuring productivity seem to ignore the productivity of which we in this country are very proud of, in making real progress in education and health. Those things are not even counted in GDP.

The noble Lord is quite right to say that productivity in education and health has gone up. Over the past few years, productivity growth in the public sector, which had been 0.2% for the past 19 years, grew to 1.4% in 2016. We have had six successive years of improving productivity in the public sector, and health and education lead the field. The noble Lord is quite right in his other point about intangible assets. We are putting a lot of work into measuring intangible assets. This has a key impact on productivity, for example, in the information and communications sector and in the science sector. Along with investment in software and R&D, intellectual capital training is also an important intangible. It is one of the most important ones, followed by organisational capital.

My Lords, I declare a statistically very significant interest as chairman of the Competition and Markets Authority. If productivity and competition levels in the British economy are in decline—and there is a good deal of evidence to support that—it probably follows that competition policy is not robust enough at the moment and needs a shot in the arm, so does the Minister support the proposals designed to achieve that which I sent to Ministers last month?

The noble Lord, whom I have known for 35 years, brings to your Lordships’ House his ability to propose and then drive through major economic reform. The proposals he refers to are indeed detailed, trenchant and robust, and they will inform the competition policy that the Government are working on. Not only can it benefit consumers by promoting better-quality goods and services at lower prices but it can help the economy by promoting innovation and productivity. The Government welcome his report and will be consulting on the competition review shortly, including his proposals.