Hammond will need legendary persistence to find the productivity Holy Grail
Legend has it that the Holy Grail was the cup used during the Last Supper and by Joseph of Arimathea to collect Christ’s blood at the Crucifixion. Finding the Grail was the mission of the knights of King Arthur. They are still looking.
King Arthur and the Grail rarely feature in the cast of Budget Day characters. But they merit at least a walk-on part this year.
“Productivity is the central issue that we must address,” the chancellor told us. “We still have a large productivity gap with our competitors” and bridging that gap will take investment. Do that and we have “the opportunity to achieve high levels of productivity growth.”
The chancellor was Gordon Brown. The year was 2000. Faster productivity growth has long been British chancellors’ Holy Grail.
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Philip Hammond mentioned productivity 10 times in his speech, once more than his predecessor 17 years ago. In an otherwise modest Budget – he announced just 28 measures costing less than £200m over five years, chicken feed in the Treasury – the current chancellor took the opportunity to expand on the theme of his November Autumn Statement. In that, he made the persuasive and correct case that the route to sustainably higher living standards is productivity growth and that the principal means to that end is investment.
While the Autumn Statement focused on investments in physical capital – such as roads and broadband – and innovation, the Budget turned to the other asset that is crucial to growth: people. “Parity of esteem” is a term I first encountered working with Northern Ireland’s opposing tribes during the Troubles. For generations there has been a struggle to put technical education on the same footing as academic education and to have the two held in the same regard. Hammond believes that the T-Level qualification will achieve that objective.
T-Levels will simplify qualifications (in England), with employers designing them. Students taking T-Levels will spend more time in class and be guaranteed good quality work placements. If students progress to advanced technical level studies at college they will have access to loans just like those going to university.
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Will this deliver parity of esteem? Yes, if the outcome is returns on investment on a par with going to university and if T-Levels and advanced technical courses at college offer similar status and progression opportunities to higher education. That is a big ask. However, boosting the quality of the labour force is an important objective in itself, even if parity remains elusive.
The still-missing piece in the productivity growth jigsaw – and it is a large piece – is investment in the very youngest. They might not see the inside of an office, shop or factory for a couple of decades, but we can make a substantial difference to the productivity of our workforce by investing in people before birth and in their first few years. In fact, there is no investment in people that produces a higher return. The chancellor will point, rightly, to the government’s commitment to tax credits and additional places for child care. Yet much more could be done to give children the very best start in life. One for the Autumn Budget, perhaps?
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Cracking jokes as he went, the chancellor’s mood was lightened by an economic outlook that is brighter than even in late November. The Office for Budget Responsibility (OBR), which independently prepares the economic forecasts on which the Budget is based, reckons the UK will grow by 2.0 per cent this year, up from its last projection of 1.4 per cent. However, the growth forecast in later years has been downgraded a touch.
While acknowledging that it cannot foresee the outcome of negotiations to leave the EU and to establish new trading relationships, the OBR assumes that trade growth over the next 10 years will be slower than if the UK had voted to remain in the EU and that net migration will fall. Put those two together and the OBR implicitly assumes that the UK’s capacity to grow will be weakened by leaving the EU.
Hammond has set himself a high bar for success. An important reason why his predecessors have struggled to deliver a step-change in the rate of productivity growth is that it is very difficult to achieve. However, investment in assets of all kinds is central to winning the prize along with a commitment to stick to the programme: not just Budget after Budget but decade after decade.