A new report released by the TaxPayers’ Alliance today has revealed the shocking cost of poor productivity in Britain and its impact on wages. Since the great recession, advanced economies have all been suffering from weak productivity growth, with few more afflicted than Britain’s. The scale of the issue is enormous, and the Chancellor is right to prioritise it.
If British productivity could be raised by 32 per cent to match US productivity, average weekly earnings in January this year would have been £164 higher, at £678 instead of £514. On a yearly basis, that’s an £8,540 pay rise, from £26,707 to £35,247.
There are clearly huge gains to be made by improving productivity in Britain. Our new research identifies 12 areas of policy that offer substantial opportunities to enhance productivity while cutting tax and waste, and raising incomes and employment.
In each section, our research asks:
The 12 policy areas in a nutshell are:
1. Planning restrictions and the housing crisis
Granting property owners in expensive areas substantially more freedom to build homes where they’re needed will reduce housing costs and allow more of us, particularly younger people who are more able to move, to take up high-productivity jobs.
2. Business property
Relaxing planning restrictions to allow taller office buildings and more commercial premises in high demand areas will raise productivity among office, retail and logistics workers.
3. Stamp duty
Scrapping stamp duty will allow us to make better use of the housing stock, directly reducing misuse of housing and also helping employees to find more productive jobs.
4. Taxes on low incomes
Reforming planning, energy, childcare and trade policy can help people escape the low-wage welfare trap and cutting national insurance will boost wages and improve incentives to earn more.
5. Taxes on high incomes
Cutting top tax rates will raise productivity by shrinking tax avoidance incentives, increasing returns on investments and encouraging the most productive people to work more.
6. International trade
Minimising barriers on imports, including tariffs, standards and other administration, as well as payments to farmers and fishermen, will raise productivity by intensifying competition.
7. Transport congestion
Introducing road pricing and cutting motoring taxes and subsidies while switching infrastructure spending to better value schemes will reduce congestion, enabling labour markets to function more effectively and reducing the cost of business travel and goods transport.
8. Government spending
Cutting spending, reallocating priorities to investment and devolving more tax will transfer resources to more productive uses and strengthen competition.
9. Corporate tax
Scrapping corporation tax entirely will enable more firms to relocate to the UK and more investments to become viable, unleashing the productive potential of the economy.
10. Capital gains tax
Scrapping capital gains tax will encourage investment, free up markets to reallocate assets efficiently and improve the management of fast-growing smaller firms.
11. Product regulation
Minimising unnecessary product regulation will enhance competition by encouraging entrants into markets as well as directly reducing compliance costs.
12. Zombie firms
Scrapping corporation tax to end the debt bias and acknowledging productivity concerns in monetary policy mechanisms will allow growing, healthy companies to expand.
If British productivity could be raised by 32 per cent to match US productivity, average weekly earnings in January this year would have been £164 higher, at £678 instead of £514. On a yearly basis, that’s an £8,540 pay rise, from £26,707 to £35,247.
There are clearly huge gains to be made by improving productivity in Britain. Our new research identifies 12 areas of policy that offer substantial opportunities to enhance productivity while cutting tax and waste, and raising incomes and employment.
In each section, our research asks:
- What's the issue?
- How does it hold down productivity?
- What should the policy response be?
Commenting on the report, John O’Connell, chief executive of the TaxPayers’ Alliance, said:
"As Britain prepares to leave the EU, we need to ensure that our country is ready to meet the risks and take the opportunities that lie ahead. Our nation's productivity is lagging behind other G7 countries such as America, and we are simply not living up to our potential.
"By scrapping burdensome regulations and lowering the tax burden on families and businesses, the UK could significantly increase productivity and give everyone a much deserved pay rise. Now is the time for the government to take bold action."
"As Britain prepares to leave the EU, we need to ensure that our country is ready to meet the risks and take the opportunities that lie ahead. Our nation's productivity is lagging behind other G7 countries such as America, and we are simply not living up to our potential.
"By scrapping burdensome regulations and lowering the tax burden on families and businesses, the UK could significantly increase productivity and give everyone a much deserved pay rise. Now is the time for the government to take bold action."
The 12 policy areas in a nutshell are:
1. Planning restrictions and the housing crisis
Granting property owners in expensive areas substantially more freedom to build homes where they’re needed will reduce housing costs and allow more of us, particularly younger people who are more able to move, to take up high-productivity jobs.
2. Business property
Relaxing planning restrictions to allow taller office buildings and more commercial premises in high demand areas will raise productivity among office, retail and logistics workers.
3. Stamp duty
Scrapping stamp duty will allow us to make better use of the housing stock, directly reducing misuse of housing and also helping employees to find more productive jobs.
4. Taxes on low incomes
Reforming planning, energy, childcare and trade policy can help people escape the low-wage welfare trap and cutting national insurance will boost wages and improve incentives to earn more.
5. Taxes on high incomes
Cutting top tax rates will raise productivity by shrinking tax avoidance incentives, increasing returns on investments and encouraging the most productive people to work more.
6. International trade
Minimising barriers on imports, including tariffs, standards and other administration, as well as payments to farmers and fishermen, will raise productivity by intensifying competition.
7. Transport congestion
Introducing road pricing and cutting motoring taxes and subsidies while switching infrastructure spending to better value schemes will reduce congestion, enabling labour markets to function more effectively and reducing the cost of business travel and goods transport.
8. Government spending
Cutting spending, reallocating priorities to investment and devolving more tax will transfer resources to more productive uses and strengthen competition.
9. Corporate tax
Scrapping corporation tax entirely will enable more firms to relocate to the UK and more investments to become viable, unleashing the productive potential of the economy.
10. Capital gains tax
Scrapping capital gains tax will encourage investment, free up markets to reallocate assets efficiently and improve the management of fast-growing smaller firms.
11. Product regulation
Minimising unnecessary product regulation will enhance competition by encouraging entrants into markets as well as directly reducing compliance costs.
12. Zombie firms
Scrapping corporation tax to end the debt bias and acknowledging productivity concerns in monetary policy mechanisms will allow growing, healthy companies to expand.
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