Never mind benefits, the problem is UK productivity –

7 months ago Comments Off on Never mind benefits, the problem is UK productivity –

To head off trouble, and keep anti-EU headlines to a minimum, the Government held its collective nose and took the highly unusual (and politically rather demeaning) step of accepting, effectively uncontested, two Labour amendments to the finance bill implementing Osborne’s flagship budget-day measures.

Duncan Smith’s resignation, I would say, was partly about his long-term frustration with Osborne’s Treasury, this time manifest in changes to disability benefit that went further than he envisaged, but partly about his long-term backing for Brexit. Rid of government responsibility, he is now free to campaign even more passionately for the UK to quit the EU.

The Government’s “hands up, we’re the good guys” response to Duncan Smith’s departure, abandoning not just the PIP changes but any pretence of fiscal discipline, was entirely about the upcoming EU vote.  The Tories, in the run-up to June 23, are desperate to be loved, or at least not despised. Expect increasingly bizarre behaviour over the coming weeks, with Cameron cosying up to the Lib Dems, and Osborne wooing Labour.

We are in for a close Yes-No referendum, which could easily go to the wire. With another migrant crisis looming and continued fall-out from last week’s terrorist atrocities in Brussels, the Government needs all the support for Remain it can muster, and cares not where it comes from.  

While this will be remembered as a pre-referendum budget, it may also be seen in retrospect as the budget when the UK’s “productivity problem” really came to the fore. While Osborne did not mention productivity much, the concept was at the heart of detailed analysis conducted by the OBR’s independent analysis.  UK productivity, broadly defined as value generated per hour worked, has plunged recently.

Between 1994 and the start of 2008, productivity grew by 1.9pc a year, driving up real wages and broader economic growth. Since the financial crisis, however, the OBR calculates productivity is up just 0.1pc per annum, with a sharp deterioration over the past six months.  

Our weak productivity performance hits incomes and profits, undermining consumer spending and investment,  and translating into lower growth and tax receipts. Poor productivity growth explains the OBR’s heavy down-grading of the UK’s growth forecasts, rather than “turbulence from abroad”, a blame-shifting phrase Osborne now uses frequently, as did his predecessor Gordon Brown. Poor productivity growth explains the unravelling of the Chancellor’s forecasts.  

Never mind benefits, the problem is UK productivity –