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CARMICHAEL Neil

Neil Carmichael is a member of the Education Select Committee and MP for Stroud

2014 has got off to a good start with further confirmation of economic growth from several quarters. This backdrop has allowed two interesting debates to develop. One is about the sustainability of the recovery with commentators noting, correctly, the many remaining and significant risks to the UK economy.  The other debate is a more political one revolving around the question of who is going to benefit from increasing prosperity.

These two issues are linked together because, at the heart of the debate about the economy, is the persistent and worrying problem of restricted social mobility with the related consequence of sluggish growth in productivity. Recently, the productivity gap between the UK and Germany actually widened to a staggering 29 per cent, putting the UK at a disadvantage as Germany confronts its own particularly acute problem of a falling birth rate. In short, the UK is squandering its resource of people in contrast to Germany’s (and, to some extent, other competitors) gradually diminishing pool of labour.

Productivity levels are determined by a range of factors but the quality and range of skills available to employers and the capacity of new and existing entrepreneurs are all potentially decisive. The arguments about immigration represent the pressures of having a growing economy with an insufficient range of skills being available and, therefore, underlining the need to develop the UK’s labour market.

The economic growth currently underway is creating many new jobs, with over 1.4 million being created in the private sector since 2010. This is a huge achievement – but is not in line with productivity as recognised, for example, by the Bank of England.

The Coalition Government is relentlessly pursuing policies to address this shortcoming through reforming schools – especially teaching; recalibrating universities in terms of funding and recruitment, and, crucially, providing additional support for early years. These and other measures not only seek to address the skills shortage but also social mobility, a point made frequently by the Secretary of State for Education, Michael Gove.

The positive link between productivity and wages is well recognised but with other economic drivers also at work, including inflationary pressures, it is always tempting to play safe, sometimes, too safe. However, as the Economic Secretary to the Treasury, Nicky Morgan, acknowledged during a Parliamentary oral answer to this author’s question about wage trends, through quoting the Office for Responsibility; “Productivity growth is the only sustainable source of  real income growth in the long term” – and went on to link this with the supply of skills.

Bringing these points together, now we have economic growth and, with watchful eye on inflation (all wage increases must be “real”), the benefits of being properly skilled should be encouraged through the expectation of higher wages and social advancement. This is the cornerstone of being able to deliver a fairer share of the fruits of economic growth for the upwardly mobile and, most importantly, the many people not yet fulfilling their potential.

14 comments for: Neil Carmichael MP: Sluggish productivity growth – and the challenge it poses

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