Business leaders call for ‘Productivity Allowance’ to drag the UK out of lost decade

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Business leaders have urged the Government to introduce a new ‘Productivity Allowance’ to help drag the UK out of a ‘lost decade’ of economic performance.

The suggestion, which takes the form of a new tax allowance for productivity-raising technologies and support, features in a new report from the Institute of Directors, Lifting the Long Tail: The productivity challenge through the eyes of small businesses.

The IoD puts forward a range of other measures predominantly aimed at SMEs, including developing a more formalised national business support framework, expanding the Apprenticeship Levy into a wider training Levy, and improving the transfer of knowledge between academia and businesses.

The proposals are described in a foreword by Andrew Haldane, Chief Economist at the Bank of England, as “useful food for thought for government, as it begins to put in place the next stages of its important and ambitious Industrial Strategy.”

Tej Parikh, author of the report & Senior Economist at the Institute of Directors, said: “Solving the productivity puzzle has been a defining challenge for the UK over the past decade. The success of our post-Brexit economy hinges on our ability to unlock the vast untapped potential among UK small businesses.

“For too long, the debate has revolved around broad prescriptions and sweeping trends, but there is no silver bullet. We must now move the discussion out of the ivory tower and onto the office floor if we are to solve the productivity puzzle.

“To lift itself, the long tail will first need to twitch into action. This means shifting mind-sets and a series of small steps. Directors of smaller firms need the support and encouragement to spend more time working ‘on’ and not just ‘in’ their organisation, and to confidently adopt new management techniques and technology. We also need to retool our currently patchy national architecture for business advice, and there is no time to waste.

“As our leading innovators push the economic frontier, we must ensure new ideas, practices and technologies are diffused throughout the business community. The Government is right to make closing the gap between our high performers and lagging firms a focal point of its Industrial Strategy. But delivery could not come sooner, otherwise anaemic wages and subdued economic growth will continue to anchor an economy that should have the wind in its sails.”

Commenting on the report, Tony Danker, CEO of Be the Business, said: “We know that raising business productivity is one of the UK’s most pressing economic challenges. As automation continues to transform industry, it’s crucial that we find new and innovative ways to support businesses, large and small, to build management capability, adopt new technologies and spread knowledge across the economy.

“The IoD are right to focus on what can be done at the firm-level, and their proposals offer a new and timely view on how to improve business performance and, in turn, productivity.”