Understanding the slowdown and unlocking £8,600 in lost income

Between 1945-2007, productivity, defined as output per hour worked, increased steadily in the UK and other advanced economies thanks to the adoption of new technologies (e.g., nuclear power, jet engines) and process innovations (e.g., just-in-time supply chains). Living standards rose, and there was a general expectation that each new generation would be better off than the last.

However, the Global Financial Crisis (GFC) interrupted the rise in productivity, and since then, progress in the UK and other countries has been halting. As a result, living standards have stagnated, and people have been more vulnerable to shocks such as Covid-19 or the cost of living crisis. It has also led to greater pessimism about the future and a more fractious society.

Understanding what drives a country’s productivity is perhaps the ultimate puzzle for policymakers. And in publishing this report, we aren’t under any illusion that we have all the answers to solve these serious questions. The determinants of a prosperous society stretch right to the root of what is provided as basic human rights, principally healthcare, education, and shelter. We would only trivialize the importance of these systems by trying to address them.

Instead, we want to focus on one of the ‘genesis blocks’ of economic output – space. How society’s use of land influences productivity and whether we are using available space optimally are two vastly overlooked issues that have an enduring effect on living standards. They dictate our headroom for growth. And they beg the question: how could we better allocate resources to elevate productivity, from homes in the right places to thriving cities, space for high-value work, and the infrastructure that will support the transition to a Net Zero future?

But if we want to achieve greater economic efficiency, advance living standards, and live in a more cohesive society, then there must be a better comprehension of the ceiling on productivity, and to what degree this is self-imposed. We face some fundamental questions before we consider how best to restart the UK’s spluttering productivity engine.

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