CIPD Voice: Issue 13

In last week’s Budget the Chancellor revealed that poor levels of productivity, according to forecasts from the Office for Budget Responsibility (OBR), would mean that the UK’s Gross Domestic Product (GDP) would grow by 5.7% over the next five years. This was down from the predicted 7.5% growth expected back in March.

He told the House of Commons:

“…regrettably our productivity performance continues to disappoint.

“The OBR has assumed at each of the last 16 fiscal events that productivity growth would return to its pre-crisis trend of about 2% a year, but it has remained stubbornly flat.

“So today they revise down the outlook for productivity growth, business investment, and GDP growth across the forecast period.”

The news about productivity yesterday, however, wasn’t entirely unexpected. This was because last month saw the OBR publish its October 2017 Forecast Evaluation Report. It compares its twice-yearly economic and financial forecasts against what happened and tries to find out why forecasts went awry. For such a technical report, it got a lot of media coverage, such as coverage in the Independent and on the BBC.

The reason for this level of coverage was that the report looked at our labour productivity growth and recognised it wasn’t just hiding behind the corner – it had gone missing. As the chart below shows, labour productivity – measured by output per hour – peaked just before the financial crisis, in 2007 Q4. It briefly exceeded that level in 2015 and 2016, but fell in the first two quarters of 2017.

The OBR expected productivity to fall during the recession (this usually happens), but they also expected it to bounce back towards its long-term average growth rate of 2% or so once the economy picked up. When this didn’t happen in 2012, they said it would happen in 2013; then in 2014; then in 2015.... As the OBR data shows, this faster rate of productivity growth was always just around the corner.

This phenomena been talked about for a few years as the productivity puzzle. Explanations are legion and there’s unlikely to be a single cause, and explanations based on what happened during the financial crisis are now looking increasingly unlikely. The OBR seemed at first to admit they have no easy explanation – productivity has slowed down throughout the G7, so the problem (and its causes) goes beyond the UK. But the OBR does hint at an explanation for the anaemic productivity growth of late. Business investment in the capital, necessary to improve worker productivity, was expected to grow in 2015 and 2016 but investment was much weaker than expected. The OBR also concede that they consistently under-estimated the strength of the UK labour market; the UK grew by working more, not by improving the productivity of the hours worked.

The consequence of lower productivity growth over the next few years will be lower future tax receipts and so less financial leeway at a time when there may be bills to pay (although of course politically ambitious expenditure promises will require more tax rises to fund them). This apparently technical correction will narrow the choices available to politicians, possibly for years.

So can government action raise productivity? To an extent, yes, especially by well-targeted investments in infrastructure, research, skills and management (see the article on People Skills). But, two years ago, the then-Chancellor launched a government productivity plan. Admittedly we didn't think much of it, and it’s a little unfair to judge it by short-run results, but productivity is now lower than when it was published.

Mark Beatson, Chief Economist

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As the new minister for immigration, one of the first tasks for MP Caroline Nokes is to publish the Home Office’s long-awaited White Paper on a post-Brexit immigration system. Despite a running delay on publication to date, Home Office officials have been working to engage and seek the views of business and trade bodies. As part of this exercise, the CIPD has recently been invited to sit on the Home Office’s primary employer forum of some fifteen organisations that will feed in research and insights, and act as a sounding board to ministers and civil servants as they construct a future immigration policy.

The forum will play an important role alongside the evidence collected in the White Paper and the ongoing work that the Migration Advisory Committee (MAC) is undertaking. The first session of the forum will take place on 19 January.

Being on the forum provides the CIPD with an excellent opportunity to showcase the research we have conducted on what employers want from a post-Brexit immigration system. During the first half of 2017, the CIPD undertook a large project with the National Institute of Economic and Social Research (NIESR) to gauge employer views. It consisted of a survey of 1000 employers, six roundtables up and down the country (including London, Cardiff and Glasgow) as well as 26 in-depth case study interviews. Our report, published in June 2017, provided an important wealth of data and workable recommendations that attracted interest not only from the Home Office but also HM Treasury, the Department for Business, Energy & Industrial Strategy and Department for Work & Pensions.

Engagement with MPs and Select Committees

Apart from informing government thinking, the CIPD is also actively seeking to influence debate within Parliament. In November, Ben Willmott, Gerwyn Davies and Paddy Smith from the Public Policy team, met with Yvette Cooper, the Home Affairs Select Committee Chair, to discuss our research. Over the course of the year, the team had also met with Hilary Benn, Chair of the Exiting the EU Select Committee, Kate Green, Chair of the APPG on Migration, and Stuart McDonald, Immigration Spokesperson for the SNP to share the insights from our members.

Elevating the voice of the profession

As our invitation to the Home Office forum shows, the CIPD has been seen as an authoritative voice in the post-Brexit immigration debate. Our membership and the HR profession as a whole are at the coal face of organisations with respect to recruitment and people management issues, and it is their views and experiences that we have drawn on to provide our insight and expertise. We will continue to canvass employer views to surface new data for the immigration debate as part of our next quarterly Labour Market Outlook, which is due out in February.

Partnering the profession

As we continue to gather insight and input into future immigration policy, the CIPD is also working to support its members. Recognising the large number of organisations with EU nationals in their workforce, we have collaborated with Fragomen LLP to create a practical guide to help HR and employers manage and support their migrant workforce through Brexit.

While the ongoing Brexit negotiations mean the results are still far from certain, the level of access to EU skills and labour the UK has enjoyed is likely to be impacted, and employers cannot afford to simply ‘wait and see’ in a competitive context before making plans for the future. Workforce planning therefore, has risen to top the priorities and in the coming months we will be publishing more practical guidance, available from our Brexit Hub, that will support our members through this process.

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