Several events that happened over the last couple of weeks resulted in me having clarity about why productivity in the UK is low compared to other developed countries and has been for many years. There are lots of different ways of measuring productivity, we do badly under all those measures. A great source of information is the OECD.stat website.
The events were a Challenge Poverty Week event in Newquay, a visit to a tyre specialist garage to get a puncture repaired and standing in a queue to have my Covid booster injection. My view on why productivity in the UK is poor – low aspirations. My interpretation of low aspirations is probably not what you are thinking. I mean we aspire to pay low wages and pay low taxes. I believe we need to change that mindset.
The Challenge Poverty Week event was about the desire to make Cornwall the first Real Living Wage County. Patrick Langmaid, owner of the successful Mother Ivey’s Bay Holiday Park, spoke eloquently about the benefits of paying the Real Living Wage. He pointed out that staff appear in the business’s accounts in the profit and loss account as an expense and as he learnt when he studied for his Master of Business Administration (MBA) qualification, costs should be minimised. And that is what he did for many years keeping his wage costs low by paying the Government’s National Minimum wage or the National Living Wage if the employee was over 23. He started paying more as an act of altruism and was surprised by the effect it had on business; staff were more engaged, customers received a better service, repeat business increased. Yes, wage costs went up but so did sales and staff sickness and staff turnover went down saving on costs. At the moment in Cornwall many hospitality businesses are struggling to get staff, Mother Ivey’s Bay Holiday Park isn’t. Patrick is a great advocate for the Real Living Wage.
The message I took away from that is invest in staff and business does well. Some companies recognise that equation in some roles arguing that they have to pay senior staff big salaries to attract the best talent. Often that thinking does not apply to the rest of the workforce. When I went into the garage to get my tyre repaired, I was impressed with the young woman on the reception. I immediately felt like a valued customer, she knew what was needed and the company’s processes. She was also a great communicator and seemed to enjoy a job that she did extremely well. She was a great asset for the company, I wondered if the company knew that. It is worth repeating don’t apply the same thinking to staff costs as you do other costs, paying more in this area can mean paying a lot less in others.
The final event, standing in the queue for my Covid booster injection, made me think about taxation. We have a government that believes in low taxation and a working population which appears to be obsessed with paying as little tax as possible. When I was a Chartered Accountant, I came across many businesses that spent a lot of time trying to avoid tax, had they spent that time working on the business they would have had improved income, would have paid more tax and had more net income. Why was I thinking about taxation, well what was paying for my injection, the nurse administering it and the rest of the infrastructure – taxes. The person in front of me in the queue made me think deeper. He was finding it painful to stand in the queue so I told him to go and sit down and I would call him over when I reached the front of the queue. He had problems with his knees and was waiting for knee replacement surgery, he could not work until that was done so was on benefits. Once that operation was done, he would go from a user of resources to a producer. Investing in reducing NHS waiting list by increasing taxation would reduce costs, in the same was as investing in staff does. Taxation pays for education – creating employees with the requisite skills and knowledge. Taxation pays for roads and other transport infrastructure – that enables businesses to get their goods to customers and allows employees to get to work. Sitting in a traffic jam or on a delayed train services benefits no one and certainly does not benefit the economy. Improved infrastructure equals improved productivity.
Then think about the combination of low wages and an under-funded health service on business. A report in 2019 from the think tank Tomorrow’s Company states, “We are facing a crisis of the working poor, as British workers experience extreme financial insecurity and associated mental health issues. It is a crisis that is undermining family stability and impacting the productivity and performance of British industry.” Low wages increase mental health issues and underfunding means poor provision of mental health services meaning more staff absences for longer times having a negative impact on productivity at a company and a wider economy level.
So get rid of low aspirations. Paying staff more can lead to higher profits and higher tax revenues a virtuous circle.
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