Complacency about productivity improvements is holding back UK businesses compared with most of their G7 counterparts, according to a business survey.
A poll of more than 4,000 G7 business leaders by the government-backed charity Be the Business revealed a stark gap between the confidence of small and medium-sized UK companies and their actual capabilities.
The G7 productive business index, to be released on Wednesday, showed that UK businesses lag behind their peers in all the biggest developed economies except Japan, due to a lack of investment and improvement in areas such as management and leadership, technology adoption and innovation.
The UK’s lagging productivity has been a source of concern for policymakers and business leaders for years. Output per hour worked in the first quarter of this year was just 0.6 per cent above its pre-pandemic 2019 average, according to the Office for National Statistics, maintaining the trend of shallow UK productivity growth that has prevailed since the financial crisis of 2008.
“Confidence can be a good thing — self-belief is powerful. However, an alternative way of putting it is that we [the UK] are good at complacency,” the report said, though it also praised the “talent, determination and sheer graft” of UK business leaders.
UK companies ranked bottom of the G7 on investment in training, development, HR systems and processes, and in implementing efficiency improvements. By contrast, equivalent businesses in the US, which topped the index overall, ranked highest for confidence, management and leadership and operational efficiency.
Some 42 per cent of US business leaders said they planned to increase investment in initiatives to measure staff and business performance in the next year, compared with 26 per cent in the UK.
Economists have previously blamed some of the UK productivity lag on poor management. Business leaders sometimes neglect areas as basic as regular performance appraisal and target-setting.
“So much of this is about behaviour change. How do you get business leaders and their managers and leadership teams to think about their business in terms of making continuous improvement?” said Anthony Impey, chief executive of Be the Business.
The charity was set up in response to a 2017 government review of the UK’s productivity challenge and works to encourage the dissemination of good practice.
The report also drew attention to a funding gap. Some 63 per cent of UK smaller business leaders said their companies were good at implementing new ideas quickly but only 38 per cent said they could access the funds to take those ideas to market, compared with 56 per cent of their US peers.
Impey believes medium-sized businesses, unlike start-ups or larger groups, are ill-served by current options for debt or equity funding. He said “capital for these businesses is difficult to get and comes with conditions and quite a lot of jeopardy attached to it”, such as onerous personal guarantees.
Be the Business estimated just a 1 per cent annual improvement in the productivity of smaller UK businesses over five years would add £94bn to the economy.
The group is pressing for “small but meaningful actions” by company leaders, such as devoting an hour a month to working on improvements, or taking more external advice. It is also pushing for more collaboration between small and large businesses, and better vision, support and action from the government.
The G7 index is based on interviews with more than 1,000 senior decision makers at UK businesses with between two and 249 employees, and 500 leaders in each of the other six countries. The sample of non-UK businesses was weighted to match the make-up of UK businesses and ensure a direct comparison.