Chancellor seeks to tackle Britain's productivity gap

THE CHANCELLOR of the Exchequer yesterday hinted that his next Budget could include fresh incentives to encourage more investment by industry after a damning report showing that British productivity lags that of the US by 40 per cent.

Launching an initiative to tackle the productivity gap at a Downing Street seminar, Gordon Brown indicated that incentives for capital investment, skills development programmes and increased support for entrepreneurs were all on the agenda.

Treasury and Department of Trade and Industry officials later said that a range of measures to build on the corporate tax reforms set out in the last Budget were under examination.

The initiative follows a report to the Government from the US management consultants McKinsey showing that as well as lagging far behind American productivity standards, Britain was also at least 20 per cent behind Germany.

The report identifies Britain's inferior level of capital investment as one of the causes of its poor record on labour productivity against competitor nations, including even the French, where industry is saddled with high social costs of employment.

Mr Brown and his officials strongly contested suggestions that introducing a national minimum wage would hamper the drive to improve competitiveness, pointing out that the US had had a minimum wage for many years.

But one of the authors of the report, Bill Lewis of the McKinsey Global Institute, pointed out that the US minimum wage was set at about half the level of those in Germany and France and affected few employers because wages had risen so strongly.

The McKinsey analysis shows that in some sectors, such as the car industry, the UK's labour productivity is half that of the Japanese and 20 per cent below the US. In the service sector, the productivity of the UK's hotel industry is half that of the US while in telecoms the gap is 45 per cent.

The seminar was attended by 20 leading UK businessmen, including Lord Simpson, managing director of GEC, John Browne, chief executive of BP, Sir Ian Prosser, chairman of Bass, and Terry Leahy, chief executive of Tesco. Mr Brown told them that to achieve the higher productivity on which growth, employment and living standards depended would require "a new national economic purpose".

Margaret Beckett, President of the Board of Trade, who co-hosted the seminar, said that the McKinsey study echoed the findings of her own competitiveness unit and pledged that the Government would have a role to play in encouraging investment and training and improving competition policy.

A series of 10 further seminars will take place around the country this year, covering sectors such as manufacturing, food retailing and software, while the Government intends to publish a competitiveness White Paper in the autumn.

According to McKinsey, the labour productivity gap with France and Germany is partly explained by the fact that these two countries have fewer people in employment working fewer hours.

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