UK productivity gap widens with main economic rivals

Gordon Brown's aim of closing the productivity gap with the UK's main economic rivals moved further out of reach last year, official figures showed yesterday.

The UK lagged the average of the six other members of the Group of Seven (G7) by 11 per cent in terms of GDP per worker, worse than 2004's 10 per cent.

The gap with the United States widened from 25 to 27 per cent -the widest margin since the peak of the high-tech boom in 2000.

The productivity gap with France was unchanged at 10 per cent, while the UK was still ahead of Germany and Japan, the figures from the Office for National Statistics showed.

However, measured as GDP-per-hour worked, French workers were 20 per cent more efficient and the Germans 13 per cent more than their British counterparts.

Workers on the continent tend to work shorter hours on average, making their resulting output appear more productive. In contrast, the gap with the US narrows to 17 per cent on hours worked because of the lengthy days Americans tend to put in.

The Treasury said that, since 1997, productivity in the UK had grown faster than at any time since the 1960s. "After decades being behind our competitors, Britain has caught up with Germany, has halved the gap with France, and is the only G7 economy to have kept pace with the US," a spokesman said.

Since 1997, the gap with France has fallen from 21 to 10 per cent. A deficit of 7 per cent with Germany has improved to a 3 per cent efficiency gain. "With low inflation, employment at record highs, growth more balanced and strong productivity growth, the underlying trends have been positive, and in 2006 the economy is strong and strengthening further," said the spokesman.

Research by the Institute for Fiscal Studies showed Labour's tax and benefit reforms had weakened work-related incentives. On average, tax and benefit changes since 1997 meant someone choosing to work harder keeps 2.5p less of each extra £1 they earn.