UK’s Low Productivity problem – employee ownership a solution?

A common theme of economic commentators recently is the persistent problem of low UK productivity.

The Office for Budget Responsibility (OBR), which acts as the UK Government’s independent economic forecaster, stated in October 2017 that its estimates will have to be reduced “significantly” as a measure of the productivity of UK workers. The OBR explained that, productivity having grown by an average of 2.1% a year over the three and a half decades prior to the financial crisis in 2008-2009, it has now been virtually flat since 2011.

The OBR had expected productivity to return to more usual levels pre-crisis levels by this stage, but weak performance has persisted far longer than anticipated.

As he indicated in his Budget Speech on 22 November 2017, the Chancellor of the Exchequer is acutely aware of the issue and is trying to identify solutions. As HM Treasury has commented, improving productivity benefits the whole of the UK economy. It enables workers to produce more for the same number of hours worked. This in turn raises profits for companies and benefits households, as firms can pay higher wages and offer goods and services at lower prices.

In this context, it is instructive to note that independent research in recent years has found that employee-owned businesses consistently achieve higher productivity, as well as greater levels of innovation. They also have more engaged, more fulfilled and less stressed workforces.

According to the latest figures published by the Employee Ownership Association (EOA), value added per employee, which is a measure of productivity, increased by 6.2% year-on-year in the top 50 employee-owned businesses, which is twice the rate of growth of productivity in the UK economy as a whole. For information, the combined revenue of the top 50 employee-owned companies is £22.7 billion, and the combined workforce is 176,000, which represents 0.8% of the private sector workforce in the UK.

The three largest of the top 50 employee-owned businesses are retail chain John Lewis and consultants Mott MacDonald and Arup.

Employee ownership of businesses continues to enjoy support broadly across the UK political parties. The most significant development recently was the introduction of tax incentives in Finance Act 2014 for businesses transitioning to ownership by an employee-owned trust (EOT). Businesses are gradually making use of these incentives, but progress remains slow and awareness of the opportunities which are available remains at a surprisingly low level both among shareholders and professional advisers.

Perhaps the renewed expression of concern about low productivity levels might cause more businesses to look at employee ownership as a way forward.

If you or your clients would like to discuss the possibilities which are available, we would be very pleased to assist.