The government’s long-awaited productivity plan: why it raises more questions for employers

So at last we know the government’s take on the so-called ‘productivity puzzle’ of a growing economy and stagnant productivity. Even more critically, we know what it proposes to do to tackle it.

The new ‘productivity plan’ is no five-year Stalinist economic plan, pinpointing the number of tractors to be produced by 2020 in Scunthorpe. Instead, it outlines a range of (mostly existing) government policies that align with key productivity driver and highlights 15 areas for action.

This includes a modern transport system, planning freedom and more houses to buy, resurgent cities and a trading nation open to international investment.   

After reading the plan’s 82 pages, what strikes you is the government’s limitation in tackling productivity. The most revealing aspect is a throwaway comment in George Osborne’s introduction that confidently states that “the drivers of productivity are well understood“. 

While the drivers are commonly agreed upon, successive studies show that it’s the way these drivers interact that have the impact, and that different circumstances require different interactions. This plan makes no reference to this, which is understandable on one level, as it’s a complex issue.

However, the plan’s proposals are like throwing all the right ingredients into a bowl and expecting to make a cake. It needs someone to mix and prepare the ingredients; and that’s where employers come in.

The plan announces that Sir Charlie Mayfield, chairman of the John Lewis Partnership, will lead a business-led action group to identify practical, direct action to enhance productivity in different sectors. This will report by the end of the year, so we’ll have to wait and see to what extent this addresses the plan’s fundamental weakness.

The actions around one of the areas – ‘a highly skilled workforce, with employers in the driving seat’ underline its limitations. In so many ways, it’s reminiscent of ‘The Learning Age’, the Labour government’s first skills strategy in 1998.

It’s highly utopian – “faced with a growing global competition the UK workforce needs to raise their skills base and so more people need to undertake higher level qualifications”. The fact that this strategy largely failed before doesn’t seem to have prevented the current government from adopting the same approach.

Many people in front-facing, operational roles in the hospitality and retail industries have higher level qualifications. But, as we see time and time again, that doesn’t mean that their qualifications are relevant to what they are doing, that they have the skills to do the job or that businesses are maximising their skills to make them more productive.

Similarly, just because more employers have more money as a result of a ‘more competitive tax system’ it doesn’t mean that they will use it to invest in long-term infrastructure as the government intends.

The plan also includes actions that are unlikely to raise productivity. This includes getting more long-term jobseekers into work - yet France, with its high unemployment and restrictive labour market laws, has higher productivity than the UK.

This is largely because businesses are reticent to recruit staff, as it’s difficult to get rid of them. As a consequence, they are forced to maximise the use of their existing staff. Growth can happen on the back of greater employment but, in reality, productivity is unlikely to increase without unemployment rising – something which is not mentioned in the plan.

So, what does this mean for businesses in our industries?

The plan aims to create the conditions for businesses to think and invest more in the long-term - but the choice to do so, and therefore whether or not productivity will increase, still rests with individual businesses and whether they choose to think differently about how they optimise their staff.

As People 1^st has outlined in its recent Skills and Productivity Problem report, there is a strong case for hospitality businesses to think differently – a productivity increase of just one percent would mean an extra £1.43 billion for the economy.  However, the government’s plan alone is unlikely have a significant impact on encouraging a more long-term approach.

We now await the work of Sir Charlie Mayfield and his team of employers to see how they believe businesses should react.

The National Living Wage – what does it mean for hospitality and retail?

The government’s introduction of a National Living Wage is likely to have significant implications for the way hospitality and retail businesses recruit and retain their staff

The announcement on Wednesday came as a surprise, perhaps because few expected a Conservative government to interfere in the labour market. But, in reality, their focus on work rather than welfare is consistent with their policies over the last five years, whilst in coalition.

Despite the severity of the economic turndown in 2008, UK unemployment has bounced back much more quickly than in other EU countries. One of the reasons for this has been that many of these newly-created jobs have been in low-paid sectors like hospitality, retail, care and cleaning.

As a result there has been an increase in so-called ‘in-work poverty,’ with more people receiving tax credits in employment than those unemployed. The large proportion of these jobs has also been seen as an underlying factor in the UK’s stagnant productivity levels.

The phased introduction of a £9-per-hour wage by 2020, whilst falling short of a true living wage, is still a significant step up from the average hourly pay for many operational jobs roles in hospitality and retail. For example: chefs (£8.62); waiting staff (£6.75); bar staff (£6.74); retail assistants (£7.91) and cashiers (£7.68).

So what might hospitality and retail businesses do as a response?

There are two likely scenarios when it comes to people management. Some businesses are likely to place even more emphasis on a young workforce (aged 16-24), as they will be exempt from the new National Living Wage. Already, 34% of the hospitality industry’s workforce is aged 16-24.

The first problem with this approach is that the UK’s ageing population means it will gradually become harder to recruit. The second is that by recruiting students in such large numbers they are, by their very nature, largely transient. This has a negative impact on staff retention making it difficult to develop a skilled workforce. Ultimately, performance suffers.

The other approach is an increased focus on engaging and retaining staff. Businesses will want to ensure they are getting greater returns from their staff.

This means seeing bigger productivity increases, which can only come about by having a stable, engaged and skilled workforce, whose skills are used much more effectively. This is likely to sit alongside a greater use of technology.

For many businesses, this means a different HR approach to dealing with high levels of labour turnover, and the constant recruitment that has become the norm for many hospitality and retail businesses. However, as research from the likes of MIT in the United States shows, the benefits for those businesses that have adopted this approach speak for themselves.

Whichever way businesses choose to deal with the National Living Wage, we’re likely to see greater polarisation in the way they recruit, retain and develop their staff on the back of this announcement. Hopefully more employers will be persuaded to see the returns of a more stable, productive workforce.