We must look to R&D to help solve the productivity problem

We must ensure that we are a destination of choice for the best minds in the world. We must be the home of talent and not shut our front door to it. That talent brings with it large investment cheques, which will help our universities and colleges to develop cutting-edge techniques and hone their research.

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R&D - Producitivity is key to Britain's future
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James Bird
On 12 June 2019 10:04

Brexit or no Brexit, the next Conservative Party leader needs to get business back on side and solve the UK’s startling productivity problem which is hampering our ability to compete in the global economic race.

To the dismay of the doom-mongers and the “despite Brexit” brigade, the economic indicators are pretty strong; high employment, continued growth and the lowest proportion of low paid workers since the 1980’s. Compare this to our some of our European neighbours and their sclerotic economies. Do they really have no interest in doing a deal with their successful neighbour? I think not. However, we still have a big problem.

According to the ONS it has taken a decade to deliver as much productivity growth as was previously achievable in a single year before the financial crisis. This affects wages, profit margins, costs, competitiveness and ultimately economic growth. It is quite simply the biggest drag on the UK economy and our living standards, and it must be addressed.

One such address must be research and development, where innovation can result in advances in our economy, social well-being, health and productivity. Yet the UK invests a lower percentage of GDP in R&D than most of its EU competitors – 1.7% compared to nearly 3% in Germany and 2.2% in France.

Many of our competitors have also launched specific strategies targeted at boosting their innovation performance, including increasing their R&D investment. Our industrial strategy must be just as ambitious – if not more so. To be fair, the Government has committed to reaching a target of 2.4% of GDP on R&D by 2027. Yet whilst it has committed to spending more on R&D, the bulk of any increase will come from business and higher education which account for 90% of spend. Our EU competitor governments have no such scruple.

They back business and universities with their own initiatives to maximise productivity. We need to show the same decisiveness and ambition in policy, as well as certainty on Brexit to drive greater innovation and investment.

The rewards of R&D are there to be seen, look at the construction sector. Historically the industry was slow to adopt new methods. Yet its preparedness to embrace technological advance has driven major productivity change.

The development of factories to build modular housing, which not only speeds up the delivery of housing but has less of a reliance on labour, will have a major impact on the solution to the housing crisis. At the same time, the burgeoning Proptech platform sees the UK lead the way in the development of an array of software and app solutions which increase efficiency during the planning stages of proposals.

Firms that consistently invest in R&D are 13% more productive than firms that don’t invest in R&D. We need to incentivise them with further tax incentives and reliefs. We work hard to help SMEs with reliefs, though the hoops they have to jump through with proofs of concept and the uncertainty about any final reward can be cumbersome. But SMEs have less than 500 employees.

The big firms in the construction sector have much bigger work forces. They too must be incentivised, and not just by reducing Corporation Tax which is only levied on profits. We need to encourage them to invest in non-profit making tools and techniques which may be costly to begin with but will have long term gains.

The second front on which to win the battle of productivity lies in the further and higher education sectors. R&D also needs a strong educational and scientific base to build on. Our breadth of gold standard universities is the envy of the world and the basis for many foreign investment decisions. Brexit must not restrict entry for students as we develop a new approach to control our borders.

We must ensure that we are a destination of choice for the best minds in the world. We must be the home of talent and not shut our front door to it. That talent brings with it large investment cheques, which will help our universities and colleges to develop cutting-edge techniques and hone their research.

So, the sooner we commit to a long-term migration plan that provides stability for universities the better. They will in turn continue to invest in research, and industry must join them in the search for ideas, tools and talent. The next leader – and, as importantly, their new Chancellor, will need to show both business and higher education that they are alive to the challenge and ready for it.

Whether we are Ready for Raab, Backing Boris, Going for Gove, or supporting any of the other runners in this very big field, we need to tell them that closing the productivity gap is key to our long-term economic success beyond Brexit, and the Conservative Party's long-term political survival.

James Bird was a Parliamentary Candidate at the 2015 & 2017 General Election and a former councillor for Birmingham City Council. He is currently a Director at BECG. Twitter @james_bird_

 

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