Rewire state to unlock productivity across the country
- UK government needs a fundamental overhaul if it is to achieve its ambitions to revive productivity and strengthen growth, new report advises
- Strong prime ministerial leadership and a unified delivery unit are essential to implement a coherent, long-term productivity agenda and turn plans into tangible outcomes.
- Public investment needs to support regional funding with greater devolution and planning capacity.
- Calls come from a new report launched by the National Institute of Economic and Social Research and The Productivity Institute.
One year into the Labour government, the UK needs to translate its plans for long-term economic growth into a clear set of priorities in order to boost productivity in the course of this Parliament, according to a major new productivity report. Long-term investments in transport and energy are expected to yield results in five to 10 years, while frontloaded spending on defence, skills, and housing can provide quicker gains.
Success will depend on a fundamental “rewiring” of central and local government. Strong prime ministerial leadership and a unified delivery unit are essential to implement a coherent, long-term productivity agenda and turn plans into tangible outcomes. In addition, public investment needs to be aligned with regional funding and augmented by greater devolution and planning capacity.
The call comes as The Productivity Institute and the National Institute of Economic and Social Research launch 14 essays from experts bundled in the Joining Up Pro-Productivity Policies in the UK report.
The study identifies a wide range of concrete actions the government can now undertake, many of which require coordination across pro-productivity policies. For example:
- Skills funding needs to be aligned with industrial strategy, prioritising vocational and technical training through retraining programmes and flexible learning supported by the Growth and Skills Levy.
- Trade and foreign direct investment (FDI) should link to local skills and innovation.
- Infrastructure, housing and transport must support regional growth, with policies encouraging road building, affordable urban transport (trams) and high density building in urban areas.
- To improve productivity, the UK should support digital transformation of the public sector, ensuring universal access to digital services and mandating digital readiness for all policies.
However, the study argues that fragmented decision‑making, short‑term budgeting and an “over‑centralised yet under‑co‑ordinated” Whitehall machine are blocking the very productivity gains on which the Government’s economic strategy relies.
A rewiring of the state is needed, it argues. This would involve creating a Prime Minister’s Department, a statutory Growth & Productivity Commission and a single cross‑government delivery unit to give No 10 the levers – and the accountability – to drive a coherent, long‑term productivity agenda.
The report also recommends decisions that prioritise long-term stability. This should consist of anchoring fiscal and industrial policy in a single annual Budget, multi‑year investment rules and place‑based industrial plans so that businesses can invest with confidence and regions can plan beyond electoral cycles.
Elsewhere, it calls for handing mayors and Mayoral Combined Authorities wider tax‑raising and spending powers while tying them to shared national missions in skills, R&D and public‑service reform, ensuring the right blend of local initiative and central focus is struck.
Britain has now experienced about 15 years of poor productivity when compared to its past performance and that of similar sized economies. Average annual growth in labour productivity, measured by Gross Value Added per hour was around 2% in the decade before the financial crisis but has averaged less than 0.5% since.
The paper notes that addressing the UK’s productivity crisis is urgent if the country is to see sustainable increases in living standards aligned to the Labour government’s priorities.
Bart van Ark, Managing Director of The Productivity Institute and a professor of productivity studies at Alliance Manchester Business School, said: “Twelve months on, the Government’s ambitions on growth and productivity are becoming visible in its-long term strategies on industry, clean energy and regional renewal, but the wiring behind the dashboard is defective. Unless we re‑engineer how the UK takes decisions and invests for the long term, the growth engine will fire on too few cylinders and disappoint in terms of results.
“To drive productivity, we must deliver smart, targeted public investment that fuels business growth, supports healthier lives, and equips people with skills for high-quality jobs. We also need to align transport, housing, skills, and digital policies into a unified strategy. Most importantly, we must break down fragmented decision-making across government, with strong leadership and a dedicated delivery unit to turn ambition into action.”
Professor Adrian Pabst, Deputy Director at NIESR and co‑editor of the report, said: “The evidence shows that productivity rises fastest when strong national leadership is paired with empowered local institutions. The UK currently has too little of both. A disciplined yet devolved state is the missing ingredient in the UK’s growth recipe.
“Productivity policy stalls when the centre hoards power yet lacks the bandwidth to join things up. The priority now is to fuse No. 10 and the Cabinet Office into a Prime Minister’s Department and give it one cross‑government delivery unit, while simultaneously granting mayoral authorities wider tax‑raising and spending freedoms. That disciplined blend of stronger central leadership and deeper devolution would cut the churn, align local public‑service budgets and release the long‑term investment our regions need.”
Joining Up Pro-Productivity Policies in the UK is a major, 200-page policy agenda that brings together insights from leading academics and practitioners covering fiscal frameworks, state capability, skills, innovation, trade, infrastructure and public‑service productivity. It has been edited by Bart van Ark, Stephen Millard, Adrian Pabst and Andy Westwood and features contributions from Diane Coyle, Tera Allas, Anton Muscatelli and other leading academics and thought leaders.
The Productivity Institute is an ESRC funded nation-wide research organisation headquartered at Alliance Manchester Business School. Its mission is to lay the foundations for sustained and inclusive productivity growth across the UK.
The National Institute of Economic and Social Research is Britain’s longest established independent research institute with a mission to carry out research into the economic and social forces that affect people’s lives, to improve the understanding of these forces, and the ways in which policy can bring about change.
