Intelligence Hub Blog: Boosting Productivity
Key Challenges and Opportunities for Glasgow City Region and the UK and Scottish Governments
Productivity has become a focal point for the new UK Labour Government. Boosting fair, green economic growth is central to the priorities of the Scottish Government[1]. The UK Productivity Institute has warned that without significant improvements, GDP growth could drop below 1% over the next decade. This would exacerbate existing challenges in funding the NHS, public services, Net Zero initiatives, and technological advancements.[2] Glasgow City Region welcomes the new government’s focus on productivity.
Over the last five years, the Glasgow City Region Intelligence Hub has been building a comprehensive evidence base around key productivity challenges for the Region. This blog summarises the key lessons learned and outlines the interventions we believe are necessary to address these challenges.
Why Productivity Matters
A country’s standard of living is closely related to its productivity, which can be measured as output per worker. Or, more broadly, as the efficiency with which it converts resources (labour, capital, technologies) into inclusive growth. Productivity measures may differ across public, private, and not-for-profit sectors, yet the advantages for organisations are similar. Firms and organisations that enhance their productivity benefit not only themselves but also society at large. These benefits include:
- Resource Allocation – increased productivity frees up resources for further investment.
- Increased Competitiveness – more productive firms can better compete in the global market.
- Higher Wages – productivity growth is the most important determinant, in the long-run, of wage growth.
- Lower Prices – consumers benefit from lower prices and greater value creation.
For society, boosting productivity enhances the performance of regions, improves infrastructure, and elevates the quality of local services, among other benefits.
Glasgow City Region’s Aspirations and Challenges
Glasgow City Region (GCR) aims to become the UK’s most productive city region by 2030. However, several challenges must be addressed to realise this vision.
Economic Inactivity and Human Capital Loss
GCR has the highest share of residents economically inactive due to ill health of all UK’s Core City Regions and a significant number of residents with no qualifications. This results in businesses losing access to valuable human capital.
Lack of Businesses in Tradeable Sectors
GCR has the fourth lowest share of businesses in tradeable sectors (i.e. goods and services that can be consumed outside of the region in which they are produced) such as electronics manufacturing products, sensors and medicines, among UK Core City Regions. In GCR, businesses in tradeable sectors account for 22.6% of the business base, six percentage points lower than more productive city regions such as the West of England. Tradeable sectors typically drive productivity growth, and their absence results in lower wages and reduced demand for local services such as coffee shops, restaurants, and cinemas.
Productivity Gap Between Sectors
There is a significant productivity gap between tradeable and non-tradeable sectors in GCR, indicating a need for greater innovation and diffusion across the economy. The gap is 33.1% in the West of England, which is the top performing UK Core City Region, and 61.9% in GCR. This suggests that our Regional innovation infrastructure should focus equally on innovation diffusion and discovery.
Foundational Economy Challenges
Across the Region, more than 40% of GCR’s businesses and 60% of employment is in the Foundational Economy, including Retail, Social Care, and Hospitality. While these sectors are crucial for economic performance, they often lack resilience and investment.
GCR is focusing on improving jobs, wages, and the quality of products and services in the Foundational Economy. The new UK Government has expressed aspirations to challenge extractive business models in key foundational sectors (this refers to practices employed by companies that prioritise short-term profit maximisation, often at the expense of long-term sustainability and the wellbeing of local communities), which could significantly improve these sectors across the Region.
Opportunities for Improvement
To overcome these challenges, policy should focus on the following opportunities:
Business Environment
We are seeking new ways of attracting investment – whether it’s international investment strategies or finding new ways of better understanding opportunities in emerging sectors. Continuing support for regional innovation assets and infrastructure to support both innovation diffusion and discovery can close the productivity gap between sectors and attract further investment, growing our economy. The Regional Innovation Action Plan is focused on capturing this opportunity.
Health and Education
Investing in health and education to reduce economic inactivity due to ill health and improve qualifications can enhance human capital, driving productivity. Over the last two years, the Region has been taking a new approach to how it considers its skills and health issues. We have been developing new programmes designed to improve inclusive growth such as the Fair and Healthy Work Programme which focuses on developing interventions, in partnership with the private sector, to support workers to remain in work when ill. We are also working in partnership with the University of Glasgow as part of the HealthMod research programme to better understand how planned policies are likely to support health and reduce inequalities.
Strengthening the Foundational Economy
The Region has launched the Foundational Economy Programme aimed at enhancing resilience, fostering social innovation, and promoting fair work opportunities for local residents in the Foundational Economy. GCR would welcome national policies aiming to improve conditions in the Foundational Economy by enhancing job quality, wages, and service standards.
Addressing Institutional Fragmentation
Institutional fragmentation can hinder the implementation of effective pro-productivity policies. Devolving power and resources to regional and local governments can enable tailored strategies that directly address specific regional needs and challenges. Empowering regional authorities with greater autonomy and resources will support GCR in developing and delivering bespoke strategies that address its unique productivity challenges, with the added benefit of more efficient resource allocation based on local knowledge.
Conclusion
Productivity is vital for the economic health and growth of Glasgow City Region, Scotland and the UK as a whole. By addressing challenges such as economic inactivity, the lack of tradeable sector businesses, and the productivity gap between sectors, GCR can unlock its growth potential. Embracing opportunities in investment, health, education, the Foundational Economy, and innovation will be crucial in achieving the Region’s vision of becoming the UK’s most productive city region by 2030. Both Government’s focus on productivity offers a promising pathway for GCR to enhance its economic performance.
Find out more about the Intelligence Hub and read previous blogs.
[1] https://www.gov.scot/binaries/content/documents/govscot/publications/strategy-plan/2024/09/programme-government-2024-25-serving-scotland/documents/programme-government-2024-25-serving-scotland/programme-government-2024-25-serving-scotland/govscot%3Adocument/programme-government-2024-25-serving-scotland.pdf
[2] https://www.productivity.ac.uk/news/new-government-provides-chance-for-stability-and-investment-in-productivity/
