31 May 2019
News

Planning to solve the Productivity Puzzle, by Martyn Jenkins

The UK’s productivity puzzle is a concept which has garnered much political and media attention over the last few years, undergoing something of a resurgence in public policy and debate.
In this blog we tackle the key issues around the concept: what we mean by the UK’s productivity puzzle, why it matters, and crucially how planning can play a role in helping to solve it.


What is the UK’s productivity puzzle?

Put simply, it is the observation that UK productivity (as measured by output per hour) has fallen well below its pre-crisis trend, despite strong labour market conditions and solid economic growth.

The weak performance (backed up by the most recent statistics which illustrate that UK productivity fell by 0.1% in the final months of 2019), mean that productivity growth has broadly flat lined since the recession, and as graph 1 illustrates its current level is around 22% below its pre-crisis trend. This has resulted in a “lost decade” of productivity growth.

Furthermore, the fall in productivity during the most recent recession (2008-2009) has been larger than in other post war recessions, and the recovery more protracted, illustrating that this has become a persistent, longstanding problem compared to historical performance. This is illustrated in graph 2.

Graph 1 – UK productivity has flat-lined since crisis

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Graph 2 – Recovery in productivity has been more protracted

And if that wasn’t enough, the UK’s productivity also significantly lags behind its main trading partners – such as the US, France and Germany.

Graph 3 – The UK’s productivity lags behind main trading partners

But what’s the big deal?

The concern behind this is that productivity – defined simply as the amount of work produced per working hour – is widely acknowledged as the main driver of long-term economic growth and prosperity in an economy. A sentiment echoed by distinguished Economist, Paul Krugman:

“Productivity isn’t everything, but in the long run it is almost everything”

Paul Krugman, Economist

 

As such it has become a core target in government economic policy over the last year, underpinning the government’s Industrial Strategy which has the overall aim of boosting productivity.

Unsurprisingly this renewed focus has found its way into planning policy with the revised NPPF explicitly referring to how planning can boost growth and productivity.

 

“Planning policies and decisions should help create the conditions in which businesses can invest, expand and adapt. Significant weight should be placed on the need to support economic growth and productivity.”

NPPF paragraph 80

 

So how can planning help to solve the Productivity Puzzle?

Despite reference in the NPPF, from my personal experience, productivity is a concept that is rarely explored in any great detail in plan-making. Yet it is clear the relationship between land use planning and economic activity is a critical element to solving the UK’s productivity puzzle. Moreover, planning can aid productivity by being more productive itself!

The following are four core areas which I believe the planning industry should look to tackle, thereby enhancing not only the industry’s productivity, but that of the national economy too.

1. Ensure the planning industry allocates land efficiently

One of the underlying principles of the planning process is to ensure land is allocated efficiently between different activities, thereby enabling the efficient and optimal use of a finite resource (ie land). This trade off can often be generalised down to two land-uses: employment generating floorspace and housing floorspace.

Pertinently, in recent years a growing sense among industry bodies has emerged, that a critical imbalance is forming between the two, as the government’s renewed focus on house building is disproportionately impacting on the employment land and space available.

While new house building creates opportunities for many sectors in the economy, and there is an increasing need for more homes, many businesses believe there is now an imbalance in the supply of land for jobs, against homes. Firms are consequentially concerned about the impact this will have on future business investment, local growth, and productivity.

2. Reduce Complexities in the Planning Process

One sure way to improve productivity is to make the planning system more accessible and less complex for the everyday business and developer. The NPPF aimed to deliver this, but a survey by the British Chamber of Commerce found that 5 years on from its introduction, 20% of companies found the planning system to be more difficult to deal with, and 27% said there had been no change .

There are many elements to this, from the over-complication and seemingly endless tiers in the decision-making process, to the lack of up to date local plans in many areas making it difficult for businesses to work with the planning system.

The uncertainty this generates damages business confidence, slows the rate of local growth and denies communities the infrastructure that can boost productivity and bring economic development to an area.

3. Speed up the Planning Process

Linked to the point above is the length of time the planning process takes. This won’t be news to many readers, who will be well aware of the significant time inputted to gain planning permissions, as well as the notorious delays which hinder the process. 
The simple crux of the issue is that the time lost waiting for an application to be approved, or the time lost in addressing avoidable issues, could be put to better, more productive uses, thereby enhancing productivity.

4. Improve the quality of infrastructure

Businesses and developers throughout the country rely on effective infrastructure to unlock sites for development, move people and goods, communicate with customers and provide homes and communities for their workforce and customers. It is essentially the glue behind the economy.

Unfortunately, the UK falls down in this regard, quite worryingly.

According to the World Economic Forum the UK ranks 27th (yes 27th) out of 140 countries for the overall quality of its infrastructure. This puts us behind countries including Portugal, Spain and Belgium. Improving the overall quality of infrastructure would reduce delays and costs, improve the efficiency of sites, and boost overall productivity.

Designing for Productivity Improvements

So far, we have considered the upfront ways the planning process could improve productivity. But research indicates that the way our towns and cities are designed can also have a significant impact on their productivity.
A research paper by our new colleagues at WSP  identified five core pillars of Space, Health, Accessibility, Resilience and Engagement (SHARE), which if considered appropriately at the planning stage today, can have significant gains for productivity performance tomorrow.
These are outlined in the table below.