Forum of Private business lobbies Parliament ahead of key debates on productivity
The Forum believes the evidence now shows that next week's productivity debates should be a time for introspection. The economic review released today by the Office of National Statistics not only shows a tenth successive quarter of growth, it highlights a number of issues that impede small firms from growing the UK economy. In particular it indirectly questions the central underutilisation of labour as the central issue behind the productivity gap, whereas the Forum feels that the issues are more around the resources available to businesses to be as efficient as they need to.
The review indicates that “there are key uncertainties over the extent of spare capacity in the labour market and whether a shift to more flexible markets is involuntary – therefore suggesting underemployment – or a step changed which is unlikely to be reversed”. Yet the regulators are set on a "one size fits all" basis using traditional employment practices that has made employment law an area where management fears to tread.
The economic review also reports that firms “are increasingly hiring from those already employed, signalling a tightness in the labour market” and therefore wage inflation was likely to happen in most industries naturally. This calls into question the Chancellor’s use of regulation to introduce the National Living Wage as it will impact most on labour intensive industries that service the public sector.
Just as important is recent research out about business intentions over the next year as the UK tries to build on a fragile and historically slow recovery. But there are increasing concerns that legislation and labour supply is becoming an increasing issue – this was highlighted by the BDRC SME monitor where the economic climate as a serious business obstacle has halved from 28% of businesses in the second quarter of 2013, to 14% this quarter. Legislation has remained at around 11% since the end of 2013. Recruiting and retaining staff has doubled from 3% to 6% over the last two years with hotels and health/social work having the biggest problems.
“Ultimately productivity is primarily a supply side indicator and the government should take into account that it is in turn a key supplier to small firms. Our research tells us that businesses with one employee spend 10 times more (in time or money) in complying with regulation than businesses with more than 50 employees. In our latest research almost twice as many members report that the high levels of predicted costs (37%) are a greater strain on their cash flow than either late payment (21%) or unexpected rises in costs (20%). Most recently tax has become a greater impediment to productivity with the budget change to dividends paid by limited companies to directors. Not only do they lose out for being responsible owners but they also have to spend more of their time in planning their tax affairs.
“The productivity debates in the House of Lords on 8th September and the House of Commons on 10th September are to be welcomed but need to be framed within the context of government action. The measures suggested by the government such as a national infrastructure plan for skills are relevant but for years UKCES and our own research has highlighted issues with productivity-related skills such as CNC operation of IT automation skills but this has not lead to changes in supply,” continued Mr Cass.
The Forum has also welcomed the review of statistics but feels the context behind the figures needs better understanding – France is often compared to the UK because of the similar size of its manufacturing industry. However over the last few years in the UK there has been a rise in female entrepreneurs and the use of flexible contracts to suit employers and employees. In France such individuals would have access to childcare facilities that were open 11 hours a day and were 80% state funded – while the last two administrations have made strides in this direction there is still a major gap.
Another key competitor Germany has a good payment culture – Siemens was the first company during the recession to introduce supply chain finance to protect their supply chain. In the UK retailers and construction companies have used it as in the US to “sweat their supply chain”. The Forum believes a Small Business Commissioner is likely to lack the teeth to change this.
“Deregulation is however sorely needed – not just in the UK but over the entire EU as our members have been forced to take on compliance professionals (particularly in the finance and HR departments to meet and enforce regulations). To grow their business and invest in new people, skills, software and machinery our members need to be globally competitive.
That is why any debate needs to be framed in introspection and the understanding that while the cost of compliance (4% per annum) and the overhead costs for small business (6% per annum) outstrip GDP then their productivity is hampering growth.