Putting more in to getting more out

Last week's Bank of England quarterly inflation report returned again and again to the theme, with Mark Carney stressing that the Bank had few tools in its locker with which to pep up this all-important growth rate: "Monetary policy can only provide the foundation" he said. He did however strike a note of heavily qualified and vague optimism that the snail's pace at which the UK has been improving its productivity rate since the crash would eventually pick up.

"The MPC continues to believe that productivity growth will pick up gradually over coming years towards pre-crisis average rates as the impact of the financial crisis wanes". The report said.

"That pickup is a little later than judged likely in February, as compositional effects drag on productivity over the next few quarters. Productivity could pick up faster if, for example, UK companies were able to take advantage of advances made elsewhere: UK productivity remains well below the US level."

Writing in the Herald before the general election, the economist Jeremy Peat dismissed the competing "policies" offered in the parties' manifestos and questioned the seeming assumption that productivity, which suffered so badly in the recession, would automatically revert to a more positive norm. This was a dangerous assumption he implied, especially as "nobody is clear why our productivity performance has been so weak post the mid-2000s or how performance can be enhanced... unless and until productivity improves, economic [recovery] remains at risk."

For the new Conservative Government, removing the stain of weak productivity growth may well be business priority number one, though it must be said that any easy solutions would have been tried by now.

Step forward Sajid Javid, appointed by Prime Minister David Cameron as Business Secretary last week. The Thatcherite son of a Pakistani immigrant bus driver carries the torch for the Conservatives' reputation for being the pro-business party, as well as for the new meritocratic emphasis with which the Tories hope to muscle in to vacated Blairite "aspirational" territory.

Formerly headed by Vince Cable, the £13bn-spending "BIS" (business innovation and skills) department will be the testing ground for the new government's hopes to supercharge growth and by doing so reduce the needs for the politically poisonous choice between cuts and taxes. With low productivity now near-universally seen as the British economy's public enemy no 1, the hype around Javid is that he will "sweep away obstacles to wealth creation" to quote one commentator, by bearing down on red tape, reviewing employment legislation, creating 2 million more jobs and 3 million apprentices in the five-year lifetime of the next parliament and - the most obvious nod to his political heroine - by making it harder for workers to strike.

Javid had barely been appointed before announcing that any strike affecting public services, such as health, transport, fire services or schools will need to be backed by 40% of eligible union members, and that minimum 50% turnout in strike ballots.

He told the BBC's Today programme last week: "We've already made clear, in terms of strike laws, that there will be some significant changes... it will be a priority of ours.

"We need to update our strike laws. We've never hidden away the changes we want to make. I think it's essential to make these changes."

The changes, to be detailed in the Queen's Speech of later this month, also include Javid's plans to repeal restrictions on using temporary staff to cover for striking workers - "scab labour" in union parlance - effectively to break the strikes.

This aggressive concentration on the most politically controversial aspect of the UK productivity story, predictably cheered on by employers groups like the CBI and the IoD faces an early test with the announcement of plan for a nationwide rail strike a week on Monday. It is likely to inflame industrial relations in Scotland, with outcomes that will do little for the labour relations that are central to the productivity conundrum, let alone social cohesion in Scotland.

As a foretaste, STUC General Secretary Grahame Smith said earlier this month that the Tories were planning "an outright attack" on trade unions and workers' rights, and would allow "scab labour to strike break" and "effectively outlaw" industrial action.

"If the Tory anti-union proposals come to pass they will be resisted. Trade union leaders, even if they talk about the prospect of breaking bad laws, are condemned by the right-wing press. I have no concern at all about being condemned by the right-wing press." Smith said.

Despite or perhaps because of his pro-active stance, the free-marketeering new minister however seems to be being given the benefit of the doubt by business, not least because of his perceived need to bolster future leadership credentials by scoring a conspicuous success in boosting growth.

The CBI former has welcomed Javid "a strong voice for the business community at the cabinet table" and called on him to focus on supporting medium-sized businesses and boosting exports.

Liz Cameron of the Scottish Chambers of Commerce told the Sunday Herald: "Sajid Javid arrives at BIS with experience as a Treasury Minister already under his belt, as well as his extensive experience gained throughout his successful career in the financial services sector."

"He has a strong hinterland in business himself and this gives him a distinct advantage as he takes up his new role. Scottish businesses will expect two key things from him: Firstly, BIS needs to co-operate more seamlessly with the Scottish Government's economic role, particularly in terms of how the offerings from UK Trade and Investment and Scottish Development International provide support to businesses. Secondly, Mr Javid must cast his eye in the direction of the Cole Commission (see panel), which is currently looking at how Government can improve its offering to potential and existing exporters."

"Graham Cole has come up with some interesting thinking in terms of facilitating business-to-business support to promote internationalisation, and this should be considered very carefully".

Export promotion, for which detailed new plans may be unveiled in the Queen's Speech, will of course be affected by Britain's relationship with the EU. Although Javid has made Eurosceptic noises saying he would "embrace the opportunities" that leaving the European Union would bring", but he will be mindful of the vast majority of UK businesses who fear the disruption to their single market that a Brexit would bring.

Other measures available to him include deregulation of the labour market, although the UK's record on job creation is already quite strong, especially in comparison to European competitors, with 2 million more people employed now than in 2010.

Less likely to stir up opposition would be an increase in funding for research and development, which the Coalition government failed miserably to increase during its five year lifetime, the equivalent of a 10 per cent cut. At only 1.75 per cent of output, UK R&D spending is woefully small by comparison with spending in other economies, though throwing more money at R&D without a clear idea of how it will boost output would not help much.

Also on the table is a revival of the controversial 2012 Beecroft Report, produced by the venture capitalist Adrian Beecroft but firmly shelved by Vince Cable as being "the wrong approach". In effect a means by which firms could boost productivity by sacking unproductive workers, it was characterised by Cable as intended to "scare the wits out of" employees.

Among measures presented as making SME businesses more ready to hire by reducing the risks and disbenefits of firing, Beecroft advocated an end to a mandatory 90-day consultation period when a company is considering redundancy programmes, instead suggesting a standard 30-day period and an emergency five-day period if a firm is in severe distress, a cap on loss-of-earnings compensation for employees who make successful discriminatory dismissal claims., reform of the rights that workers are allowed to "carry" to new employers when their companies are the subject of a takeover, and the scrapping provisions in the Equality Act which make employers liable for claims from employees for "third-party harassment", such as customers making "sexist" comments to staff in a restaurant. It also shifted responsibility for checking foreign workers' eligibility to work in the UK from employers to the Border Agency or the Home Office.

While the problems that still afflict the UK economy, including weak wage growth, still remain a serious threat, the longer term challenge of improving productivity is likely to continue to climb the list of priorities for all economic policy makers.

Its continuing weakness partly accounts for the paradoxical mixture of dramatic job growth, so-so GDP improvements and an underwhelming tax take, the far from exuberant record that a more coherent and convincing economic platform than Ed Milliband's could easily have trumped in the General Election.

But while the Conservatives were lucky to have got away with it, and even luckier that their unexpected electoral success has since brought confusion to their enemies, David Cameron, Sajid Javid and their cabinet colleagues know that to please its backers and wrong-foot its enemies, the all-Tory regime must produce productivity gains, not more fudge.

Cole's notes:

Set in train by then Labour shadow chancellor Ed Balls and business minister Chuka Umunna and led by the AugustaWestland chief executive Graham Cole, the Cole Commission was tasked with finding ways to boost the UK's chronic trade deficit. As well as linking exports to better productivity, the interim report published last September recommended better support from government agencies, faster response times, better outreach to SMEs, a greater risk appetite and a more coordinated "one stop shop" approach. Significantly it also recommended a bigger role for the British Chambers of Commerce as an appropriate channel for facilitating SME access to overseas markets, an approach briefly piloted in Scotland through the initial pilot of the Smart Exporter scheme in conjunction with Scottish Chambers. The interim report also recommends more emphasis on vocational and higher education qualifications in exports, making export plans mandatory for all public procurement bids, and boosting ecommerce performance through putting digital literacy "on a par with reading and writing from earliest school days." In tune with Scottish Government's emphasis, it called on the next government to review the system of post-study work visas in order to reverse a downward trend in overseas students choosing UK universities, and recommended that "the country draws more consistently and pro-actively on the skills, talents and networks of its growing diaspora community here and abroad."