Could a new policy institution help solve the UK’s productivity problem?

Comparatively sluggish productivity growth is one of the UK’s biggest policy challenges. Past strategies to solve the problem have lacked commitment and proper evaluation. One solution could be to establish a growth and productivity institution to coordinate policies over the long term.

A dedicated and lasting policy institution, which puts productivity at the heart of the growth agenda, could be a key part of the solution to the UK’s economic woes. This new growth and productivity institution (GPI) would shape effective, coordinated and lasting pro-productivity policy for the country.

Such an institution would need to be placed on a statutory footing to ensure that it survives political churn. If it were set up effectively, it could provide independent expertise by conducting inquiries into key areas and enable effective monitoring and evaluation of policy.

Why another institution?

Recent years have seen a multitude of strategies and plans seeking to address the UK’s long-lasting growth and productivity problems. These are primarily aimed at boosting investment, innovation and diffusion (Resolution Foundation, 2023; Productivity Institute, 2023).

But a high degree of policy churn has prevented these strategies and plans (and associated policies) from having an effect, and from being properly evaluated. What’s more, this churn creates uncertainty for businesses (in already uncertain times given recent shocks and global trends), which further dampens incentives for investment.

The establishment of the Industrial Strategy Council (an independent advisory group housed within what was then called the Department for Business, Energy and Industrial Strategy) in 2018 by Theresa May’s government – in an attempt to strengthen institutions for growth and productivity – was short-lived. Yet the Labour Party has proposed re-launching this and placing it on a statutory footing (Labour’s Industrial Strategy, 2022).

Many drivers of productivity are long-term, uncertain and intertwined. They are influenced by national, devolved, regional and local governments, as well as external, global factors. Policy actions therefore need to be carefully designed, coordinated and monitored.

A new GPI would help with the politics of making difficult decisions where positive outcomes are likely to be seen over the long term. This could be in the form of a resurrected Industrial Strategy Council – but with a broader scope and more permanence – or it could be an entirely new institution.

What can we learn from productivity institutions overseas?

The UK stands out among a group of 20 other OECD countries for not having a policy institution focused on productivity and growth. Table 1 summarises key features of the institution, set-up and reporting framework for 11 of the 20 OECD countries where there is sufficient information. While their missions are similar, typically focusing on productivity analysis and advice, there is a wide variety in institutional arrangements.

Table 1: Overview of key productivity commissions in the OECD area

Institution	Established	Type	Mission	Political location
Australia Productivity Commission	1998	Standing inquiry body	Promoting productivity-enhancing reforms	Independent, reports to executive and parliament
Belgium National Productivity Board	2019	Independent advisory body	Examining development of productivity and competitiveness	Independent (tacit), reports to the president and government
Chile National Commission for Evaluation and Productivity	2015	Independent advisory body based on presidential decree	Analysing and recommending policies for productivity and wellbeing; evaluating regulations and policies	Independent (tacit), reports to the president and government
Danish Economic Council	2017	Independent advisory body (multi-stakeholder)	Analysing productivity and competitiveness	Independent, provides advice to Danish policy-makers
Finnish Productivity Board	2021	Independent expert body	Monitoring productivity and competitiveness, and conducting independent evaluations	Independent expert body linked to ministry of finance, reports to government
French National Productivity Council	2018	Independent advisory body of academic economists	Analysing productivity and competitiveness, and policies that affect them	Independent, non-partisan advisory body reporting to the prime minister and minister of finance
German Council of Economic Experts	2019	Independent academic advisory body	Analysing developments in the field of productivity and competitiveness	Independent, provides advice to German policy-makers
Ireland National Competitiveness and Productivity Council	2018	Independent council established by government (multi-stakeholder)	Analysing policy and developments in the field of productivity and competitiveness	Independent council, reports to prime minister and government
Netherlands Productivity Board	2017	Independent economic research agency	Gaining understanding of factors driving productivity growth	Independent agency, part of ministry of economic affairs and climate policy
New Zealand Productivity Commission	2011 (abolished Dec 2023)	Standing inquiry body	Pursuing improved wellbeing and improved productivity	Independent, reported to parliament
Portugal Productivity Council	2018	Joint temporary structure	Monitoring policies related to productivity and supporting discussion	Joint economic structure of ministry of finance and ministry of economy

Source: National sources and Renda and Dougherty, 2017; European Commission for EU countries; Cavassini et al, 2022; and Pilat, 2023.

In most countries, the institutions are independent advisory bodies consisting of three to 12 members, typically appointed by the government. Some consist mainly of academics; others involve representatives from business and trade unions; while others are composed of government officials linked to the ministries of economics or finance.

The bulk of their work has focused on the ‘direct’ drivers of productivity, such as investment, human capital, innovation, digitalisation and business dynamics. They undertake little work on macroeconomic policy, financial markets or competition policy, possibly because such issues are already addressed by other institutions. Few of the commissions have explored the regional dimensions of productivity.

It is difficult to assess formally the impact that these institutions have on the national productivity debate, on policy development and implementation, and ultimately on productivity growth.

The Australian government has accepted and implemented many of the recommendations of its productivity commission, and the economic benefits – in terms of higher productivity and lower prices – of resulting reforms have been highlighted (Banks, 2015).

New Zealand’s productivity commission was abolished at the end of 2023 by a new coalition government and will be replaced by a new agency focused on regulation. Nevertheless, its detailed work has been recognised as important to the urban growth agenda of New Zealand’s Labour Party, and to the prior government’s investment approach in social services (Crampton, 2023; Heatly, 2023).

What can we learn from other independent institutions in UK economic policy?

Growth policy in the UK stands out among other core areas of economic policy – including fiscal, monetary, competition and climate policy – for not having stronger, independent institutions governing it. Key institutional features across these areas are set out in Table 2.

Roles and remits vary from decision-making powers (such as the Bank of England’s Monetary Policy Committee and the Competition and Markets Authority) to advisory and monitoring roles (including the Office for Budget Responsibility (OBR), the Climate Change Committee and the National Infrastructure Commission). But there is a consensus that previous policy failures such as short-termism, time-inconsistency and accountability failures justify independent decision-making or analysis in these areas.

Most of these examples are statutory bodies except for the National Infrastructure Commission, which is an executive agency of HM Treasury. As a non-governmental statutory body, accountable to both parliament and the chancellor, the OBR is considered to have enhanced the credibility of the UK’s economic and fiscal reporting, and instilled greater fiscal discipline around government budgets (Pope et al, 2022).

By contrast, it has been argued that UK infrastructure decision-making might have benefitted if the National Infrastructure Commission had been on a statutory footing – as was the original intention (HM Treasury and National Infrastructure Commission, 2016).

Table 2: Examples of institutions in other areas of UK economic policy

Institution	Role	Type	Mandate/ guidelines	Legislation	Transparent publication
Bank of England’s Monetary Policy Committee (MPC)	Decision-maker	Public body, answers to parliament (House of Commons Treasury Committee)	Delivering on the inflation target	Bank of England Act 1998, Bank of England and Financial Services Act 2016	Monetary policy reports
Office for Budget Responsibility (OBR)	Oversight	Non-ministerial department	Examining and reporting on the sustainability of the public finances	Budget Responsibility and National Audit Act 2011, Charter for Budget Responsibility	Economic and fiscal outlook (accompanying fiscal events), fiscal risks and long-term projections
Competition and Markets Authority (CMA) board	Decision-maker	Non-ministerial department	Promoting competition for the benefit of consumers	Competition Act 1998, Enterprise Act 2002, Enterprise and Regulatory Reform Act 2013, Subsidy Control Act 2022	Merger inquiry findings, market investigation findings
Climate Change Committee	Oversight and advice	Non-departmental body	Advising the UK and devolved governments on emissions targets and reporting to parliament on progress made (for example, in adaptation)	Climate Change Act 2008	Progress reports, carbon budgets, other reports on net zero and adaptation
National Infrastructure Commission	Oversight and advice	Executive agency, sponsored by HM Treasury	Providing the government with impartial, expert advice on major long-term infrastructure challenges	n/a	National infrastructure assessment (once in every parliament), monitoring reports, specific studies

Source: Builds on Table 3.1 in LSE Growth Commission; see LSE, 2017.

These existing institutions shape and inform growth policy and outcomes in the UK, but there is a gap in the institutional framework governing growth and productivity policies. Rather than duplicating efforts and analysis, a new GPI could play a coordinating and complementary role.

How should the work of a new GPI be focused?

We believe that the GPI’s primary focus should be on productivity and its direct drivers. It will be necessary to consider the origin and performance of these drivers on a regular basis, determining which sectors, places and technologies should be prioritised.

A key feature would be to provide the long-term expertise and capacity needed to conduct analysis that can inform pro-productivity policy recommendations and reporting. This is particularly important given the career structures in the civil service, in which there are strong incentives for frequent moves. More specifically, the GPI would have the ability, capacity and legitimacy to:

Conduct inquiries into priority areas agreed with government, focused on well-defined problems that can be addressed by policy. The outcome of these inquiries should be actionable and evidence-based recommendations.
Monitor and evaluate policies against key defined objectives – the implementation of pro-productivity policies, proximate outcomes and ultimately productivity.
Produce high-quality data and reports on productivity and its drivers, based on an understanding of the evidence, data and institutional history of the UK and other relevant comparators.

The GPI could also consider other policy domains, relying on the expertise of others and focus on how to connect those themes to design an integrated policy framework. For example, it could explicitly consider how productivity growth is compatible with environmental sustainability and inclusivity, with national, regional and devolved nations’ perspectives. One role of the institution could be to highlight where synergies and trade-offs exist and how they might be addressed, particularly in the short term.

In this way, it could play a coordinating role in good policy design, something that is largely absent in formal UK governance structures at present.

Productivity growth is shaped by many areas of policy at national, devolved nations and regional levels, and by the actions of industry, the third sector and civil society. Subsequently, stakeholder consultation, coordination and communication should be key features. This will improve the legitimacy of recommendations and reports, which should be based on consultation, research and analysis, and their salience in the public debate.

How should a new GPI be structured?

The following principles should guide the institutional design:

Independence to ensure credibility and to create some distance from political priorities.
Embedded long-term focus, insulated (to the extent that is possible) from short-term issues and policy churn.
Some flexibility, such that work and inquiries can be shaped by new developments (for example, economic shocks) or changes in government or political realities.
The ability to affect government machinery and create political leverage, facilitating the political process and creating an environment for solving difficult long-term problems.

Given the multiple policy domains that ultimately affect productivity, it seems most appropriate to set up the GPI as a non-departmental body, reporting to the Cabinet Office. For longevity and accountability, it should be a statutory body, accountable to parliament.

Parliamentary approval is critical to assure longevity and safeguard expertise. It indicates commitment to the institution while allowing for flexibility to repurpose its formal objectives as required. As the legislation to establish a new body could take time, it may be advisable to start with a simpler non-statutory structure while obtaining buy-in and commitment.

The objectives and remit of the organisation would require the institution to work across relevant policy domains and government departments. Clearly HM Treasury has a large stake in growth and productivity policies and frameworks (including fiscal policy, structural policies and public sector productivity), whereas other departments relate to specific drivers (for example, innovation, education, infrastructure, regional dimensions and trade).

These connections with government departments could be reflected in the composition of a ministerial group reviewing the work of the GPI and providing political leverage.

Following good practice elsewhere, the GPI itself could consist of between six and 12 independent experts. Some expert positions may represent specific constituencies, such as business or workers.

Representation from outside London, particularly from regions and devolved nations with the most potential to contribute to productivity growth will also be needed. The chair should be fully independent with a strong public profile and well-recognised expertise, analytical capacity and convening power.

Conclusion

Would the UK’s growth and productivity performance in recent years have been better had this type of institution existed? We think so, encouraged by the evidence from well-established commissions overseas, such as those in Australia and New Zealand.

While a GPI is not the panacea for solving all problems, an independent, enduring institution with the expertise and credibility to shape pro-productivity policy would contribute to the ability of policy-makers to take decisions that may not be immediately popular but are in the long-term interests of the country.