In any debate around UK economic performance, productivity will be a persistent theme. The UK has a leading place on the world stage in terms of its attractiveness to entrepreneurs and investors. However, in the years since the global financial crisis, productivity has flatlined and growth remains a major challenge for entrepreneurs and policymakers alike.
Recently, we gathered entrepreneurs from a range of sectors – many recognised in EY’s Entrepreneur of the Year awards – for a roundtable discussion on the potential in the UK to enhance productivity. Under Chatham House rules, they explored the impact of the economic and political climate, technology and innovation, and other business and cultural issues to find ways forward for enterprise.
‘Our entrepreneurs are practical, agile and resilient and will find a way to navigate coronavirus’
While at the time of the dinner coronavirus was limited in its geographic scope it was clear even at that early stage that several businesses around the table were already impacted in terms of supply chain disruption. As the number of cases continues to rise, we expect to see further disruption in certain sectors such as hospitality and leisure, as well as recruitment. But, as with Brexit, generally our entrepreneurs are practical, agile and resilient and will find a way to navigate the uncertainty.
Entrepreneurs and productivity
Encouragingly, we discovered that entrepreneurs have been making progress on productivity. The roundtable participants shared approaches that have made a difference within their businesses as they sought to reduce inefficiencies and increase time spent on the activities that count. Introducing technology that would reduce administrative burdens and enable employees to increase client-facing time in the social care provision was one example. Encouraging diversification into new products and markets overseas was an approach that bore fruit in a manufacturing business.
In general, embracing technological advances and being willing to innovate and explore new markets helped these businesses to focus on productive activities versus less productive ones and take up new opportunities.
Unfortunately, some sectors have proved more resistant to productivity improvements than others. This appears to be due to a heavy burden on the compliance front, such as in financial and professional services. The combined forces of regulation and increased global competition, it was suggested, have resulted in businesses having to work doubly hard to generate income.
However, the net-zero agenda could prove to be a surprising productivity driver. Our entrepreneurs argued that more climate-conscious behaviour would not only enable businesses to show more leadership around environmental issues but would also make them more efficient.
The drive towards responsible investing might also be a force for good in this respect, as the investment community increasingly shines a light on unsustainable business practices.
One of the less desirable impacts of globalisation has been the tendency to concentrate senior managers and key personnel in regional hubs. That structure increases dependence on air travel as a means of managing geographically dispersed teams and resources. By deploying individuals closer to where they are needed, businesses can reduce time-consuming and costly travel, and their carbon footprint.
As the world looks at the spread of coronavirus, we are also already seeing greater use of videoconferencing which would contribute to this effort with similarly beneficial effects. Perhaps the enforced use of technology at this time will provide an example of a better way.
Closer to home, we need to be mindful of a need for greater connectivity within the UK. While London continues to attract a global community of businesses, investors and advisers, its success must be replicated across the country if productivity is to improve and bring wider benefits.
The current political agenda, however, has tended to serve the UK’s bigger cities disproportionately. The latest EY UK Regional Economic Forecast warns that larger cities are pulling further away from towns and other smaller neighbours, with imbalances in growth between different places within regions continuing to increase. Gross Value Added (GVA) in the largest cities in England is expected to grow at 2.2 per cent annually on average compared to growth of 1.6 per cent for towns.
If there are more opportunities in cities, there may be a temptation for some people to either move or commute to pursue these opportunities. This may in turn risk further weakening the economies of towns.
Public spending on infrastructure – where it serves the regions – is to be encouraged, but smaller cities and communities need greater focus and resource.
Education and training
The ripple effects of regional economic imbalance are perhaps felt most acutely in levels of educational attainment. In response, we have seen more initiatives that bring individuals into the workplaces at different levels of qualification, such as apprenticeships, school-leaver programmes and academies. These should rightfully be praised.
‘The skills of the future will be based on emotional intelligence’
But there is more to be done. As we have seen, the successful productivity drivers among entrepreneurs tend to have a focus around insightful use of technology and innovation. Artificial intelligence and data analytics have the potential to automate many existing roles. And these technologies are forcing a change in emphasis. The skills of the future will be based on emotional intelligence. Enterprises will need a highly adaptable workforce – and that will require commitment from government and the business world to provide lifelong learning opportunities.
Support for enterprise
With the support of the advisory and investment community, the UK’s enterprise culture will continue in good shape. The UK’s encouraging environment for business plays an important role in its enterprise success story – with a supportive financial and advisory hub in the capital and a favourable tax regime.
Our roundtable participants debated taxation in the UK. While the entrepreneurs in the room may have had different views on the effectiveness of entrepreneurs’ relief – recently amended in the Budget to apply to CGT payable on the first £1m of a business – all agreed that certainty and simplicity in the tax regime were essential and that frequent changes undermined this.
With Brexit and now coronavirus continuing to create uncertainty for business, entrepreneurs are adopting a largely pragmatic attitude. There is an upside to acknowledging the magnitude of the task the UK faces. At our roundtable, there was an acknowledgement too that some of the EU’s major economies are on a precipice economically. Changes and opportunities often come not out of desire but necessity. It is the role of entrepreneurial businesses to innovate and forge connections in markets farther afield and expand on existing networks and trade partnerships.
In the face of economic and geopolitical challenges, the adaptability that is the hallmark of the entrepreneurial sector is clearly serving it well.
Joanna Santinon is a partner at EY and Entrepreneur Of The Year leader, UK
Further reading on productivity