Comparatively sluggish productivity growth is one of the UK?s biggest policy challenges. Past strategies to solve the problem have lacked both sustained commitment and proper evaluation. Anna Valero and Bart van Ark call for a growth and productivity institution to inform and 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.

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. This makes designing, coordinating and monitoring policy actions particularly important - and complicated.

A GPI would help with the politics of making decisions where positive outcomes are likely to be seen over the long term - beyond the five-year parliamentary cycle.

In fact, the UK stands out among a group of 20 other Organisation for Economic Cooperation and Development countries for not having some such policy institution. There are independent institutions for certain core areas of economic policy in the UK - including fiscal, monetary, competition and climate policy - with varying roles and remits. Some - such as the Bank of England's Monetary Policy Committee and the Competition and Markets Authority - have decision-making powers. Others - including the Office for Budget Responsibility, the Climate Change Committee and the National Infrastructure Commission - have advisory and monitoring roles.

There is a consensus that previous policy failures such as short-termism, time-inconsistency and accountability failures justify independent analysis and decision-making in these other policy areas. But while these public bodies shape and inform growth policy and outcomes in the UK, there is a gap in the institutional framework governing growth and productivity policies. Rather than duplicating efforts and analysis, a GPI could play a coordinating and complementary role.

We believe that the GPI's primary focus should be on productivity and its direct drivers: investment in physical, intangible and human capital. 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 priorities.

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, focusing 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 comparator countries.

A new growth and productivity institution would help with the politics of making difficult decisions where positive outcomes are likely to be seen over the long term

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 there are synergies and trade-offs 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.

The following principles should guide the design of a new GPI:

• Independence to ensure credibility and distance from political priorities.
• Embedded long-term focus to insulate it from short-term issues and policy churn.
• Some flexibility, such that work and inquiries can be shaped by new developments 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.

It seems most appropriate to set up the GPI as a nondepartmental body, reporting to the Cabinet Office. For longevity and accountability, it should be a statutory body, accountable to parliament.

Parliamentary approval is critical to ensure 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 buyin 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.

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.

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 policymakers to take decisions that may not be immediately popular but are in the long-term interests of the country.

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20 June 2024     Paper Number CEPCP685

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This CentrePiece article is published under the centre's Growth programme.

This publication comes under the following theme: UK productivity and policy