South East: Productivity highest in the UK – but LEPs could ‘do more’

The productivity of workers across the South East is more than £3,000 higher than the UK average, according to PwC’s latest UK Economic Outlook. The report examines UK regional productivity, revealing wide variations in domestic productivity per job, as well as from an international perspective. PwC concludes that UK output per worker is around 10-15% behind Germany, France and Sweden and more than 30% behind the US.

There are large regional productivity gaps, with London and the South East performing the strongest. The GVA per filled job in the South East  is £57,675 (according to 2017 data, the latest available from the ONS), compared to the national average of £54,300. This compares to other parts of the UK such as Yorkshire and the Humber, where productivity is approximately 16% below the national average at £44,953 productivity per job.

Regional variances are due to factors such as physical and digital connectivity, the skills of the workplace population, business size, business investment and innovation, and industrial structure.

The South East’s strong productivity performance is due to high levels of connectivity to economic hubs, and high concentrations of skilled and qualified workers. It also has a higher share of large-sized firms and R&D activity.

UK GDP could be boosted by 4% – or £83 billion – if local areas with below-average productivity levels could make up half of the gap.

John Hawksworth, chief economist at PwC, commented: “Places that are better connected physically and have access to skilled workers tend to have higher productivity levels.

“We find, for example, that a 1% increase in skills is associated with a 2% increase in productivity in a local area. Similarly, physical connectivity also matters, which reinforces the case for increased investment in transport infrastructure for areas that tend to lag behind, whether in the North of England or the far South West such as Cornwall.”

In addition, the gap between the best and worst performing local enterprise partnerships (LEPs) in England is widening, with productivity in the highest-ranking LEP around 2.1 times more than the lowest-productivity LEP in 2017, as compared to 1.8 in 2002.

Hawksworth added: “The prize from closing the regional productivity gap could be large. If LEPs that are performing below the UK average can close 50% of this gap in productivity performance, it could add around £83 billion to the economy, equivalent to almost 4% of GDP.”

Five of the eight UK LEPs with above average productivity levels are located in London or the South East, with several along the M3 and M4 corridor towards the West of London. This is an area with prosperous tech clusters, and high performing cities such as Oxford and Reading, according to the latest PwC Good Growth for Cities index.

LEPs could work in collaboration to strengthen intra-region connectivity and access to economic hubs, for instance drawing on the Oxford-Cambridge arc, which is supported by four LEPs in the South East region.

The report suggests a number of other strategies that could be employed to help boost productivity across the regions. Notably, businesses can promote workplace training and upskilling, a recommendation that is reinforced by PwC’s recent global skills survey, which showed that the desire of UK employees to learn new skills is not being met by employers.

In addition, investment in local infrastructure could boost connectivity (and therefore productivity). LEPs could collaborate to strengthen intra-regional connectivity.