North East businesses are failing to take crucial steps to boost their productivity, according to a new report from Lloyds Banking Group and the Manufacturing Technologies Association.

The report, Understanding the Puzzle, canvasses the views of more than 1,500 businesses across the UK, highlighting a widespread concern about productivity levels in the UK economy and echoing worries that have been raised by Government and industry bodies.

It raises an urgent need for investment in order to prevent UK productivity levels falling far behind other countries.

The report found 57 per cent of North East firms recognise productivity is an issue for the UK economy, but just 21 per cent believe it is a problem for their own businesses.

While 61 per cent say they have a plan in place to improve their productivity, 21 per cent do not have a plan yet, and 18 per cent say they have no intention to do so.

Obstacles to productivity growth

North East firms cited a range of other obstacles hindering their productivity growth, led by a shortage of skilled labour, cited by 61 per cent, and concerns over regulation, mentioned by 50 per cent.

Just over a half of firms (52 per cent) said that the quality of management in their business was an issue, while 48 per cent cited inadequate R&D and 41 per cent mentioned restrictive labour practices.

Lack of investment

Over a half (55 per cent) of North East businesses recognised that their own lack of investment was a significant barrier to improving productivity but only a third (39 per cent) of respondents plan to increase their investment spending over the next twelve months, while over a third (36 per cent) are freezing it and four per cent are making cuts.

Among those firms that are planning investment, only a third (33 per cent) plan to do so with the specific goal of improving productivity.

The key targets for investment to boost productivity are skills and training (37 per cent), software (35 per cent), buildings and infrastructure (20 per cent), automation (18 per cent), production machinery (24 per cent), emerging technologies (12 per cent), and big data (8 per cent).

Of those considering reigning in investment, 36 per cent cite economic uncertainty; a quarter (25 per cent) worry about the cost of investing; 14 per cent feel there is a lack of available skilled labour; and nine per cent say they are simply unsure of the benefits any investment would provide.

Innovation

The study also examines the issue of innovation, which is widely seen as key to increasing productivity.

Just over two fifths (43 per cent) of North East businesses say a lack of innovation is an obstacle to productivity growth for them and that innovation is being stifled by factors including a lack of new ideas (23 per cent); their business’ attitude to risk (14 per cent); their firm’s culture (20 per cent) and a lack of skills (21 per cent).

Leigh Taylor, regional director for the North East at Lloyds Bank Commercial Banking, said: “Productivity is one of the defining economic issues of our time. The UK’s low level of productivity compared to its G7 peers remains an unsolved puzzle, and it is crucial that we seek to understand how businesses view the problem in order that we can try to fix it.”

Taylor added: “UK firms do recognise that productivity is an issue for the wider economy, but this research indicates they are less convinced there is a problem within their own businesses. While many firms do have a plan in place to boost productivity, most are not investing enough to overcome the barriers to productivity growth.”

“It is hard to overstate the importance of productivity growth in securing the economic prosperity of our nation – and we must do everything possible to avoid the risk of getting stuck in the productivity slow lane. That is why – through our Helping Britain Prosper Plan – we are working hard to help our customers grow at home and overseas.”