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Low-wage sectors must invest in tech to boost productivity, IPPR think tank argues

The Institute For Public Policy Research has called on the government and low-wage sectors, like retail and food, to work together to solve the UK’s productivity crisis.

Technological innovation, the think tank argues, has been largely ignored within these areas of the economy and could hold the key to helping the UK catch up with its peers.

UK productivity IPPR
Output (GVA) per hour worked in selected OECD countries, 2014 (index 100 = UK)

The think tank points to the ‘National Living Wage’ as a contributor to increased costs in this sector, causing some companies to chip away at staff benefits, but says new investment in tech could help businesses increase productivity while cutting costs.

“Our analysis suggests that our low-wage sectors don’t need to invent new ways of doing things: there is huge potential for UK firms to boost their productivity by adopting practices and technologies that already exist,” the growth report says.

“But the fact that this hasn’t happened to date, even though it would be in firms’ interests to do so, suggests a need for public intervention. Our recommendations are intended to promote productivity-boosting actions on the part of low-wage firms.”

The IPPR says the UK has historically been less productive than the rest of Europe, but the financial crisis stalled growth here, and our shift away from things like manufacturing has cemented this further.

“Low-wage sector firms invest less in innovation than both other UK firms, and firms within the equivalent sectors in Europe,” the report explains. “In particular, low-wage firms have not fully adopted the available information and communication technologies.”

To boost productivity, the IPPR is calling on government to:

– Use its innovation arm Innovate UK to give funding to help companies use technology to transform their business practices

– Staff new Innovate UK ‘growth hubs’ that are launching in each local authority with people who can support typically low-wage businesses, as well as high-growth sectors

– Require low-wage sectors to be included in bids for Local Growth Fund money and ensure these sectors are a priority when allocating funding

– Roll out equivalent degree apprenticeships to those piloted last year in industries like aerospace and nuclear