Great British ingenuity, not higher taxes, is the key to solving Reeves’ productivity puzzle
‘Poor productivity means we are putting in more and getting less out.’ These were the scene-setting words Rachel Reeves chose in her pre-budget speech, as she laid the groundwork for looming tax hikes in the Autumn Budget.
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Reeves isn’t wrong in her diagnosis of productivity. Since the 2007 financial crash, the UK has suffered a fifteen year productivity slump. It’s led to stagnant wages and poor standard of living growth. The UK's productivity has lagged behind many of its G7 counterparts, such as France, Germany, and the United States.
As someone who’s made a career working within the start-up sector; the answer to restarting UK growth will not be by taxes alone. We need to champion small businesses, protect our innovations and keep Britain' s competitive edge on the global stage by investing in R&D in new industries like AI, quantum, health sciences and dual-use technology.
Lower productivity and raised taxes go hand in hand. If productivity grows more slowly, wages are lower which means lower tax revenues. Therefore, less money can go into the NHS and other essential public services.
Labour finds itself in a position where it may have to break manifesto commitments, raising income tax to pay off spiralling debt in the hope of encouraging business confidence back in the UK’s sluggish market.
But if small businesses suffer from the Autumn Budget, taxes will only exacerbate the problem.
Rachel Reeves’ maiden budget and some of Labour’s trademark legislation has arguably already done that, raising taxes for job creators and restricting their ability to be flexible in a changing market.
As a result, Britain’s economy has become less dynamic and it’s now prohibitively difficult to get a business off the ground, which leads to lower recruitment and lower economic output overall.
I’ve seen how difficult it is first-hand. I work daily with people trying to start businesses in the UK. I built a company that democratises the patent application system by protecting start-ups and their generation-defining innovations against bigger corporations and overseas competition.
I’ve seen what can be achieved when innovation and investment are prioritised and spread to different parts of the UK. Anyone with a good businesss idea should be encouraged to build. We should be investing more capital and encouraging homegrown talent in the start-up sector.
So what needs to be done? One place the government can start looking is at investment in AI and new technologies. The US-UK tech alliance earlier this year is a great start, but the point is that without empowering innovators the money won’t go as far as it needs to.
AI is great but it’s also not a ‘silver bullet’. AI alone cannot solve the UK’s fifteen year productivity crisis. The nation’s underlying innovation ecosystem is flawed and requires fundamental repair.
The Autumn Budget must mix techno-optimism with that foundational rebuilding; investing in AI but also fixing the SME innovation journey from its beginnings to completion.
We can be seen as a world leader in new technologies like in our promising quantum computing sector, but overtaxing and penalising these companies with national insurance hikes will put off hiring and visa tightening will stop overseas talent in its tracks.
There are some positive signals. The government has recently announced a £55 million funding boost to R&D to unlock breakthroughs in science and technology. We need this to find solutions from our health system, to clean energy. While this money is welcomed, consistent public policy is equally important in making sure small businesses get equal access to this money and remain competitive.
Thankfully, the UK is home to world-leading and internationally exceptional research and academic institutes. We should be securing scientific and technological breakthroughs through proper patents and adopting them into business practice.
Reeves is forced to make decisions within the context of over a decade of economic downturn and low output. We need to inspire business confidence again in this country.
We are a power house of scientific and technological research. But we need to turn this innovation into economic productivity that benefits everyone, invest in new technologies, build businesses that last and retain employment.
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Dominic Davies is a patent lawyer and the CEO of invention safeguarding and patent-tech company Lightbringer
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