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Our Old Enemy - Sometimes Called the 'British Disease' - Is Back With a Vengeance

24/06/2014 09:36 BST | Updated 23/08/2014 10:59 BST

It's that traditional problem of extremely low productivity, a problem exacerbated when we consider that other nations are streaking ahead. It has scarred the recovery and it haunts industry. It's the problem that's aggravated the cost-of-living crisis which has seen people struggling even as the economy grows. If we don't address it, escaping that crisis will be made even harder.

Producing more with less, as every business owner knows, is the key to doing well and the fastest way to give your workers a pay rise. For much of the last century, very low productivity was a national curse often caused by 'debilitating industrial relations and self-indulgent management' according to economic historian Nick Crafts.

But look at the figures today. Since the election, output for every hour worked has not gone up - it's gone down, whilst output per worker has followed the same trajectory. We're actually less productive than we were in 2010. This appalling record is far worse than the last years of the 1970s, long deemed the moment when 'British disease' reached its peak. Yet, in this period output per worker and output per hour worked actually rose by over 5%.

Worse, we're now falling rapidly behind our competitors. The gap in productivity per hour between the UK economy and G7 average is now 21% - the widest gap there has been since 1992.

This is fatal for any escape from the cost-of-living crisis. Tackling this means taking action to increase productivity and ensuring that the proceeds from growth are more fairly shared, building an economy based on fewer low-skill, low-wage jobs and more high-skill, high-wage jobs.

As someone who started work behind a fry station in McDonalds, I know that any job is better than no job. But I also know that a good job is better than a bad one and right now we're simply not producing enough of the former. Today, the average full-time worker has to work an extra one hour and 52 minutes a week in 2013 to earn what they earned in real terms in 2010.

Look at our knowledge economy and it becomes clear what is going wrong. Economists and scientists know that science and research is the key to growing productivity. As the breakthrough report from Research Councils UK put it: "The greatest long-term productivity advances come through breakthroughs in basic knowledge". In the US, they estimate that 85 per cent of growth in wealth per capita is driven by innovation.

The knowledge economy is the powerhouse of productivity growth and better jobs with better wages. Yet, with the honourable exception of automotive and aerospace, which Labour did so much to save during the global crash, the story isn't good.

Getting innovation policy right is not actually rocket science. You need great people, great institutions and investment. Yet, look at what is happening in the UK. In 2012, the last year data is available, UK investment in R&D by government and business together fell by nearly £1billion - £923million - the largest annual fall since consistent records began in the mid-1980s.

Amongst advanced Western nations, Britain now ranks 23rd out of 33 in the league table of R&D spenders. In our most important research industry - pharmaceuticals - which accounts for a quarter of all UK R&D spending, research budgets have fallen by a huge £467million since 2010 - that's a 10% fall. In telecoms, one of the other great R&D leaders, budgets have fallen by 20% or £240million.

Or look at our great institutions. In our universities, the great epicentres of science and knowledge, we have the world's best thinkers. But, their labs and classrooms now rest on a mountain of debt. University borrowing will reach £7.3billion worth of debt by 2015, an increase of £1.8billion from 2012. That's £45.6million for every university in the UK.

Yet, that's nothing when we consider the black hole that's been created in the finances of the Business, Innovation and Skills Department (BIS) by the Government's unsustainable funding system. The Public Accounts Committee now estimates that at current rates, students will be borrowing nearly £200billion over the next twenty years to fund their studies and 45% of this will be written off. It's universities and our researchers of the future who will be paying the price.

Meanwhile, the skills shortage across the country grows worse. A fortnight ago, KPMG reported that skills shortages are stopping manufacturing firms re-shoring work. Since 2010, the number of people working in 'scientific research and development' has fallen by over 12,000.

The Migration Advisory Committee has now added 117 highly skilled technical roles to the shortage occupation list, which employers can fast track onto visas, because there are not enough skills in Britain. The Royal Academy of Engineering estimates that we need 820,000 science, engineering and technology (SET) professionals by 2020, with 80% of these required in engineering, whilst 450,000 technicians are needed by 2020. To take just one example, the Royal Academy of Engineering estimates that we need to produce 87,000 engineering graduates every year to keep up with demand - but right now we're 36,000 short and at the rate we're going there will still be big gaps to fill.

We cannot go on like this. We need a stronger science base. That's why Labour is today launching its green paper on science. Our message is simple: we need to strengthen British science - because British science can strengthen Britain.

We want to lead the debate about how business and government come together to grow science investment and maximise its role in building a high-skill, high-wage economy. We want a new culture of science and evidence in public policy. We want stronger universities with a bigger share of global science budgets and a bigger role in their regional economies. And crucially we want to strengthen every rung on the ladder that leads to a science and engineering career for our young people.

Liam Byrne MP is shadow minister for universities, science and skills and Labour MP for Birmingham Hodge Hill