Lack of innovation is causing UK productivity gap

London School of Economics finds UK labour productivity levels are below our major competitors

Better skills are key to improving labour productivity levels

UK labour productivity is lagging behind the rest of Europe and the US, according to a new study.

The London School of Economics' Centre for Economic Performance has found GDP per hour worked in the UK is 13 per cent lower than Germany, 18 per cent lower than the US and 20 per cent lower than France.

The report suggests the reason for the UK’s poor productivity performance is a lack of innovation, skills and a weakness in management.

GDP growth since 1997 has not been achieved from efficiency improvements but is due to increases in employment and technology capital.

The report suggests the key to improving productivity is better skills and research and development.

In 2004 the UK spent 1.1 per cent of GDP on business research and development activities compared with an average of 1.7 per cent in France, Germany and the US - a decline from the 1981 UK figure of 1.81 per cent.

The study also finds that poor research and development activity may not necessarily be the reason for low productivity as new technologies can be adopted from abroad.

The problem may lie in the inability of UK firms to adopt and deploy innovation efficiently.