CBI urges government action to boost earnings and productivity

The Confederation of British Industry (CBI) called on the Government on Monday to raise the National Insurance threshold and expand free childcare to toddlers aged 1 to 2 years to help boost living standards for working families and people on low incomes.

At its annual conference in London, the CBI launched a new report “A better off Britain,” which also included suggested long-term measures aimed at raising pay sustainably.

The report says there should be better routes into higher-skilled and better-paid work, a business-focus on improving productivity to increase pay, and measures to make sure students do not fall behind in school.

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Productivity measures the rate of production of each unit of input. For example, a car factory might measure productivity by estimated how many cars each worker produces in one day.

CBI Director-General, John Cridland, said:

“The financial crisis and the slow recovery have hit people’s finances hard. Living standards will gradually improve as the economy does. But growth on its own will not be the miracle cure. Even before the recession, the income of a child’s parents determined too many of their own life chances.”

“The UK needs to face up to some real long-term challenges. Changing skills needs, greater global competition and low social mobility mean for many the pathway to a better life is tough and far from clear.”

Low paid workers face tougher challenges today than before the financial crisis, Mr. Cridland says.

Mr. Cridland stressed that sticking-plaster fixes, like attacking the country’s flexible labor market or intervening in pay, are not the answers because they destroy jobs. The focus must be better investment on productivity, skills and training to get the best of Britain’s talents.

To ease pressure on low-paid workers and families the CBI calls for immediate action, including making childcare affordable and cutting employee National Insurance.

“Then we have to tackle the long-term issues. Higher productivity leads to better wages, so we must have a laser-like focus on boosting firms’ competitiveness. We also need to create better ladders to higher-skilled, higher-paid work and improve our education system for all, to overcome disadvantage. Business leaders need to step up to the plate, as well as politicians,” Mr. Cridland added.

The CBI says businesses want to help build a more prosperous country where all its citizens have the chance to get on in life. Building a stronger and fairer society is not only the right thing to do, it also makes good economic and business sense, it stressed.

Action on NICs and childcare

The average British couple with two children experienced an income decline of £2,132 per year between 2009-10 and 2012-13. For younger workers, working families and people on low incomes, recent years have been extremely difficult.

The CBI wants employee National Insurance Contributions (NICs) reduced now. The threshold at which NIC is paid by staff should be raised to £10,500, this should be done in a series of steps over the next six years.

For a dual-income household, this would mean an income boost of £363. The CBI believes this is more effective than increasing income tax allowances.

Free childcare should kick in as soon as maternity leave is over, says the CBI.

Since 2010, childcare costs have increased by 27%. This hike has hurt working families financially and stopped parents from either working altogether or increasing their hours.

The report suggests free childcare provision should be extended to 15 hours to all children aged 1 and 2 years, with the long-term aim of increasing the number of hours.

The CBI also recommends extending maternity pay to 52 weeks from the current 39 weeks, so that the gap between free childcare availability and maternity leave is closed.

CBI Deputy Director-General, Katja Hall, said:

“Cutting employee National Insurance and helping families with the cost of childcare will put more money directly into people’s pockets. Overhauling childcare in the UK would be a triple shot in the arm for our economy, raising family incomes, getting more adults into work and improving the life chances of many children.”

“Many parents want to come back to work or put in more hours, but can’t because of soaring childcare costs. It’s ludicrous that the average working couple in the UK now spends over a third of their joint income on childcare.”

Reducing employee National Insurance will help raise take-home pay for millions of workers, says Katja Hall.

Productivity focus

The United Kingdom’s productivity is still 16% lower than where it would have been had the global financial crisis not occurred. Improved productivity is vital not only for business success, because it helps make firms more competitive, but also for higher pay.

The Government needs a better understanding of productivity and how well various sectors are faring. However, ultimately improving productivity is a business challenge, not a government one.

The report recommends putting the Office for Budget Responsibility (OBR) in charge of gathering data on productivity and reporting on key trends and challenges, as is done by the Australian Productivity Commission.

The authors say that raising employee value-added should become a top business priority. The focus should be on areas like job design, management skills, innovation and investment.

The support network for smaller- and medium-sized enterprises should be simpler. Access to public sector contracts need to be improved, as should finance and exports support, the report says.

Mr Cridland said:

“The productivity challenge leaves many economists scratching their heads. There is no blanket solution – what value-added is varies from sector to sector and business to business. By working together on boosting investment and innovation businesses could make a real difference to growth and pay.”