How leasing can help to tackle the UK’s productivity gap

Productivity is a guide to the efficiency with which a country delivers its goods and services. With apologies for some early jargon, the technical definition is ‘the rate of output per unit of input, measured per worker or by the number of hours worked’. To give a simple example, if a factory makes 1000 trucks a year with 100 workers, it is twice as productive as one which requires 200 workers to achieve the same output. The maths get a little more complicated when allowance is made for the quality of goods and services produced, but the principal remains the same.

For the last 25 years the Office for National Statistics has published an international comparison of productivity, and for those of us in the UK, their recent reports do not make happy reading. UK productivity is currently 18% lower than the average six other members of the G7 (the US, Japan, Germany, France, Italy and Canada). The gap with Germany and the US stands at 35% and 30% respectively. The gap with other rich countries has grown significantly since 2007.

Whilst our economy, as measured by GDP, has grown as strongly as other G7 countries over recent years in spite of lagging productivity, the differential is set to become a much more significant factor to our future success. This is because leaving the EU, and almost certainly its associated trading blocs, will require us to seek new export markets. Many expect us to be able to negotiate a free trade deal with the US, but it will be difficult to exploit that opportunity if our productivity remains 30% below that of theirs and the same will apply to any other new trading partner. With a large productivity gap, our own companies, even if they only operate within the UK, will be at risk from foreign competition and we will struggle to take advantage of any new export opportunities. In other words, new free trade agreements are as much a threat as an opportunity.

So where does leasing fit into the picture? The answer lies in examining why our productivity performance has been so poor over recent years. Perhaps the most significant explanation has been that the supply of relatively cheap migrant labour since 2008 has replaced investment in capital equipment as a means by which UK companies have increased their output. The recent introduction of the ‘living wage’, and the probable future restriction of EU migration, is likely to mean that this supply of relatively low paid workers will be curtailed and companies will be forced to change their business models by investing in new technology as a means of increasing their output Such a change will result in an immediate increase in productivity.

The new challenge demands that many UK businesses will have to engage in rapid capital investment programmes, the downside is that such programmes will put budgets under pressure. Leasing offers a perfect solution to such budgetary constraints by allowing companies to spread the cost of acquiring new equipment on affordable terms, making them able to invest now in the technology they need to close the productivity gap with their foreign competitors.

As we move into more uncertain times it is essential that capital equipment suppliers ensure they are fully aware of the leasing packages on offer, many of which are tailor-made to suit the specific requirements of the products and services they provide.

Andy Milson, Head of Partner Training & Development at BNP Paribas Leasing Solutions

Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.

If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.