Resolution Foundation

Firms

For firms, the coming decade must be better than the last one. Over the past decade, the UK has experienced its weakest productivity growth in 120 years, and lost ground relative to other countries such as the US, France and Germany. The poor performance of firms has fed through into pay packets too – at the start of the 2020s the typical worker still earned less in real terms than before the great financial crisis. UK firms also invest less than their international peers. International evidence suggests that UK firms tend to be smaller, domestically-focused and particularly concentrated in service sectors; suffer from relatively poor management, on average; and with low levels of ICT adoption relative to other OECD countries. Gross Research and Development spending, both private and public, has been persistently lower than in comparator countries such as France, Germany and the US.

The 2010s was the worst decade for productivity growth in 120 years

The 1980s were a period of rapid economic change and high average growth in productivity and output. In contrast, over the past ten years, the reallocation of firms between different sectors fell to its lowest level in the last decade since the 1930s.

The UK has internationally leading universities, business and financial services and creative industries, and internationally competitive firms in many other sectors, including aerospace and other advanced manufacturing. These revealed strengths reflect underlying comparative advantages that will be expressed differently as the UK’s trading relationships evolve post-Brexit and the economic backdrop shifts in response to Covid, Net Zero and technological change. Given the likely acceleration of economic change that the UK will be facing in the 2020s, it is crucial to understand the causes and precise nature of the firm dynamism and firm-level change in the UK