UK industry lagging badly behind rivals: DTI report shows productivity hampered by low skills base and low investment in research and development

BRITISH industry is lagging badly behind its international rivals with a productivity gap of about a quarter compared with France, Japan and Germany, according to a report on competitiveness yesterday from the Department of Trade and Industry.

The report, released in the form of a memorandum to the Commons Trade and Industry Select Committee, showed that expenditure on research and development had slipped behind in the past decade, with British industry now spending less as a proportion of GDP than Japan, Germany, France or the US.

The study, drawn up by the DTI's competitiveness unit, was a sanitised version of the report sent to the Prime Minister, John Major, earlier this year and was shorn of the critical comments and conclusions contained in that document.

Nevertheless, it still conveyed a picture of a manufacturing base struggling to reach an even par with those of competitor nations and bluntly described the UK's long-term performance as disappointing.

Although the report said that manufacturing productivity rose sharply in the 1980s it conceded that the gap with other advanced economies had been only partially closed. It cited the UK's 'low skills base' and the lower standards of overall educational attainment than in competitors.

In terms of value added per hour worked in manufacturing the gap between Britain and three other nations - Japan, Germany and France - stood at 20-25 per cent while it was nearer 70 per cent compared with the US.

Commenting on the report yesterday, Tim Sainsbury, the industry minister, chose to highlight how much better Britain had performed in terms of industrial relations, easing the burden of taxation on business, reducing state aid and attracting inward investment.

Mr Sainsbury also argued that although Britain's record had been poor in the 1960s and 1970s, UK manufacturing productivity in the 1980s had shot to the top of the growth league among G7 industrialised nations.

However, he conceded that there was still a significant gap to close and warned industry against resting on its laurels.

'Even if this report showed we were as competitive as anywhere in the world I would still say let's not relax,' he said.

The Confederation of British Industry's national manufacturing council called last autumn for a 5 per cent increase in productivity each year for the next decade.

But Mr Sainsbury was cautious about endorsing any specific timescale for improvement, saying the onus was on individual industries and companies to compare their productivity month by month with the benchmark standards set by the best world performers.

Giving evidence to MPs on the select committee earlier in the day, Bob Dobbie, the head of the DTI's industrial competitiveness division, laid some of the blame for industry's poor showing on management saying that the performance at the end of the tail needed to improve significantly.

In other written evidence submitted to the committee the DTI conceded that direct government support for manufacturing industry was lower in Britain than the European average and less than in France, Germany or Italy.

However, it also argued that support for industrial competitiveness could not be judged simply on the basis of the level of state aid, pointing out that the burden of regulatory and non-wage costs imposed on industry by government was substantially lower in Britain than in Italy, France, Germany or the US.

The report steered clear of assessing competitiveness on an industry- by-industry basis or distinguishing whether Britain's performance was better or worse than the average in strategic industries such as pharmaceuticals, aerospace and electronics.

However, Mr Sainsbury said that comparative analyses were now being undertaken by the DTI's sector groups, although he could not say whether these would be published.