This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.bbc.co.uk/news/business-41564851

The article has changed 5 times. There is an RSS feed of changes available.

Version 1 Version 2
UK's low productivity blamed on 'zombie' companies UK productivity growth to remain sluggish, says OBR
(about 1 hour later)
"Zombie" companies, kept alive by low interest rates, have contributed to the UK's low productivity, according to former cabinet secretary Lord O'Donnell. Economic productivity in the UK will grow only weakly in the next five years, according to the government's economic watchdog, the Office for Budget Responsibility (OBR).
Firms with low productivity have survived, keeping employment high, he said. A review of its own past forecasting says productivity has grown by just 0.2% a year for the past five years, much less than expected.
But that meant lower output per worker. This trend will improve only slightly, the OBR says.
The Office for Budget Responsibility (OBR) is expected to say later that productivity has been growing more slowly than it predicted. It blames low investment by firms, and the impact of low interest rates.
The OBR, whose forecasts form the basis of the chancellor's Budget decisions, is expected to confirm that it has been overoptimistic in its forecasts for productivity growth over the past seven years. That particular policy, it said, had kept alive some weak businesses which in more normal times would have folded.
Productivity has grown only very slowly, which some economists suggest may hinder the growth of government tax revenues. The OBR argued that continued low productivity was a problem because it would hinder the ability of the UK economy to generate increased tax revenues for the chancellor, though it will not be the only factor in play.
Smaller pie "Other things being equal a downward revision to prospective productivity growth would weaken the medium-term outlook for the public finances, while a lower sustainable rate of unemployment and more hours worked would strengthen it," the OBR said.
Lord O'Donnell, who served as Cabinet Secretary until 2011, said the lack of productivity growth in the UK could in part be explained by the way the economy was shored up following the 2008 financial crisis. The trade union organisation the TUC blamed the government for this "self-inflicted wound".
He said moves to increase bank capital meant that lending to new, innovative companies, which would have been more productive, dried up. "Years of cuts, low public investment, and rising job insecurity have taken a heavy toll," said the TUC's general secretary Frances O'Grady.
"Also interest rates were set to virtually zero which meant a lot of very poor companies that would have gone bust with very low productivity have been kept alive - zombie companies," he told the BBC's Today Programme A Treasury spokesman rejected that analysis, and said the UK economy had grown strongly in recent years.
"Productivity has been a longstanding challenge for the UK economy, which is why we are focussed on boosting our performance to deliver higher living standards and build an economy that works for everyone," he said.
'Zombie firms'
Earlier, the former cabinet secretary Lord O'Donnell told the BBC that although low interest rates - designed to shore up the economy after the 2008 financial crisis - had kept "zombie" companies alive, thus boosting employment, this had also led to lower output per worker.
"Interest rates were set to virtually zero which meant a lot of very poor companies that would have gone bust with very low productivity have been kept alive - zombie companies," he said.
"Our recovery has been quite employment-strong."Our recovery has been quite employment-strong.
"Unfortunately it has been productivity light, so those extra people who are working aren't producing so much, so overall the pie isn't growing as fast as we'd like it to be." "Unfortunately it has been productivity light, so those extra people who are working aren't producing so much, so overall the pie isn't growing as fast as we'd like it to be," he added.
'Horribly wrong'
While productivity growth has slowed in many countries in recent years, the UK is a particular laggard, presenting a challenge to policy makers.
Paul Johnson, director of the influential think tank, the Institute for Fiscal Studies, said things had "gone horribly wrong" with UK productivity since the financial crisis and that the chancellor's room for manoeuvre in the Budget next month had now "diminished quite a lot".
"It is slightly embarrassing [the OBR] have assumed each year that productivity would return to its long term trend and each year they've pushed that back a little bit further," he said.
Mr Johnson said the big question now was how optimistic the OBR's revised analysis would be, when it is published alongside the Budget on 22 November.
"Are they going to say: look this isn't going to happen any time soon... productivity isn't going to grow much for another three to four years.
"If they do that, that really will drive a coach and horses through the chancellor's Budget plans," he said.