Annabel Denham

Working from home won’t fix Britain’s productivity

Why is Britain’s productivity so stubbornly low? Output per worker increased just 0.1 per cent in the year to April. Across swathes of the economy it is in absolute decline. 

One theory, posited by those brave enough to voice unfashionable opinions, is that working from home is dragging down productivity growth. This has been dismissed by unions and the Labour party, who go to great lengths to show flexible working boosts output. Workers, they say, will get more done with fewer breaks, take fewer sick days, and are less likely to change jobs. 

Such claims should be taken with a pinch of salt. According to new data from the Office for National Statistics, productivity in London tumbled in 2022, taking output per hour worked to its lowest level since 2009. Economists have suggested remote working, more prevalent in the capital because it has a larger proportion of office staff, is partly to blame.

There are caveats. Correlation is not causation, and productivity is a slippery concept. Changes in the way estimates are made, and movements in output between sectors, can produce spurious effects. But it comes to something when the capital’s output lags behind other parts of the country. Even in early last year, 18 months after the pandemic, almost 60 per cent of London’s workers were either entirely at home or hybrid working.

Before the global financial crisis, our productivity growth ticked along at roughly 2 per cent per year. Since then, it has been dismal, but has deteriorated sharply recently. In the first quarter of this year, it shrunk by 0.3 per cent. An hour’s work in Germany now produces 19 per cent more than an hour’s work in Britain. An American worker produces 25 per cent more than their British counterpart.

It is difficult to overstate the damage stagnant output is wreaking on our economy. Getting more from less has always been the key to rising living standards. When productivity grows, so do company profits and staff wages. This leads to stronger growth, a bigger economy, rising tax revenues and smaller borrowing bills. It is the silver bullet in the chamber, yet politicians are unwilling or unable to pull the trigger.

If Angela Rayner gets her way, this problem could worsen substantially. Labour seem convinced that, after the Tories spent 14 years handing workers new entitlements, more labour market regulation is needed. 

Pay in real terms is now two to three times what it was 50 years ago. We work shorter hours and have longer holidays, in jobs that are less dangerous and less dirty. We have employment protection, parental leave, and a range of mandated benefits. Never has a generation of workers had it so good. Still, they are miserable.

Alongside the push from Labour and the unions for more rights – to disconnect, to four-day weeks, to work flexibly from day one of a new job – a new ‘anti-work’ movement is thriving. Gen Z women are turning their backs on hard graft in favour of ‘lazy girl’ jobs. Young people are ‘acting their wage’ and ‘quiet quitting’, all euphemisms for doing the bare minimum. They’re doing so against a backdrop of 900,000 vacancies: employment is, for now, a seller’s market. 

It’s hardly surprising that many workers will want to work from home. Doing so reduces – or even removes – the tedium of commuting, and saves hard cash. It may allow staff to live in more remote areas, in more spacious homes with more spacious gardens. Though Labour have attempted to make the business case for more workers’ rights, the term has come to focus almost entirely on the perceived benefits to workers. But, were these new practices so beneficial, compulsion wouldn’t be needed. Presumably, however, many firms are worried that flexibility will impose significant costs.

Hence why tech companies including Google, Meta, Apple, Amazon and, somewhat amusingly, Zoom have all ordered employees back to their desks. Many banks have followed suit. The government is trying to take a similarly tough stance, but the PCS union, which called a strike ballot in April, is a thorn in its side. Jim Ratcliffe, the Manchester United boss, issued staff with a time-limited ultimatum: presenteeism or redundancy. 

Are such demands unreasonable? Undoubtedly there are some jobs which can be performed as well, if not more productively, from home. But bosses are understandably nervous, and reports of a rise in ‘mouse jigglers’– those who simulate computer activity and appear to their bosses as though they are doing work – won’t dispel their concerns.

Contrary to what some progressives believe, the purpose of providing employment is not to enhance the wellbeing of employees, but to create something useful which justifies paying wages. The purpose of businesses is to provide products and services people want to buy.

If flexible working suits both sides, let them come to voluntary arrangements. But employers don’t need more burdens, they need fewer. And our once thriving-capital needs more staff at their desks.