Sir Nicholas Soames: To ask Mr Chancellor of the Exchequer, what assessment his Department has made of the reasons for the scale of the productivity gap.

Greg Hands, Chief Secretary to the Treasury: The government set out its understanding on the reasons for the productivity gap in Annex A of the Productivity Plan, published in July 2015 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443898/Productivity_Plan_web.pdf, pages 77-82).

A number of factors contribute to the UK’s lower level of productivity compared to the most productive countries in the world, including lower levels of investment, especially in research and development. There are a further set of explanations for the shortfall in performance post-crisis, including impaired resource allocation in the economy, the disproportionate impacts on some high productivity sectors, substitution of labour for capital, labour hoarding in the initial phase of the recession and measurement issues.

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