A positive new report raises the question: was Reeves undermined by dodgy data? | Heather Stewart

A new assessment from the Centre for Economic Performance at the London School of Economics (LSE) has unveiled a significantly more optimistic picture of UK productivity than previously understood. This analysis suggests a "meaningful pickup" in productivity since mid-2024, with annual growth estimated at approximately 1.6%, a stark contrast to the 0.3% average observed in the preceding decade. This revised outlook challenges the prevailing narrative that has shaped recent economic policy and public discourse, particularly concerning the UK's long-term economic challenges. The LSE report, co-authored by former Rachel Reeves advisers John Van Reenen and Anna Valero, alongside Niki Barbas, posits that the UK's economic strength may have been systematically underestimated due to issues with official data collection. The implications of this reassessment are substantial, potentially altering the understanding of the UK's post-2008 recovery and its current economic trajectory. The findings also hint at potential drivers for this uplift, including the nascent impact of artificial intelligence in certain sectors, offering a more hopeful perspective on future economic development.

ONS Figures

The core of the data discrepancy lies with the Office for National Statistics (ONS), which withdrew the accredited official statistic status from its Labour Force Survey (LFS) in 2024 due to plummeting response rates. This critical failure in data collection meant that the Office for Budget Responsibility (OBR) had to rely on potentially unreliable figures when making its productivity projections. The LSE assessment, in contrast, utilizes an alternative dataset published by the ONS, which is based on information companies provide to tax authorities through the PAYE system, supplemented by other sources for the self-employed. The differences between these two data sources are profound: while the LFS recorded a 377,000 increase in employees since mid-2024, the tax-based measure indicated a decline of 133,000. This significant divergence in workforce size directly impacts productivity calculations, as a smaller estimated workforce, combined with the same output, naturally leads to higher per-worker productivity figures. The article underscores the urgent need to address these "gaping holes" in the UK's jobs data, highlighting the ONS's ongoing efforts to develop a new, more efficient online version of the LFS to improve accuracy and response rates.

Rachel Reeves

The new productivity estimates raise a critical question about the economic context in which former Chancellor Rachel Reeves operated. Last year, Reeves spent months grappling with an OBR downgrade in productivity projections, from 1.3% annual growth to 1%, which had significant knock-on effects for the public finances. Weaker productivity projections translated into lower anticipated tax revenues and a larger public deficit, contributing to a "gloomy sense" that Labour was overseeing an economy plagued by intractable long-term challenges. This downgrade necessitated a larger "tax grab" in her budget to meet fiscal rules and fund Labour's welfare commitments, limiting her room for manoeuvre. The LSE's markedly different picture suggests that, had more accurate data been available, the OBR downgrade and the subsequent political and fiscal headaches for Reeves might have been avoided. While it's too early to definitively attribute the productivity uplift to specific policies, former Reeves adviser John Van Reenen points to her initiatives, such as increased public investment and streamlined planning rules, as potential contributors to a sustained improvement. This retrospective analysis offers a new lens through which to view Reeves's chancellorship and the challenges she faced.