How the UK and Scottish governments can revitalise productivity

Productivity drives economic growth, raises living standards, and enhances the overall well-being of society. However, the UK and Scotland have faced a prolonged period of sluggish productivity growth. Despite the advancements in technology and artificial intelligence (AI), productivity levels have stagnated, hampering economic progress. To address this challenge, the UK and Scottish governments must rethink their approach and implement forward-looking policies that leverage technological advances, nurture innovation, and embrace structural changes. I explore below how targeted policies can reignite productivity, driving economic success and prosperity for future generations.

Fuelling innovation

Innovation is a key driver of productivity, and it begins with robust investment in research and development (R&D). By encouraging both private and public sector investment in R&D, the UK and Scottish governments can create an environment where breakthrough technologies, efficient production methods, and reliable supply chains emerge. This can be achieved by expanding the scope of tax relief programs such as the research and development expenditure credit (RDEC), encouraging companies to allocate more resources to innovation.

Both governments must rethink support for universities and research institutions, which are crucial hubs for scientific breakthroughs. By increasing funding for research councils and strategically developing regional innovation clusters, particularly in cutting-edge fields like AI, biotechnology, and renewable energy, the UK and Scotland can accelerate the translation of academic research into real-world applications. The creation of “Superclusters” would bring together private industries, universities, and public institutions to collaborate on pioneering projects, driving economic activity and boosting productivity across sectors.

• Expand R&D tax credits to incentivise broader categories of innovation across industries, especially SMEs.
• Establish regional Superclusters with a focus on emerging fields like AI, Life Sciences/MedTech, and space to drive collaboration between private industries and academic institutions.

Building world-class digital infrastructure

In today’s digital economy, a robust and high-speed digital infrastructure is non-negotiable. Reliable broadband connectivity allows businesses to thrive, scale, and compete in a global marketplace. Governments must prioritise the expansion of nationwide high-speed broadband, ensuring that even rural areas have access to the digital economy’s benefits.

The next frontier in digital infrastructure is the rollout of 5G networks. By accelerating the deployment of 5G, the UK and Scotland can enable businesses to adopt advanced technologies like the internet of things, smart manufacturing, and machine learning. These technologies will not only boost productivity but also help businesses streamline operations and reach wider markets. Furthermore, unlocking the NHS’s vast longitudinal data for AI-driven healthcare innovations will create opportunities for ground-breaking advancements in healthcare delivery, both improving patient outcomes and driving productivity within the healthcare sector.

• Invest in nationwide 5G infrastructure to unlock advanced technologies like internet of things, enabling smart manufacturing and enhancing business efficiency.
• Utilise NHS data to develop AI-driven healthcare solutions that improve both productivity and patient care.

Targeting key sectors with industrial strategies

Strategic industrial policies play a pivotal role in improving productivity by focusing on sectors with high-growth potential. For instance, investing in green energy and sustainable practices not only addresses climate change but also opens up opportunities for innovation and productivity gains. The shift towards a green thriving economy can transform industries like energy, manufacturing, and construction, positioning the UK and Scotland as leaders in the global sustainability movement.

Supporting the adoption of advanced manufacturing techniques such as automation, robotics, and AI will also revolutionise productivity in key sectors. By nurturing industries that are primed for growth, governments can create innovation clusters that spur economic development, generate high-paying jobs, and contribute to long-term productivity gains.

• Invest in renewable energy and sustainable technologies to position the UK and Scotland as global leaders in green industrial innovation.
• Encourage advanced manufacturing techniques, such as automation and AI, in sectors like healthcare and manufacturing to drive productivity gains.

Empowering SMEs

Small and Medium-Sized Enterprises (SMEs) are the backbone of the UK and Scottish economies, accounting for over 93% of private businesses. SMEs play a crucial role in driving innovation but often face challenges in scaling up and adopting new technologies. By providing targeted access support to niche specialist incubators, and accelerators—the government can help SMEs thrive.

Additionally, easier access to financing options like low-interest loans, venture capital, and pension fund investments can empower SMEs to invest in new technologies and expand their operations. The introduction of Mansion House Reforms, designed to unlock pension funds for growth investments, is one such approach that can inject much-needed capital into SMEs, allowing them to scale and innovate.

• Provide targeted support for SMEs, including access to funding and mentorship programs, to help them adopt new technologies and scale their operations.
• Unlock pension funds for SME investment through innovative financial reforms, boosting entrepreneurial growth and competition.

Embracing a dynamic workforce

As industries evolve, availability of talent is critical, and the workforce ought to adapt. Retraining, reskilling, and upskilling workers is essential to ensuring that they remain competitive in emerging industries. By investing in lifelong learning and continuous professional development, collaborating with businesses to design training programs that meet current industry needs will bridge the skills gap and ensure that workers are equipped to meet the demands of the digital and green economies. Exploring innovative solutions such as Skilled Talent Visa programs tied to specific regions and sectors with skills shortages can also help boost productivity in underserved areas.

• Invest in retraining and reskilling programs to ensure the workforce remains agile and adaptable to new, high-productivity industries.
• Introduce region-specific Skilled Talent Visa programs to attract and retain workers in sectors facing critical skills shortages.

Revitalising productivity in the UK and Scotland requires a multifaceted approach that embraces technological innovation, invests in key sectors, and supports a dynamic, skilled workforce. By focusing on R&D, enhancing digital infrastructure, empowering SMEs, and promoting a green economy, the UK and Scottish governments can overcome stagnation and unlock future growth. The time to act is now—through smart policies and strategic investments, our nation can build a prosperous, resilient, and equitable future for all.

Dr Poonam Malik FRSE FRSB, Board Member, Scottish Enterprise and Skills Development Scotland; Chair and Co-Founder, Microplate Dx Ltd; RSE Economy and Enterprise Committee Member