The recent economic report has sparked a debate about the UK's productivity and the potential impact of dodgy data on the government's policies. The report suggests that the UK's productivity has been underestimated, with a "meaningful pickup" in productivity since mid-2024, up from an average of 0.3% in the previous decade to about 1.6%. This contradicts the prevailing narrative since Labour came to power, where Rachel Reeves, the former Chancellor, faced a productivity downgrade from the Office for Budget Responsibility (OBR) from 1.3% annual growth to 1%.
The OBR's rethink was a result of the long-term failure of productivity growth to bounce back after the 2008 global financial crisis. This downgrade contributed to a gloomy sense that Labour was overseeing an economy beset by intractable long-term challenges, leading to a larger tax grab by Reeves to rebuild headroom against fiscal rules and pay for Labour's welfare U-turn.
The new estimates from the Centre for Economic Performance at the London School of Economics (LSE) paint a different picture. The LSE co-authors, including former Reeves advisers John Van Reenen and Anna Valero, use estimates made by the Resolution Foundation thinktank, which relies on an alternative dataset published by the ONS, based on what companies tell the tax authorities through the PAYE system. The differences are wide, with the LFS recording a 377,000 increase in the number of employees since mid-2024, while the tax-based measure shows a decline of 133,000.
This raises the intriguing possibility that, with better data, the OBR downgrade and the massive headache it created for the then-chancellor could have been avoided. Van Reenen suggests that the best current guess does suggest that the UK is getting more out of its workers than it used to, and dismisses the idea that what has happened is just layoffs among low-skilled workers. It's too early to say what may be driving an uplift in productivity, but one hypothesis is that AI is starting to bear fruit in some sectors.
The latest official GDP figures showed business investment rising strongly, though experts were quick to caution that it could be reversed as high energy prices take their toll. The wide discrepancy with the official figures underlines the urgency of fixing the gaping holes in the UK's jobs data earlier and more effectively. The ONS has been developing a new, online version of the LFS, which appears to be turning up slightly different results, including lower levels of long-term sickness.
However, the UK has had no national statistician, the head of the ONS, for more than a year since Ian Diamond resigned in May 2025. This ongoing vacancy hardly speaks of burning urgency in Whitehall. Some of Labour's worst domestic struggles over the past two years, from winter fuel to the welfare row, were self-inflicted. As Reeves returns to the back benches this autumn, she could be excused for feeling that her challenges at No 11 were exacerbated by dodgy data.
