Why the Cost of Living Crisis Is Really a Productivity Crisis
This week, Rachel Reeves took the unprecedented step of making a pre-Budget ‘scene-setter’ speech. It was controversial for many reasons, and time will tell what unfolds in the actual Budget next week.
Yet, for those listening carefully, one theme stood out. Productivity lies at the root of many of the problems facing both our economy and our daily lives. The cost of living crisis isn’t just about prices. It’s about productivity – and our national inability to create more value from the work we already do.
“It is already clear that the productivity performance is weaker than previously thought.”
That’s a damning statement when you consider that average productivity growth over the last 17 years has tracked at just 0.4% per annum, compared with 2.3% before 2008.
Reeves continued:
“A less productive economy is one that produces less output per hour worked. That has consequences for working people – for their jobs and for their wages.” “Poor productivity means we are putting in more and getting less out.”
There is a direct link between the cost of living and our ability to raise productivity over time. Nearly two decades of lacklustre productivity growth is hurting us all – contributing to rising national debt and stagnant wages. And it can’t all be blamed on trains that don’t run on time or broadband that isn’t fast enough.When business leaders look to government and national infrastructure projects as the solution to the productivity puzzle, they overlook a massive opportunity to buck the trend and take charge of their own destiny.
Yes, better infrastructure will help. Yet unless an organisation understands the root causes of poor productivity, it won’t make a lasting difference. Other barriers – cultural, systemic, and behavioural – will still stand in the way.
Time for a Different Conversation
We need to start a different conversation about productivity. Leaders must recognise that improving productivity is within their control – if they understand the levers that drive it.
We can begin by understanding how productivity is measured. Most organisations are tracking the wrong things. Their metrics measure activity and busyness, not value.
Productivity is, at its core, a measure of value, which is why economists refer to Gross Value Added (GVA).
Value added is a powerful yet often forgotten figure in traditional accounting. When the focus sits solely on gross margin, we lose sight of the behaviours that truly drive value creation.
Value added is calculated by taking the total of everything we sell and deducting everything we pay for on invoice to achieve that. To convert this to productivity, we divide by the number of full-time equivalent employees.
This single number connects everyone in an organisation. Each person can influence at least one of three things:
Increase sales,
Reduce costs, or
Reduce the time spent delivering value by eliminating non-value-added activities.
Reframing the National Debate
Perhaps if we reframe the cost of living crisis as a productivity crisis, the topic of productivity will finally rise up the boardroom agenda.
It’s not unlike the early days of the climate change debate. Many people understood there was a problem yet felt powerless to make a meaningful difference. The productivity crisis is similar: we see it as a macroeconomic issue, detached from our individual influence – and so, we do nothing.
Maybe it’s time we stopped treating the cost of living crisis as something happening to us - and started treating it as something we can influence.
I’ve seen what happens when organisations take productivity seriously. One client increased output per person by more than 50% in a single year - without burning anyone out.
So here’s my challenge to every leader reading this:
👉 Measure your productivity the right way.
Forget activity metrics and focus on value added per full-time equivalent.
When you do, you’ll uncover just how productive your organisation really is - and how much untapped potential is sitting there, waiting to be unlocked.
It’s the starting point I outline in Unblock - because once you can measure productivity properly, you can finally start to improve it.
Imagine if thousands of organisations took the same approach – the national productivity figures would start to tell a very different story. That’s why the real solution to our cost-of-living crisis starts in the boardroom, not the Budget.
I’m Amanda Sokell. I speak at conferences and leadership events about organisational productivity and the culture shifts that unlock it. Through facilitation and coaching, I help leaders turn productivity from an agenda item into a way of working - building teams that deliver more value, with less friction. If you’re looking for an engaging speaker or facilitator to spark a different conversation about productivity in your organisation, let’s talk.