Many of the UK's businesses are stuck in "survival mode" and are either unwilling or unable to invest to improve productivity, it has emerged.
Research carried out by the CIPD (Chartered Institute of Personnel and Development) found that one-fifth of the 920 private and public sector organisations questioned said they had been in "survival" mode for a long time and were not able to improve their performance.
The problem was worst in the public sector, which is under pressure to boost productivity following deep funding cuts. The research found that nearly 40 per cent of public sector organisations said they lacked the finance or skills to increase investment and productivity.
Commenting on the report, Mark Beatson, chief economist at the CIPD said that many organisations were scarred by the 2009 recession and still had a "glass half empty". He noted that this could be particularly problematic with the upcoming rise in minimum wage.
"We need these businesses to recognise the current opportunities for growth, innovation and investment [...] Unless they can do this, it's questionable how many companies will be able to absorb the planned national living wage without an adverse impact on employment levels," he said.
Productivity and pay
Recent figures indicated that UK workers are about 20 per cent less productive than the average among the G7 nations. Chancellor George Osborne's move to increase the minimum wage could improve those numbers – if companies choose to invest more in machines and training to make their low-paid workers more productive.
Critics of Mr Osborne's plan say that employers could also respond to higher wage costs by raising prices, accepting lower profit margins or cutting jobs.
John Cridland, director-general of the CBI business lobby, said that Mr Osborne was approaching the problem of productivity and pay backwards – that productivity should set the pace of pay increases.
"Artificially increasing pay is a gamble that will hurt smaller businesses, as well as those operating in care, retail, hospitality and food manufacturing sectors," he said, adding that the national living wage would also affect companies that provide services to the public sector.
"Like any other business, they may not be able to sustain enforced pay rises while continuing to provide the quality and range of services," he said.
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