Dr Huanjia Ma recently contributed to a Business and Trade Committee call for evidence on behalf of City-REDI, University of Birmingham. This blog explores his submission.
The committee was trying to understand the major challenges facing UK businesses and the economy, including costs, regulation, skills shortages, and investment barriers. This in turn would help support the Government’s mission to accelerate economic growth, ensuring policies, regulations, skills systems and investment frameworks are aligned with business needs.
My submission helped to provide evidence for two questions from the committee.
- What are the main drivers of the UK’s productivity challenge?
- What role should technology, skills, and innovation policy play in boosting long-term output per worker?
The submission drew on a series of recent research outputs examining regional inequalities in skills and innovation, the effectiveness of public R&D investment, the geography of digital skill shortages, sectoral growth opportunities, the role of public anchor institutions in regional economies, and the conditions for delivering large-scale housing retrofit programmes, conducted at City-REDI. We believe our research consistently shows that regional capabilities in skills, innovation, and infrastructure are central to the UK’s long-term productivity performance, and that addressing these challenges requires regionally focused and evidence-based policy interventions.
What are the main drivers of the UK’s productivity challenge?
Evidence from our research suggests that the UK’s productivity challenge is driven by deeply embedded regional inequalities in skills, innovation investment, and the ability to absorb and diffuse new technologies.
Skills shortages and geographical inequality of shortages
The UK has skills shortages, which prevents UK from fully realising the opportunities for innovation-driven productivity growth in the age of digital era.
Ma et al. (2024) show that the UK faces persistent shortages across advanced, intermediate, and basic digital skills, with significant regional variation in the severity of shortages. The devolved nations report the highest shortages in advanced digital skills, alongside marked pressures in London and the South West. The modelling demonstrates that without intervention, these shortages are expected to lead to substantial reductions in economic output and employment, with estimated economic losses rising from £4.4 billion in 2024 to £27.6 billion by 2030, and employment losses increasing from around 260,000 FTEs in 2024 to over 380,000 FTEs by 2030. These findings indicate that digital skill constraints represent a structural barrier to productivity growth, limiting firms’ ability to adopt technologies across both high-tech and foundational sectors. In particular, the modelling suggests that sectors with low- or medium-digital skill requirements are also substantially affected, despite their lower direct demand for digital skills, driven by supply-chain spillover effects, with low-tech sectors facing costs of up to £14 billion by 2030.
Kollydas et al. (2025) show that regional differences in the concentration of the R&D workforce contribute to spatial disparities across the UK. Using a cross-economy definition of R&D-related occupations, they estimate that 2.8 million people were employed in R&D activities in 2023, up from 1.7 million in 2012. However, areas such as Wales and Yorkshire and the Humber consistently have the lowest shares of their workforce in these occupations. London showed the largest increase in R&D occupation intensity between 2012 and 2021. These patterns are explained (at least in part) by regional differences in qualification levels and industrial structure. These disparities should also mirror regional productivity gaps. The report shows that demand for specific high-value digital occupations is disproportionately high: “programmers and software development professionals” and “IT business analysts, architects, and systems designers” accounted for 42.4% of all R&D job postings between 2013-2022. Wage disparities reinforce these shortages: average hourly wages in R&D roles were £21.28 between 2012-2021, compared with £14.56 for non-R&D roles. Nevertheless, real wages fell for R&D workers over the decade. In addition, regional recruitment challenges are substantial. For instance, in the East Midlands, 63% of vacancies in R&D-intensive sectors were skills-shortage vacancies, compared with only 22% in London.
Moreover, the report reveals demographic inequalities in access to R&D careers. Such inequalities likely weaken the UK’s productivity potential. More specifically, men are nearly three times more likely than women to work in R&D occupations (8.8% vs. 3.1%). Similarly, Bangladeshi (4.1%), Black (4.7%), and Pakistani (4.8%) people are less likely to participate in the R&D workforce compared with the overall average of 6%. People with long-term health conditions and those with learning difficulties are also underrepresented in the R&D workforce. These patterns indicate an underutilisation of available talent. This, in turn, limits the diversity of ideas, skills and innovation capabilities that drive productivity growth across industries and regions.
Systematic Barrier in Innovation
Research on public R&D spending patterns (Ma et al., 2024) shows that regions differ substantially in R&D spending, and the geographical inequalities significantly hamper the growth of innovation. In particular, the work highlights the inter-regional linkages in R&D sectors and high-tech sectors. There is a lack of external spillover effect from London and the Greater South East (GSE) to the rest of the UK regions, leading to investment concentrated in the GSE, which yields limited benefits to the rest of the country. The paper further highlights that regions with weaker absorptive capacity—owing to gaps in skills, institutional infrastructure, or firm capability—exhibit systematically lower returns. This uneven capacity to benefit from R&D exacerbates territorial disparities in productivity performance.
Taken together, these studies show that the UK’s productivity problem is primarily a regional capability problem, shaped by disparities in digital and R&D skills, uneven absorptive capacity, and weaknesses in systems that support innovation adoption outside the most research-intensive regions.
How will the Government’s housebuilding and infrastructure investment plans boost regional economies?
Evidence from Rafique (2025a, 2025b and 2025c) highlights how investment in retrofitting social housing can support regional economic development and offer lessons for the Government’s wider housebuilding and infrastructure plans. The research shows that retrofit programmes create significant opportunities for local job creation, support regional supply chains, and stimulate the development of green construction and retrofit-related skills. When funding is stable and procurement systems are designed to favour local participation and longer-term partnerships, these programmes help anchor economic activity in the region and crowd in private investment. However, the full benefits of local procurement are yet to be realised despite its potential benefits. Between 2015 and 2024, 64% of solar PV suppliers were SMEs, demonstrating strong potential for local economic uplift when procurement provides stable and predictable demand. However, the current procurement landscape remains fragmented, with over 70% of suppliers winning only one contract, most contracts lasting less than 12 months, and awards were concentrated in London and the South East.
Rafique (2025a) finds that fragmented procurement practices, inconsistent standards, and skills shortages in the retrofit workforce limit the realisation of these benefits. These constraints reduce the potential economic gains and slow progress on improving housing quality and energy efficiency. The implication for housebuilding and infrastructure investment is that they can deliver substantial regional economic boosts, but only if they are supported by coherent delivery systems, investment in skills pipelines, and long-term policy and funding commitments that give firms the confidence to invest in capacity, innovation, and higher-quality jobs in the places where projects are delivered.
Conclusion
The evidence presented highlights that regional inequalities in Digital and R&D skill shortages, combined with uneven innovation investment and weak diffusion outside the Greater South East, all contributed to the current productivity challenges.
The evidence submitted also revealed that the findings from retrofit procurement underline that large-scale investment in housing and infrastructure can generate substantial regional benefits, but only when supported by coherent delivery systems, stable funding, and investment in local skills. Together, these insights point to the need for sustained, place-based policy approaches that strengthen the foundations of productivity across all regions.
This blog was written by Dr Huanjia Ma, Research Fellow, City-REDI, University of Birmingham.