The UK government’s Industrial Strategy is targeting eight sectors of the economy to address the country’s pressing growth challenge. Thomas Aubrey argues that firms in these sectors need to collaborate in a more formal way to articulate a growth plan using the potential of extended reality technology for the performing arts and museums subsector as an example.
Since 2019, UK labour productivity growth has become sluggish – growing on average between 0.3% to 0.5% per annum. This is significantly lower than the Office for Budget Responsibility (OBR) medium-run forecast of around 1% per annum. If this poor rate of growth is sustained it will have significant implications for the country’s fiscal outlook.
Unfortunately, the most recent growth data indicates a worsening economic environment. Between Q1 2024 and Q1 2025, labour productivity growth fell by 0.2% as noted in Table 1, and the flash estimate published by the Office for National Statistics (ONS) for Q2 2024 to Q2 2025 indicates it fell by 0.8%, although some of this fall may be due to statistical issues with the Labour Force Survey. This recent performance suggests that not only is the 1% OBR forecast looking unattainable, but it appears to be moving further away.
A disaggregation of the data, which can help understand the sectoral contributions to growth, does show a couple of bright spots. Between Q1 2024 and Q1 2025, Financial Services grew due to increased employment, despite its value-added falling. As Financial Services is a high value-added sector generating £109 per hour compared to the economy-wide figure of just £41, more jobs in the sector will boost growth. Information & Communication, which is also a high value-added sector generating £55 per hour, grew due to an increase in both value-added (within effect column) and the labour share (between effect column) indicated in Table 1.
Table 1: Sectoral productivity disaggregation Q1 2024 – Q1 2025[1]
An analysis of the growth in real gross value added (GVA) of Information & Communication in Table 2 reveals a variable performance across its subsectors. Growth in publishing activities (which includes printed material and software) continues to fall as it has been for many years, while Telecommunications – which is increasingly moving towards the status of an infrastructure provider – remains stagnant.
On the positive side, though, the Motion Picture Production and Broadcasting sectors have experienced good growth, as have Computer Programming and Information Service Activities – which include data processing. This raises the question, what can the government do to help boost growth in these dynamic sectors and help UK firms generate a competitive advantage internationally?
Table 2: Real GVA growth of Information & Communication Subsectors
With regards to Motion Picture Production and Broadcasting, the government has already published its Creative Industries Plan which importantly recognises the diverse nature of subsectors from Film & TV production and Video Games through to the Performing Arts and Advertising. While this recognition is to be applauded, there are still no delivery plans detailing how each subsector is going to raise its level of GVA and job creation. Without a detailed delivery plan, a strategy merely becomes an unachievable aspiration.
To deliver a growth plan requires groups of firms across the country to come together and collaborate. The Heseltine Review of 2012 correctly identified Trade Associations as being central in providing a coordinated voice to ensure a sector’s needs and plans for growth are articulated and understood. The challenge for the UK, as Heseltine noted, is that such associations are “fragmented, duplicative and often poorly resourced.”
The Review recommended the government nominate a Trade Association as the focus for its engagement with a particular sector to ensure a deeper understanding of the issues and opportunities involved. This is common in other countries where in Germany for example the Chemicals Industry is represented by the Verband der Chemischen Industrie. In contrast the UK Chemicals Industry has at least 14 different trade associations which has led to the formation of the Alliance of Chemical Industries to represent the plethora of trade associations.
The government’s response to this recommendation at the time was unhelpful stating that, “while the Government recognises the value that effective trade associations can provide in the development of industrial policy, it is not for government to nominate the trade associations it will choose to interact with.”
The challenge for the government is that growth takes place in firms across the country, and not in the corridors of Whitehall. So, without a clear body representing the future strategy of subsectors across the UK it is very difficult for the government to figure out how it can support and nurture ecosystems – it lacks sufficient information to do so. Furthermore, as the Creative Industries plan recognises, each subsector has very different drivers. Hence it is logical that each subsector ought to be represented by its own industry body which in turn can formulate and articulate its growth plan.
While the Creative Industries plan recognizes the UK has a competitive advantage in performing arts and museums, the listed government interventions will only have a marginal impact on this low value-added sector which generates just £28 per of value-added per hour. One reason for this low level of value-added is the lack of scalability of its content. Up until now, this sector has largely required individuals to be physically present to consume these services.
The rapid development of wearable Extended Reality technology could, however, result in a significant positive productivity shock for the subsector. If this technology advances, leading to consumers paying subscription fees to experience the latest art exhibition, theatre performance, gig or museum collection in the comfort of their home with friends and family, then by definition the sector would be able to generate additional revenue streams which will help drive up the value-added per hour. A survey carried out by the University of Glasgow indicates there is a great deal of interest from consumers to access content through new technologies.
To achieve this growth will require the content providers to come together with the technology and platform providers to formulate a plan on how the subsector can exploit this technology to drive growth. Instead of trying to find a magic growth lever in Whitehall, the government needs to focus on improving the institutional infrastructure for subsectors ensuring that each one is adequately represented by an industry body. Likewise, each subsector should recognise the need for a common voice to ensure government understands in enough detail the way its ecosystems and labour markets operate. While that won’t make interesting news headlines, it will more likely lead to higher rates of growth.
[1] The sectoral disaggregation uses GEAD (Generalized Exactly Additive Decomposition) based on Tang & Wang (2004). The ‘within’ effect is productivity growth in activities within the sector whereas the ‘between’ effect measures the change in relative size of sectors taking into account the reallocation of labour between sectors and changes in real output prices. e = estimated as ONS does not publish these values.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
