BANK of Scotland is bidding to kick-start the UK’s lamentably poor productivity levels by inviting Scottish firms to tap into a new £500 million funding pot.

The bank, owned ultimately by Lloyds Banking Group, has set up the fund to offer asset finance for firms looking to invest in high-spec machinery, automation and other technology.

It comes as the productivity rate in the UK continues to disappoint when compared with other advanced economies, including France, Germany and the US. Figures from the Office for National Statistics (ONS) showed that the headline measure of labour productivity – output per hour – fell by 0.1 per cent between April and June. That signalled that productivity growth in the second quarter was below the peak achieved immediately before the economic downturn of 2008. Some economists attribute poor productivity rates to the decline in real wage growth in the UK.

Bank of Scotland, which is launching the pot today, believes its asset finance funding will be of particular benefit to small and medium-sized enterprises in the manufacturing, construction, agriculture and transport industries, where it argues the cost of machinery and vehicles is high and the need to drive up productivity is pressing.

It claims that, instead of making hefty one-off outlays up front, firms can spread the cost of capital investment over time using asset finance, avoiding a drain on working capital.

Fraser Sime, regional director in Bank of Scotland’s commercial banking division, said: “The UK’s low level of productivity compared with its G7 peers remains a challenge, and it’s crucial we work closely with businesses to ensure they have the tools they need to make efficiencies and grow.

“This asset finance fund shows our commitment helping businesses in Britain prosper.”

The bank’s commitment to providing the asset finance follows research carried out by Lloyds, which concluded that inadequate investment was a key barrier to improving productivity. Feedback from respondents in the manufacturing sector highlighted in the report, titled “Understanding the Puzzle”, suggested the purchase of new machinery was seen as key to improving productivity rates.

Businesses canvassed by the report identified improving productivity as the number one reason to invest. However uncertain economic conditions were cited as the biggest obstacle to investment plans,with the cost and availability of finance seen as an issue by many medium-sized firms.

The report takes its name from the UK’s so-called “productivity puzzle”, a reference to the difference between post and pre-downturn productivity in the UK. According to official figures, the difference was 15.8 per cent in 2016 – the widest in the G7 and nearly double the average of 8.8 per cent across the rest of the G7 group.

Gordon Ferguson, director and head of hire purchase and leasing at Bank of Scotland, said: “The pace of technological change is constantly challenging important UK sectors to invest in growth to remain competitive. But businesses need to be able to achieve this without damaging their access to working capital. This fund will enable more and more businesses to benefit from the flexibility of asset finance.”