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Giving workers more public holidays and raising their wages could boost the strength of the British economy, according to a report.

The New Economics Foundation said that driving up the spending power of consumers would give firms a greater incentive to raise their productivity, as they could have greater confidence there would be demand for their products and services.

The claim that putting more money in workers’ pockets and to give them more time to spend it comes as the UK struggles to improve the efficiency of the British economy as Brexit looms and after a decade of faltering gains.

Coming ahead of the final bank holiday of the year in England, Wales and Northern Ireland before Christmas, the report from the leftwing thinktank was welcomed by John McDonnell, the shadow chancellor.

“This important analysis … shows only an ambitious plan for economic transformation, of the kind Labour proposes, will lift the UK out of the productivity crisis that the Tories have left us in,” he said.

Productivity – economic output per hour of work – has failed to grow each year at the rates seen before the financial crisis. Boosting Britain’s productivity is an important target for the government through its industrial strategy, as improving the efficiency of the economy can help companies raise workers’ pay levels and drive up living standards.

Britain improved its productivity by about 2% per year over the last four decades before the financial crisis. However, productivity growth has slipped to about 0.7% a year since then. Economists fear that Brexit could compound the problem, with firms freezing their investment plans due to political uncertainty.

As part of efforts to improve Britain’s productivity track record, the foundation said the government should drive up the minimum wage faster than already planned and ramp up spending on public services by as much as £32bn a year by the mid-2020s. Read more

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