Public service productivity

Approximate read time: 11 minutes

On 9 October 2024, the House of Lords is due to consider the following question for short debate:

Baroness Neville-Rolfe (Conservative) to ask His Majesty’s Government what steps they are taking to improve productivity across the public sector.

1. Measuring public sector productivity

Traditionally, productivity measures capture the relationship between the outputs or outcomes of a system and its inputs. For example, the number of pupils taught and their grades versus the number of teachers and schools.^[1] The Office for National Statistics (ONS) produces measures of productivity in public services which are also based on the quantity of outputs provided, with some adjustments for the quality of those outputs. The government of the day typically uses these ONS measures when referring to public sector productivity.

As figure 1 below illustrates, according to ONS data there has been a significant fall in public sector productivity since the outbreak of the Covid-19 pandemic in 2019. Though productivity measures have recovered to some extent in more recent years, public service productivity remains beneath pre-pandemic levels. The most recent ONS data also shows a slight fall in productivity between 2022 and 2023.

Figure 1. ONS measure of public service productivity (input productivity, 1997=100)

The Institute for Fiscal Studies (IFS) note that there are a range of reasons for this reduction in public service productivity. For example, they contend that during the worst of the pandemic in 2020, there were many structural changes to the provision of services—such as reductions in school attendance, and cancellation of routine NHS activity to free up capacity for COVID-19 patients—which they argue “mechanically act to reduce productivity”.^[2] However, the IFS also contend that these direct impacts of the pandemic cannot explain the continued failure of productivity to return to pre-pandemic levels in more recent years.

In the case of the NHS, the IFS have argued that falls in productivity may be explained by changes in the mix of inputs, in particular the prioritisation of frontline staffing relative to spending on capital and management. They also note that NHS England have recently published their own analysis of NHS productivity, estimating that productivity in the acute hospital sector was 11% lower in 2023–24 than before the pandemic.^[3] NHS England argue that lower productivity has been driven by a range of factors, including industrial action and temporary staffing costs.

2. Action by the previous government on public sector productivity

The previous Conservative government undertook several initiatives to examine and increase public sector productivity in the wake of the downturn caused by the pandemic. In June 2023, Jeremy Hunt, the then chancellor of the exchequer, ordered a cross-government review of public sector productivity. He said the aim of the review would be to “deliver more for less”.^[4] This would include the examination of ‘unnecessary’ administration tasks, diversity initiatives and opportunities to use innovative technologies such as artificial intelligence (AI). Mr Hunt said that the review would assess ways to increase public sector productivity growth in the short and long term, and deliver an additional 0.5% productivity output every year “to stop the state growing ever bigger as a proportion of our output”.

As part of this process, Mr Hunt asked Sir Ian Diamond, the national statistician, to undertake a review of the way in which public service productivity is measured.^[5] That review reached its first milestone in November 2023, when the ONS published new experimental baseline estimates of UK annual public service productivity for the period 1997 to 2019 and a new experimental measure for the path of annual UK public service productivity for the years 2021 and 2022. (These statistics have been used to inform the graph above.)  The ONS provided an update on the work and progress made towards improving public service measures on productivity on 20 February 2024.^[6] It also launched a pilot ‘time-use survey’ for the public sector, designed to provide better data on how public sector workers spend their time.^[7]

In March 2024, Mr Hunt announced a further public sector productivity drive, stating that the government planned to invest £800mn which he contended would  deliver £1.8bn in benefits by 2029.^[8] In reaching that estimate, Mr Hunt drew analysis by the Office for Budget Responsibility which said that returning to levels of pre-pandemic productivity could save an estimated £20bn a year, and the measures outlined would be important steps towards achieving that goal.

The chancellor’s proposals included the following measures:^[9]

• Saving up to 55,000 hours a year of administrative time in the justice system through digitising jury bundles, new software to streamline probation decisions and provide probation officers with more robust data on whether offenders are safe to release. £170mn will be invested into the justice system to support this.
• Reducing local authority overspends on children’s social care places across England by making 200 additional child social care places available and reducing local government reliance on emergency places for children. £165mn of funding would be used to create the additional places to help tackle last year’s overspend of £670mn.
• Saving £100mn by reducing fraud thanks to expanding the use of AI across government to make it easier to spot and catch fraudsters, funded by £34mn.
• Accelerating delivery of DWP’s existing programme to modernise DWP services and move away from paper-based communications. This would be funded through a £17mn commitment.
• Cutting the time it takes for planning officers to process applications by 30% through a new AI pilot.
• Ensuring more children with additional needs get the support they need to thrive through a £105mn to fund an additional wave of 15 special free schools.

Speaking to the measures, Mr Hunt said:

We shouldn’t fall into the trap of thinking more spending buys us better public services. There is too much waste in the system and we want public servants to get back to doing what matters most: teaching our children, keeping us safe and treating us when we’re sick.

That’s why our plan is about reaping the rewards of productivity, from faster access to MRIs for patients to hundreds of thousands of police hours freed up to attend burglaries or incidents of domestic abuse.^[10]

As part of his budget speech, Mr Hunt also announced that the NHS would receive an additional £3.4bn to invest in new tech and digital transformation.^[11] This included making the NHS app a single front door for patients; piloting new AI to halve form-filling times for doctors; rolling out universal electronic patient records; and over one hundred upgraded AI-fitted scanners so doctors can read MRI scans more accurately and quickly. Mr Hunt claimed this would improve patient care and help unlock £35bn in productivity savings by 2030. Taking this £3.5bn and the £800mn listed above, Mr Hunt contended that this meant that the Conservative government was investing £4.2bn in improving public sector productivity.

Of those organisations which commented on the Conservative government’s public services productivity plans in the wake of the budget announcements, the National Institute of Economic and Social Research (NIESR) said that they were a “step in the right direction”.^[12] However, they also said that the budget lacked a plan for the longer-term funding of non-ringfenced departmental spending such as policing, the justice system and local government funding.

3. Labour’s plans for public sector productivity

Prior to the July 2024 general election, Labour’s plans for public sector productivity were set out as part of its broader economic strategy, which focused on sustainable growth with a broad base and resilient foundations.^[13] As part of those plans, Labour’s manifesto committed to the introduction of a new industrial strategy and to improve public services by increasing capacity and support for councils and overhauling the local audit system to ensure better value for money. ^[14] The manifesto also said that planned investments in public services would result in additional funding for Scotland, Wales and Northern Ireland. In addition, the manifesto stated that Labour would create a National Data Library to bring together existing research programmes and help deliver data-driven public services. The manifesto committed to several specific measures to increase the operation of public services, including plans to double the number of NHS CT and MRI scanners, and significant recruitment drives for teachers, mental health staff and planning officers.^[15]

Since the election, as part of her speech on the public spending picture which she said had been inherited from the previous government, the new chancellor of the exchequer, Rachel Reeves, said she was “firing the starting gun” on a new approach to public service productivity.^[16] She said:

By launching the spending review, I am also today starting the firing gun on a new approach to public service reform to drive greater productivity in the public sector. We will embed an approach to government that is mission-led, that is reform-driven, with a greater focus on prevention and the integration of services at a national and local level, and that is enabled by new technology, including through the work of my right hon. friend the secretary of state for science, innovation and technology on the opportunities of artificial intelligence to improve our public services. We will establish a new office of value for money, with an immediate focus on identifying areas where we can reduce or stop spending, or improve its value.

[…] I expect all levels of government to be run effectively and efficiently, and I will work with leaders across our country to deliver just that. That means effective local government, a civil service delivering good value for the British taxpayer and reform of our political institutions, including the House of Lords, to keep costs as low as possible.^[17]

Ms Reeves also said that the government’s forthcoming budget would set out further proposals for growing the economy and improving public services:

The budget and spending review will also set out further progress on our No. 1 mission: to grow our economy. Economic growth is the only way to sustainably improve our public services and our public finances, so we will use the spending review to prioritise specific areas of capital investment that leverage in billions more in private investment. It will not happen overnight—it will take time and it will take focus—but we have already made significant progress, including: planning reforms to get Britain building; a national wealth fund to catalyse private investment; a pensions investment review to unlock capital for our businesses; Skills England to create a shared national ambition to boost skills across our country; and work across government on a new industrial strategy, driven forward by a growth mission board, to ensure that we deliver on our commitments.^[18]

In the field of technological developments and AI, in July 2024 the Labour government also commissioned Matt Clifford, chair of the Advanced Research and Invention Agency, to produce an ‘AI opportunities action plan’, a roadmap for government to “capture the opportunities of AI to enhance growth and productivity and create tangible benefits for UK citizens”.^[19] In addition, on 7 August 2024 the government announced that 100 companies and projects developing AI technologies and programmes had received a share of £32mn in public funding.^[20] This includes those aimed at increasing productivity in the public sector, including using AI to increase the effectiveness and efficiency of the delivery of prescriptions to NHS hospitals and retailers. Speaking in a debate on technology in public services on 2 September 2024, Feryal Clark, under secretary of state in the Department for Science, Innovation and Technology, said:

We want to seize every opportunity that technology offers to improve lives for our people—whether that means life-saving healthcare in our hospitals or a world-class education in our classrooms. If used rightly, technologies such as AI can transform the productivity of Britain’s broken services.^[21]

In response to Lord Darzi’s review of the NHS, published 12 September 2024, the Health Secretary Wes Streeting has said that productivity reforms will be important to delivering an NHS which is fit for purpose.^[22] This included a shift from an “analogue to a digital NHS”.

4. Read more

• Institute for Fiscal Studies, ‘The fiscal implications of public service productivity’, 30 May 2024
• Office for National Statistics, ‘Public services productivity review’, 15 July 2024
• Productivity Institute, ‘Insights from Productivity Pitches #1 on public sector productivity’, 1 August 2024; and ‘Redefining public sector productivity’, 10 April 2024
• Institute for Government, ‘Public services performance tracker’, updated 14 March 2024

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Cover image by jcomp on Freepik.