The public sector productivity decline is costing us £ 50 bn

The ONS has been busy changing its productivity figures. It thinks maybe it has been getting them wrong. It has come up with a bit faster growth rate in productivity 2009-19 looking at output per hour worked. The figures are still poor compared to the US which has outgrown the UK and the EU massively this century.

What is not changing is the picture of collapse in public sector productivity that occurred over covid. Where the private sector got back up to 2019 levels and pressed on after covid recovery, the public sector has still not got back to where it was seven years ago. Health and social services sits well  down on 2019 whilst accounting for 8% of UK activity. Defence and public administration with 5% of UK activity, and Education at 6% of output are also down on their 2019 levels.

This means that one fifth of our economy in  the hands of the public sector to supply goods and services has subtracted from productivity over a seven year period. This has been a time of big increases in public sector budgets with the public sector taking a rising share of activity. The public sector should be benefitting from the large spending on computer systems, as many of its activities are clerical and can be automated, or are services with substantial back offices. It has awarded itself pay rises well ahead of the private sector, enabling it to recruit and retain good people. Public sector pay in the most recent figures was up by 6.3% compared to just 2.9% for private sector pay.

I am all for people being better paid, but recognise to do so they need to work smarter and deliver more. Modern technology can allow this with suitable support and back up. The shame is large pay awards were made without any productivity deals. The scandal of the railways was the big award to well paid train drivers without agreeing a solution to manning in an age of more automated trains.

Paying people more without improving efficiency and quality of work, and tipping ever more cash into services that do not raise their productivity overburdens us with public spending. It creates a need  to raise taxes to pay the bills. This government has created a doom loop. A badly run public sector makes too many cash demands. The resulting higher taxes drive talent and money out of the country and burden remaining businesses so they employ fewer and invest less. Public sector productivity should be at least 10% higher today than it is, still allowing for slow growth in it compared to the  private  sector. That would save us at least £50 bn a year to help control runaway  borrowing or buy us £50 bn more services.