Public sector productivity on the rise

New figures from the ONS: 2007 marked a turning point in taxpayers value for money for public services. Public sector productivity is also in taxpayers favour.

New figures from the Office of National Statistics show that 2007 marked a turning point in taxpayers getting value for money for key public services. Public sector productivity and the new measure of changing costs are now both in taxpayers favour.

The new estimates of how much the unit costs of public services, such as the NHS and schools, have changed compared to unit costs in general – released today – show that:

“Between 1997 and 2007, the unit cost of public service output in total grew by 13.7 per cent more than unit costs for the whole economy, an annual average relative rise of 1.3 per cent.

“In 2007, the unit cost of public service output rose by 0.6 per cent less than costs in general, the only time relative costs fell over the 10 year period.”

Earlier this year, the ONS announced that “in 2006 and 2007 productivity growth in total public services became positive ... because output growth was faster than input growth.”

The declines in productivity at the start of this decade can be explained by two principle factors:

  1. Public services are usually more labour-intensive than the rest of the economy, and, in general, labour costs usually rise faster than other input costs.
  2. Average public sector pay rose faster than private sector pay from 2001 to 2006 – it was held behind private sector pay after 1997 and is now falling behind again

The period of catch-up was, according to the IFS, necessary to address recruitment and retention problems in key areas. But a lot of the upward movement in average public sector pay is an artificial effect of the fact that the public sector is outsourcing increasing portions of its low paid work to the private sector.

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