Measuring public sector productivity

An ONS report published on Tuesday revealed that productivity in the public sector has declined by 3.2% since 1997. This is the first such report carried out using the recommendations of the 2005 Atkinson Review, which rightly highlighted the need to change the way productivity in the public sector was measured.

Sir Tony Atkinson’s review was crucial. The ONS report points out that previous measurements of public sector productivity followed the old convention of ‘outputs=inputs’. With public funding there is no price mechanism by which to calculate the value of productivity, so assume that ‘more output=more money invested’. Of course, this crude assumption fails to acknowledge that as well as yielding a higher output, increasing the level of investment in a service should also aim for a higher quality output.

The ONS therefore applies ‘quality adjustments’ to properly determine how effective public expenditure actually is. As opposed to simply quoting output figures this takes in to account ‘the improvement in the outcome for the service user that could reliably be attributed to the relevant activity’. This level of analysis delves deeper than mere output figures, which are endlessly recounted by ministers as marks of achievement.

And in using these measures, the ONS’ findings are unflattering. While raw outputs have increased with extra investment over the last ten years, the quality in public services should have seen a significant increase. Instead a steady decline between 1997 and 2007 saw productivity drop by an average of 0.3% annually.

The report says that inputs have risen by 38% in the same period. With outputs increasing by 33.6%, traditional measures of productivity have not been met either, compounding negative ‘quality adjusted’ figures.

Encouragement from the report is that the last two years have seen a slight improvement using quality adjusted figures. This in no way should assuage criticism for the overall drop in the ten year period, particularly given the vast increase in investment. We were promised quality improvement, but instead we have got more at a worse quality.

Both major parties plan to make spending cuts after the next election, if in power. Even Labour’s 2009 budget has planned cuts of 7% over 3 years. It is important then that whoever takes office after the next election ensures that improvements in public sector productivity are accelerated. Adhering to old measures and increasing output simply by investing more will not suffice; action needs to be taken to ensure that value for money is achieved. Concentrating on the quality of outputs is always essential, not just when you have less money to throw at a problem, as is the case now.

Whilst the methodologies used are still in their experimental stage, it is encouraging to see the ONS adopt a more sophisticated approach to measuring productivity – especially important when it is measuring the value of Government spending. What is clear is that taxpayers deserve to see a better return in the future.

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