On Wednesday, the chancellor will announce how he will get better value for money from the £4 trillion the government will spend over the course of this Parliament. He will explain which budgets are to be protected and which to be cut. More importantly, it is hoped he will set out a clear message for reform: how to improve public services and spend less at the same time.
Crucial to his success is how far he can push the public sector to become more productive. The Spending Review will announce tough departmental settlements, but for every reduction in government resources (teachers, police officers) the government will need to increase how much it delivers (school lessons, less crime). Official estimates suggest productivity in the public sector has risen only very slightly since 1997, while public spending has increased by over one fifth as a proportion of total GDP.
The chancellor has already put productivity in the whole economy high on the agenda for this Parliament. The government’s Productivity Plan, launched soon after the General Election, made a clear commitment to achieving “world-beating productivity, to drive the next phase of our growth and raise living standards.” Making up 20 per cent of total economic activity, the public sector is critical to overall productivity growth. Yet it received just two of the 80 pages in the plan, and these pages highlighted only general areas for improvement, including service redesign, workforce reorganisation and technology.
One hole in the chancellor’s current effort is that government departments do not measure productivity across the organisations they manage, such as across all schools or all police forces. Current figures are produced only at a sector level which, in the case of education, includes pre-school, school and further education.
A closer focus on productivity across organisations within these sectors could help unlock areas for improvement. While general reforming principles, such as better use of technology, may succeed in improving services and reducing costs, measuring productivity across different organisations will help identify the hidden potential productivity gains.
Some parts of the public sector are likely to be more productive than others. During the last Parliament, the government found scope for efficiencies in areas such as policing without worse outcomes. Arguably, this Spending Review will mean spending cuts are felt more evenly across the public sector, as areas such as schools see real terms spending reductions for the first time since the 1990s. The potential gains of a productivity review across individual public organisations could be very large indeed.
It is understandable that some parts of government have struggled to improve productivity in the past. Productivity growth may be hard to achieve, but it is even harder to measure. The biggest difficulty is assessing service quality without knowing what people would be prepared to pay for public services. Research published this week by Reform, however, shows that these issues are surmountable and argues they must be overcome.
The Spending Review is an opportunity to push forward on public sector productivity. The potential for delivering more for less in public services is there. A better focus on productivity in public organisations could help the sector find additional gains, while putting the public finances on a sustainable footing for the long term.