Fall in public sector productivity makes the case for reform

Productivity in the public sector has fallen sharply over the first years of Labour rule, according to the first official attempt to measure government efficiency.

Productivity in the public sector has fallen sharply over the first years of Labour rule, according to the first official attempt to measure government efficiency.

The growth in the amount of money pumped into the public services outstripped the resulting increase in performance between 1995 and 2001, according to experimental work by the Office for National Statistics. "Over this period output growth has fallen behind the increase in inputs implying, on the new experimental measure, a fall in productivity," the report said.

At face value the research confirms the need for public services reform that the Government insists must accompany its massive planned spending increases. The Treasury has already imposed targets on Whitehall departments via Public Services Agreements that committed civil servants to hitting specific targets.

However, the figures will also stoke concerns that extra cash aimed at improving hospitals and schools will be absorbed by higher pay rises and managerial inefficiencies. The Tories seized on the figures. Michael Howard, the shadow Chancellor, said: "This raises questions about the value people are getting for higher taxes and higher spending and they will expect answers from the Government."

The UK already lags its main economic rivals such as France, Germany and the US in private sector productivity, measuring output achieved per hour worked by employees.

The ONS warned that the fall in productivity could be explained by a delay between when the money was spent and when the output could be measured. In addition, spending might have been on items that improved outcomes, such as staff training, that did not result in an output that could be measured.

Academics believe it is almost impossible to measure productivity and attempts can produce strange results. One well-known piece of research, by Professor Simon Burgess of Bristol University, found that the introduction of competition in hospitals to improve productivity was followed by higher death rates. Another oddity is that moves to cut class sizes in schools would worsen productivity, as more teachers were needed to teach the same number of pupils.

Louise Horner, a researcher at the Work Foundation in London, said: "You are ultimately looking at social outcomes when there may be many factors affecting them. What you choose to measure is a political decision."

The ONS research was based on spending on labour, goods and services and capital consumption for health, education, social security, social services, and the police, justice and fire services - which together make up 70 per cent of public spending.