In our latest blog, Head of OSR Ed Humpherson discusses measuring public services productivity in a more sophisticated way.
Efficiency reviews are a recurring feature of public administration in the UK. HM Treasury runs spending review processes that typically require departments to consider how they might become more efficient. Governments have also periodically commissioned reviews from senior business people, tasking them with finding efficiency savings. Examples include the 2004 Gershon review and the 2010 Green review.
These reviews usually consider efficiency in a rounded way – recognising that efficiency can emerge either as a reduction in costs to deliver the same level of output or the delivery of a greater level of output for a given cost.
But the reviews often are remembered for their focus purely on cost cutting. This is partly because of brutal fiscal arithmetic: when money is scarce, the Treasury needs to impose cost reductions. It is also often because the headlines that emerge from the reviews focus on the opportunities to cut costs. When then-Prime Minister David Cameron welcomed the Green review in 2010, he said the report ‘goes into how much money we have wasted…over the last decade’. Similarly, the Gershon review adopted a very direct focus on cost cutting through its headline: “Releasing Resources to the front line”.
Perhaps cost cutting makes for a simpler message than the more complex “efficiency can be more outputs for the same cost” story.
But in the long run, focusing on cost provides little insight into whether public services are becoming more or less productive. On this, the macro picture appears to be disappointing, with evidence pointing to slow growth in public sector productivity. For example, this piece by EY highlights the difference between private and public sector productivity.
To do that properly, we need measures which relate the resources used to what’s delivered – or to put it in economic terms, measures which relate inputs to outputs.
That’s what some new work by the Office for National Statistics (ONS) focuses on – how to measure public services productivity in a more sophisticated way.
The traditional way to count the contribution of public sector output in many of the world’s economics is an “inputs equal outputs” approach – that is, what’s produced should be valued at the cost of production. If society puts £30 billion into education, then society gets £30 billion of value back. The trouble with this approach is that it fails to account for any increases or decreases in public sector productivity – whether resources being put in are being put to better or worse use – and this is a topic of clear public interest: are public servants delivering increasing value over time?
For this reason, since the 2000s, the ONS has sought to measure public sector contribution by better valuing the outputs produced, both in terms of the number of outputs delivered and how these have increased in quality over time: so, for example, if the NHS delivers more procedures over time, has the average patient outcome also improved as a result of these procedures?
This quality dimension is really important: looking at education, ministers rarely give interviews about the number of students sitting exams, but they regularly focus on whether those students earn better results. Delivering public services is rarely simply about the number of outputs: quality dominates reporting and political debate.
This approach sets the ONS apart from many other national statistical institutes, and the direct measurement of public sector activity is one factor in why the UK’s GDP levels fell further than other countries’ during the COVID-19 pandemic – see the OECD/ONS report: International comparisons of the measurement of non-market output during the COVID-19 pandemic | OECD.
For many countries, at least in the quarterly estimates, the value of output is equal to the input; if teachers are being paid, then that is the value of output. But for the UK, the ONS was more realistic: if schools were closed with some provision being made online, then teachers were generally producing less education, even though they were likely still being paid their usual salary. Overall, COVID-19 restrictions meant education output fell, and the ONS approach reflected this.
The ONS has now built on this approach through its public sector productivity review. This review extends the approach of valuing outputs from health and education to other sectors of government activity, including welfare administration, tax collection and public safety.
The ONS figures show a fascinating picture – one where, for example, NHS productivity has fallen since the pandemic in the light of more-challenging workloads, but welfare administration has improved its productivity, reflecting the introduction of universal credit as a single benefit to replace multiple benefits. This is a classic productivity-improving policy when, broadly, the same output (the value of benefits paid) requires fewer inputs to administer.
Measuring quality improvements for public sector outputs is inherently tricky. It is hard enough for statisticians to measure quality improvements for products that are bought and sold in markets, like mobile phones and computers, and there is a long tradition of methodological challenges in doing so. These challenges are all the greater for public sector outputs where, typically, there are no traded markets, and where prices cannot reveal the way consumers value the product.
Putting that inherent difficulty to one side, though, for me, there are three benefits to the ONS approach:
- First, it is good to see ONS being a world leader in methodological developments.
- Second, the ONS productivity figures tell a more plausible story than a simple “inputs equal outputs” approach. The decline in NHS productivity seems to confirm what many other indicators tell us – a point made very well by the Institute for Government’s Gemma Tetlow in a recent appearance at the Treasury Select Committee (Q34 in this transcript).
- Third, and most importantly, this ONS work could pave the way for a more rounded approach to public sector productivity which gets away from the crude arithmetic of focusing on cutting expenditure.
Let me unpack this third point further. What might a “more rounded approach” involve? The ONS figures can provide a solid base of measurement that enables government, Parliament and others, such as the National Audit Office, to track progress through time. In allowing a through-time focus, it might be possible to avoid the periodic upheaval of major reviews which have punctuated the recent past of public administration.
And this approach might also, by its consistent nature, move away from regarding transformation as a special project, something separate from the day-to-day delivery. It might instead lead to a view of increasing efficiency and changing services as part of an ongoing and iterative process of improvement. This echoes recent evidence I presented at the Public Administration and Constitutional Affairs Select Committee hearings on the UK Statistics Authority. I was talking about the approach to transforming statistical production in the ONS and the risk that core activities can get neglected within a high-profile drive for transformative change. I explained the risk as follows:
‘Transformation is a bit special and gets all the attention; the core is seen as less exciting. … the strong message is, “Do not have separate, shiny projects and programmes off to one side; align continuous improvement to the core and do it iteratively”.’ (Q153 in this transcript).
What is a fair diagnosis of the challenges the ONS has faced maybe also provides insight at the macro level of government as a whole. Perhaps the best approaches to improvement and efficiency are iterative and embedded within ongoing delivery.