Spending Review: A plan for greater productivity in some, not all, public services

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25 Nov 15

To deliver the reform he wants, George Osborne needs better ways to measure public sector productivity

Today the chancellor wanted to deliver a message of “bold reform”, against “retrenchment” and against what he called the “irresponsible” argument that “public spending should always go up, never be cut”.

The strength of this message was however weakened by larger-than-expected projections on tax receipts which, instead of using to push for even greater public sector productivity, he used to take pressure off police budgets and continue the government’s unsustainable subsidy to wealthy pensioners through the triple lock. As Reform argued in research published last week, the public sector needs a relentless focus on productivity to deliver sustainable, high quality services for a growing and ageing population.

Much of today’s Spending Review presented ambitious plans for improving productivity. The Chancellor recommitted the NHS to deliver the £22bn efficiency gains set out in NHS England’s Five Year Forward View, despite warnings from the King’s Fund think-tank that the target would be missed. He also reaffirmed the manifesto pledge to protect per pupil school funding in cash terms only, meaning schools will be teaching more pupils with fewer resources. Both the NHS and schools have been protected from recent spending cuts, but the NHS will continue to receive an average rise of 4% a year in spending until 2020/21.

The surprise announcement was in relation to police budgets, which will not be cut. Policing was the productivity ‘good news’ story of the last Parliament. Over the last five years, the full time police workforce was cut by around 15%, but crime fell and victim satisfaction rose. Preventing and responding to terrorist attacks is vital, but this does not negate the potential for further efficiency savings. This reactionary approach will be felt across the public sector, as other departments are asked to take a greater proportion of the cuts.

To measure the success of productivity gains across the public sector, the government now needs a better way to measure it. The Office for National Statistics, which measures government output, only assesses service quality in health and education – and both these methods are questionable, although are being improved. We cannot know how well the police are fighting crime unless there is a clearly understood causal relationship between police activity and crime levels – and a clear view of what the public value from the service.

Developing better measures of productivity and public sector outcomes should be the next task for the chancellor and all secretaries of state. The Chancellor is right to call for “more” from public services but it must be more of the things that matter.

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