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Doing more with less: revisited part 2

15 December 2009

Philip Hammond, the shadow Chief Secreatry to the Treasury states that between 1997 to 2007 service sector productivity grew by more than 20%.

His argument is that if the public sector had seen the same levels of growth in productivity then the taxpayer would have saved some £60 billion per year.

The Office for National Statistics produces quarterly estimates of private sector productivity. The latest one is for the second quarter of this year.

Productivity in the service sector is falling fast

This ONS report gives many different measurements of productivity. Page 3 of the report gives estimates on an “output per job basis productivity” (their term) for the various service sectors. The business services and finance sector (which we assume is the sector closest to the civil service) saw a fall of 3.0 per cent over in the second quarter of 2009 compared with the same quarter a year ago.

Table 9 (page 18) shows changes in output per job in the business services and finance sector since the third quarter 2005 (when it measured at 100.2) up to the second quarter 2009 (when it is measured at 103.6).

In the same table it shows “Output per job, change on quarter a year ago”. In the business services and finance sector for the first quarter this year it was minus 2.1 and for the second quarter minus 3.0. In other words it is falling – and falling fast.

The table also gives figures for “total services”. We assume this is the same as the “service sector” which Mr Hammond claims increased its productivity by more than 20% between 1997 and 2007. The output per job figure for the second quarter this year is 101.5 (third quarter 2005 it was 100.2). The decline in the second quarter this year was minus 3.6.

Claims built on sand

These figures are at odds with the productivity miracle Mr Hammond claims has happened. Now it may be that much of the claimed growth occurred before 2005 but in the here and now productivity in the service sector is falling fast (as least as measured by output per head).

If such declines are maintained then output per head for the service sector will soon be the same as in 2005. Now much of this fall can be blamed on the recession. By implication therefore the productivity miracle could have been linked to the booming (and unsustainable) economy of years gone by. If that were the case then there have been no great structural changes in productivity in the private sector. In other words Mr Hammond’s claims have been built on foundations of sand.

In contrast it is probable that productivity is increasing in the public sector.

Therefore Mr Hammond’s claims, impressive on first sight, are just a cover for cuts. The true picture is more complex than he paints; that is why he ignores it.


 

 

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