Worry for economy as public sector productivity falls further

Official figures have raised fears of a deepening public sector drag on the the UK’s economic recovery from recession.

Data from the Office for National Statistics (ONS) showed that productivity in the public sector, dominated by education and healthcare, deteriorated between the third and fourth quarters of 2023.

It measured a 1.0% decline over the period, leaving the figure 2.3% lower than a year ago and even further away from recovering pre-pandemic levels.

Money latest: The best breakfast to keep you full until lunch – without paying a fortune

The gap was put at 6.8%.

Public sector productivity measures the volume of services delivered against the volume of inputs – like salaries and government funding – that are needed to maintain those services.

While the sector has witnessed hits from the impacts of strikes since the end of the COVID crisis, the NHS has struggled to deal with a worsening backlog in many key waiting lists.

Rows over funding have been exacerbated by record levels of long-term sickness.

The official jobless rate stands at just over 4% – around 1.4 million people.

However, the numbers judged to be economically inactive due to poor health are nearing double that sum.

The Office for Budget Responsibility has estimated that the issue has added around £16bn to annual government borrowing bills.

Pressures have been reflected in ONS data, with output in both the health and education sectors falling during the fourth quarter of the year – contributing to the country’s recession.

That was despite rising inputs over the period.

Back in March, chancellor Jeremy Hunt used his budget to announce a Public Sector Productivity Plan – with an emphasis on improving technology in the National Health Service (NHS).

Figures next week are widely expected to confirm the end of the recession, with overall output returning to growth during the first quarter of the year.

Recent private sector surveys have painted a rosy picture for the dominant services sector, which accounts for almost 80% of overall output, despite continued pressure on budgets from the impact of higher inflation and interest rates to help cure the price problem.