New analysis by Institute for Fiscal Studies researchers shows
that the government is banking on big, ambitious improvements in
public sector productivity to deliver its desired public service
improvements from within its spending plans. We estimate that the
government's plans imply average productivity growth of
1.0% per year between 2025–26 and 2028–29. That compares with
historical averages of 0.7% per year between 2009 and 2019 and
just 0.2% per year between 1997 and 2019.
The scope for further post-pandemic recovery and potential gains
from AI provides some grounds for optimism about the government's
ability to deliver faster productivity growth than in the recent
past. But it is very possible that productivity targets
will be missed. This would be a major fiscal issue since these
plans underpin the departmental budgets set out at the June
Spending Review.
There is a real risk that lacklustre productivity growth forces
the government either to allow public service performance to fall
short of what its plans imply, potentially missing key targets,
or to top up departmental budgets to the tune of billions of
pounds in a tight fiscal environment. A huge amount is
riding on the NHS in England, where more than half of total
planned productivity improvements are expected to be
made – but even these plans imply that hospitals will
only return to pre-pandemic levels of productivity by 2028–29.
These are among the key findings of new analysis published today
as part of the IFS Green Budget
2025, funded by the Nuffield Foundation and produced
in association with Barclays.
Olly Harvey-Rich, a Research Economist at the Institute
for Fiscal Studies and an author of the report, said:
‘This isn't the first government to promise to reduce waste,
raise productivity and improve the efficiency of public services.
The previous government set out an almost identical ambition for
departments to make 5% efficiency gains over a three-year period.
Such promises haven't always materialised. But if this government
wants to stick to its spending plans while also fulfilling its
ambitious commitments on public services, delivering serious
productivity growth is essential. Failure would increase pressure
on the Chancellor to top up spending plans. In the longer term,
productivity gains are perhaps even more important, as they are
one of the few ways that public services will be able to meet
growing demand without ever-increasing taxes.'
Mark Franks, Director of Welfare at the Nuffield
Foundation, said:
‘Whilst the impact on the public finances during the current
parliament will be limited, sustained improvements in public
sector productivity have the potential to significantly improve
the quality of services over the long term. This, in turn, can
significantly enhance the health, financial security and overall
well-being of those who depend on them. However, in practice,
successive governments have struggled to achieve meaningful
progress. Lasting improvements will require rethinking how public
services operate, rather than relying on short-term measures such
as cutting support roles or holding pay below sustainable
levels.'
ENDS
Notes to Editor
The outlook for public sector productivity is an
IFS Green Budget
2025 chapter by Olly Harvey-Rich and Max
Warner.
This pre-released chapter forms part of the forthcoming IFS
Green Budget 2025: Full report, funded by the Nuffield
Foundation and produced in association with Barclays. The full
report will be published on Thursday 16th
October.
