20 February 2024

Productivity plans: more than just reducing expenditure

Productivity plans: more than just reducing expenditure image
Image: Jirsak / Shutterstock.com.

Owen Garling, who is the Knowledge Transfer Facilitator at the Bennett Institute for Public Policy and manages The Productivity Institute’s East Anglia Productivity Forum, explains how the public sector can boost its productivity levels.

The ‘Barnet Graph of Doom’ – well-known within local government circles – sets out how the cost pressures associated with adult and children’s social care services would eventually consume the total budget of councils, leaving no funding for the other services that they provide to their communities.

The chart was first drawn a decade ago, but still reflects today’s financial environment which – following a real term reduction in funding of 52.3% in the past decade – has seen an increasing number of local authority finance officers issuing Section 114 notices, stating that they believe the authority is about to incur unlawful expenditure according to the 1988 Local Government Finance Act. This includes recent high-profile examples in Birmingham and Nottingham.

It is against this backdrop that over 40 MPs recently called for an increase in funding to local authorities. In response to this, the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, set out plans to provide an additional £600m of funding to be distributed across the sector, including £500m of new ring-fenced funding for councils responsible for the provision of adults and children’s social care.

In his statement to parliament, Gove stressed the need for further work to be done to improve public sector productivity and announced that local authorities would be required to produce productivity plans ‘setting out how they will improve service performance and reduce wasteful expenditure to ensure every area is making the best use of taxpayers’ money’.

The written statement provided some high-level details about the productivity plans. We know more information is forthcoming, an expert panel will be established, and the plans will be used to inform future funding settlements. But, as of writing there is little detail of what should be included in the plans.

Productivity in the public sector

When it comes to the public sector, the concept of productivity is one that is viewed with some trepidation, with some seeing it as synonymous with ‘efficiency savings’ and service reductions. Indeed, the focus on ‘wasteful expenditure’ and ‘service performance’ in Gove’s announcement may mean that these plans amount to a continuation of the efficiency drive that local government has had to implement given its reduction in core funding over the past decade.

But what if we think about public sector productivity as being about more than just the efficiency of services? Focussing exclusively on efficiency and cost savings has not always worked, since it carries risks such as poor service quality, low staff retention and underinvestment in innovation.

We need a broader view of public sector productivity that considers three key components: budgetary efficiency, organisational productivity and effectiveness. All of these are connected through the public sector delivery chain.

This approach allows us to differentiate between efficiency – what the management thinker Peter Drucker called ‘doing things right’, and effectiveness – ‘doing the right things’. It also provides a framework against which local authorities can map existing measures and identify areas where further development is required to ensure that they have a clear understanding of effectiveness along the whole length of the delivery chain. Recent research from The Productivity Institute’s Productivity Agenda identifies three key areas where productivity policies should be focussed.

The first is adaptive organisational design. In many ways, local government has had to be adaptive in its short-term response to profound changes in recent years, but more time should be dedicated to longer-term strategic planning to help it better respond to challenges in its operating environment.

The second comes in the form of technology and innovation. This has the potential to transform the way work is carried out and free up precious time for public sector workers to focus on those tasks that require a human touch.

Finally comes an agile workforce. Employees are essential to any organisation, yet investment in human capital is relatively low in the public sector. For the other areas to function, workers need to be properly equipped with the skills needed to be as productive as possible.

People working in local government may be aware of this, but the creation of productivity plans should be seen as more than a way of purely reducing what some may see as ‘wasteful expenditure.’ They should be used as a tool to help national and local government further understand how the productivity puzzle plays out across the public sector, and the key ways in which it can be tackled.

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