Public sector productivity rise lags behind overall UK labour market growth

5 Jan 2018 By Marianne Calnan

Increases are ‘small steps where giant leaps are needed’ as EU exit looms

Overall UK labour productivity recorded its largest quarterly increase since 2011, figures released today (5 January) by the Office for National Statistics (ONS) have revealed.

Productivity measured by output per hour rose 0.9 per cent in the third quarter of 2017 compared to the previous quarter.

However, total public service productivity growth lagged slightly behind at 0.7 per cent, having fallen heavily during 2017’s second quarter, the Quarterly UK public service productivity: July to September 2017 bulletin found. The report estimates inputs and output in the sector, providing short-term indications of annual productivity.

The Labour productivity update covering July to September last year found overall productivity grew particularly in the services and manufacturing industries – both of which rose 1 per cent on the previous quarter.

However, earnings and other labour costs growth outpaced productivity growth, according to the figures. Labour productivity is calculated by dividing output by labour input, and productivity is viewed as a driver of long-run changes in average living standards.

Richard Heys, ONS’s deputy chief economist, sought to paint a rosy picture of productivity, particularly in the public sector. “This is the sixth successive year of improving productivity and marks the longest consecutive period of productivity growth for total public services since comparable records began,” he said.

But Ian Brinkley, acting chief economist at the CIPD, while welcoming the increases, warned that they represented “small steps at a time when giant leaps are needed”.

He said UK productivity remained “well below pre-crash levels and with Brexit around the corner, unless a more concerted effort is made to improve productivity, we won’t be in a strong enough position to compete once we leave the EU.

“The government should be playing a more active role in highlighting the barriers to productivity for organisations, and stepping in where needed. Investment in skills will be key in 2018, creating higher-skilled, higher-value roles for people to progress into.

“Equally important will be improving the way people are managed and developed at work, unleashing productivity by allowing employees to use their initiative, be innovative and be stimulated by work, leaving the restrictions of unnecessary rules and procedures behind.”

The Association of Independent Professionals and the Self-Employed (IPSE) attributed the mediocre rise in productivity to increasing levels of self-employment, marking a “turning point” for the economy.

Tom Purvis, IPSE’s political and economic adviser, said: “Quarter after quarter, we have experienced sluggish growth, but hopefully today’s figures mark a turning point for the economy. As a result of slow productivity growth, living standards have taken a major hit, with earnings not expected to reach their pre-crisis levels until the next decade.

“The UK is now reaping the rewards of a flexible labour market and we hope the government takes note of the contribution the self-employed make to the economy.”

Chris Clarke, CEO of HR consultancy company AdviserPlus, urged employers to not become “complacent”, and to look at their own productivity data to see where they can act to improve. “Effective line management is vital to creating a positive company culture and getting the best out of the team, which will drive performance. It’s crucial that line managers are fully equipped with the right tools and training to make the right decisions about long-term absences to further improve productivity,” Clarke said.

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