ESCoE Deputy Director Paul Mizen reflects on ESCoE’s measurement in the modern economy series event with Joe Grice, Richard Heys and Mary O’Mahony.
How can we do more with less? It’s a question many of us ask in our daily lives as we try to work smarter rather than harder. And when thinking in terms of production of goods or services with material inputs such as labour and capital, it is of crucial importance to governments, private companies, and public sector leaders alike.
Productivity is also central to the ESCoE agenda, reflecting the importance of the “productivity puzzle” in the UK economy’s recent history. ESCoE has a programme of work on Productivity, Innovation and Business Dynamics, exploring public and private sector productivity and working closely with partners including The Productivity Institute (TPI).
In the private sector, measuring productivity is relatively simple: the different outputs produced by a firm are weighted according to their price and then added to calculate an aggregated output measure. This measure is then divided by either labour inputs, to give labour productivity (LP), or by the total inputs involved, to give a total factor productivity ratio (TFP).
Accurate measures of the value produced by public services are vital to understanding developed economies. However, measurement can be more of a challenge than in the private sector. This is because outputs are harder to define, and harder to measure, especially when they do not have a price. For example, there are specific challenges around how to measure the outputs of and inputs to the defence sector. For many years, it was simply assumed that outputs = inputs for public services. This meant that public sector productivity growth was zero.
On 9 April 2024, ESCoE hosted a discussion and networking event as part of its measurement in the modern economy series at King’s College London. This focused on measuring public sector productivity.
Reflecting on the Atkinson Review
Firstly, we heard from Joe Grice, ESCoE Research Associate and Visiting Professor at King’s College London. Joe worked with Tony Atkinson in the writing of his Review 20 years ago. The 2005 Atkinson Review established nine principles for measuring public sector output that have stood the test of time.
Joe talked us through this Review, emphasising how far sighted it was in helping to move public sector productivity away from output = input to concepts based on value added. This has ensured sound measurement principles, making adjustment for quality of outputs and deflating inputs with appropriate price series. Corroborative evidence should be sought on public sector productivity, as part of a process of triangulation, and estimates should be published with margins of error. These principles put the UK at the cutting edge of public sector productivity measurement. Since the Review’s publication, the ONS has applied these methods in its measures of public service productivity.
Building on wider work, Joe discussed opportunities to develop Atkinson’s principles.
“Atkinson thought the real problem was that there needed to be some principles which were underlying the way that you measured public sector output and that the methods you used need to be clearly based on those principles.”
Tackling these challenges at the ONS
Next, we heard from Richard Heys, Deputy Chief Economist at the ONS (Office for National Statistics). He outlined how the Treasury has taken up the challenge of reviewing Atkinson’s principles and underlined its importance for the public sector.
In 2023, the Chancellor of the Exchequer commissioned a Review of these metrics by the National Statistician to reflect changes in services over the past twenty years, particularly in light of the COVID-19 pandemic. This was necessary because public services are a large fraction of UK GDP and international comparisons have become more challenging. And to improve public services we need to raise public sector productivity. This set the agenda for the ONS to improve quality and coverage and historic time series, and to incorporate public sector productivity into UK National Accounts. The ONS also aims to provide sustainable measures in regular production of its statistics.
Richard also addressed how the ONS has responded purposefully with new work on social security administration, tax administration, policing, immigration, defence, education, healthcare, public order and safety, environment, local government and adult and children’s social care. This involves work on the practical and conceptual issues in public sector productivity measurement.
“I think where the underlying strength of what’s built post Atkinson has remained; we’re trying to focus on those areas which have remained as inputs equals outputs. Ultimately, we want to stay as close to the Atkinson principles and the traditional methods as we can.”
The complexities of measuring the public sector
Finally, we heard from Mary O’Mahony, ESCoE Research Associate and Professor of Applied Economics at King’s Business School. Mary emphasised the complexities involved in measuring public sector productivity, discussing her recent research on the topic. This included a review of National Statistics Institutions practice from the report, with an illustration based on the criminal justice system in the Netherlands.
Mary focused on the public sector delivery chain (see below). The first step involves defining each of the inputs that contribute to a public service and the outputs that come out of it. This approach gives an ideal to work towards, even if data may not be readily available for all parts of the chain. The alternative is measuring inputs and outputs and making quality adjustments in a fragmented way, driven by what data is available rather than the importance of measuring the particular output or quality adjustment.
“Once you have the mapping then you start to think about how you measure all of this. Some parts of it will be easy to measure, such as the data inputs. But some of this stuff is intangible. It’s not going to be easy, and outcomes in particular are very difficult to measure. But you’ve got this scheme that you start trying to populate.”
There is a clear need to tap into the research expertise of ESCoE and TPI to help address these complexities and improve the data collection required to implement the measurement.
Continuing these conversations
Talks were followed by a Q&A with audience members. This included questions and reflections from public sector employees, including a retired Nurse Practitioner. It was clear how research and innovation in this space can have real-world impact in areas like health, education, and defence.
This event was part of ESCoE’s national accounts research programme. A new discussion paper on measuring defence outputs is due to be published later in April 2024.
For the full talks, listen to the event recording and view the slides. If you have any thoughts on the current Review, please contact PSP.Review@ons.gov.uk
Paul Mizen is Deputy Director of the Economic Statistics Centre of Excellence (ESCoE). He is Professor in Economics at King’s Business School, King’s College London.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.