According to an analysis of official data, if productivity trends remain negative into 2030, Prime Minister Rachel Reeves may be compelled to allocate an additional £5 billion, resulting in 92,000 more public sector employees.
The Economic and Business Research Center (CEBR), which specializes in economic analysis, highlighted that after last year’s drop in hourly output per public sector worker, a significant increase in workforce will be necessary by the decade’s end to maintain existing service levels.
Referring to recent statistics from the Office for National Statistics, the consultancy advised the minister to heed these developments. Productivity has decreased by 0.3%, falling 0.2% last year, and continuing to drop below pre-pandemic norms by 2024.
If this downward trajectory persists throughout the current cycle, the Treasury might need to bridge a fiscal gap by quickly hiring 92,000 workers at an estimated extra cost of £5.1 billion, according to CEBR’s calculations.
Another potential route would be to restrict worker numbers and accept lower service quality. But there’s also a third alternative—directly tackling productivity. This could involve enhancing worker output through skill development, operational shifts, and other measures.
Reeves faces mounting pressure to tighten daily expenditures before the upcoming budget announcement. This spending review, expected on June 11, will outline governmental priorities for the next three years.
Amid concerns over a weakening economic outlook and diminishing tax revenues, speculation abounds that the Prime Minister may need to reduce public sector budgets or possibly increase taxes to comply with fiscal guidelines.
Health Secretary Wes Streeting has urged all NHS sectors to boost productivity to free up resources for investment.
However, unions are starting to push for salary increases that keep pace with inflation, complicating the financial landscape for the public.
CEBR noted that the UK’s overall productivity, encompassing both private and public sectors, has been sluggish since the financial crisis of 2008 and lags behind many international counterparts.
In 2023, the UK’s productivity was reported as lower than that of Germany and France, sitting 19% behind the U.S.
Productivity in the public sector has significantly declined since the pandemic and hasn’t bounced back.
The report pointed out that not only are we failing to return to 2019 levels, but recent declines place current public sector productivity even below 1997, which is alarming.
“While the UK’s productivity challenges aren’t new, the stakes are higher now. With declining productivity and rising wages, the financial pressure on public finances continues to mount,” the report stated.
“Policymakers must explore strategies to enhance efficiency while adhering to stringent fiscal regulations and evolving labor market conditions. A lack of action risks creating larger fiscal holes, as taxpayers face more staff but less effectiveness.”
