A sluggish public sector and the closure of productive private sector industries are hampering growth and risking significant future tax hikes, according to a new report published by the Centre for Policy Studies.
‘A Productivity Toolkit for Britain’ by former Conservative cabinet minister and now peer John Redwood delivers a thorough diagnosis of the productivity crisis ailing our economy and proposes a raft of reforms to the public sector which would reverse the trend.
The report highlights not just the problem of long-term failure to boost productivity – it has averaged 0.4% per annum since the financial crisis, compared to 2.1% prior to 2008 – but the impact that failing to boost productivity will have on the economy going forward.
Healthcare spending plans announced at the recent Budget are predicated on NHS productivity returning to levels last seen in 2019, before the pandemic. If NHS productivity has not improved from current levels by 2028/29, the Chancellor will need to find another £20 billion for the NHS to achieve currently anticipated health outcomes. According to HMRC calculations, £20 billion is roughly equivalent to a 5p increase in corporation tax, or a 2p increase to each of the basic and higher rates of income tax.
While most of this damagingly low, or indeed non-existent productivity growth exists in the public sector, Redwood also highlights how Britain has steadily hamstrung or indeed totally closed down highly-productive elements of the private sector.
Physical production – mining, manufacturing, energy and water utilities – have declined from 21% of GDP in 1997 to just 13.1% of GDP in 2022 and are likely lower today. Government policy is to accelerate closure of the North Sea oil and gas industry – one of the most productive sectors, with relatively few, well-paid workers producing a big stream of revenue.
The report recommends a comprehensive list of measures which could improve public sector productivity grouped between staffing reforms, maximising the use of the public sector estate and improvements to procurement procedures.
