MNI INTERVIEW: UK Preparing "Inclusive" Productivity Measure

The UK’s Office for National Statistics has made about 60% progress on a new measure of public sector productivity which will better account for services delivered rather than simply assuming they equal the cost of the inputs, with the new data set to be ready by next year, the ONS’s deputy chief economist told MNI, pointing to projects which will help policymakers measure output at a time of straightened fiscal circumstances.

The refined data will form part of an overall new “Inclusive Income” measure which will also capture work done at home such as child care, Richard Heys said in an interview.

Even relatively small changes in productivity count for much in the context of UK public finances and for growth assumptions made by the Bank of England, particularly given the British economy's dependence on services, which are particularly hard to measure. The Office for Budget Responsibility has estimated that 0.5% higher or lower annual productivity growth would raise or lower borrowing by over GBP40 billion by 2028-29. (See MNI INTERVIEW: UK Productivity Suffering Long-Term Scarring)

"Market sector productivity really matters. But alongside that, you might want to look at something like Inclusive Income ... to see ... whether you can actually tell a more rounded story by putting those two data sources together," Heys said.

HOUSEHOLD PRODUCTIVITY

The ONS’s new Inclusive Income data looks at everything people consume, whether it is made in the market, at home or comes from uncapitalised, intangible assets.

“What that shows us is that post the financial crisis during this period where productivity in the UK has been a really sticky question, we've seen a bigger share of growth coming from the household sector, from the things we're doing at home,’ Heys said.

Activities such as child and adult care, cooking and cleaning can be done by households, which is not measured by GDP, or through market provision, pushing them into GDP.

“One of the big challenges here is that GDP grows for two reasons. Either you take something that's in GDP and you make it bigger … or activity moves across the boundary that defines what's in GDP. Services are far easier to move across the boundary,” Heys said.

Recent data showed that annual productivity growth was flat in 2023, extending the UK’s run of poor growth using measures of market-based output, though it was 2% above the pre-pandemic peak.

“One of the drivers there is the average number of hours-worked-per-person. per-worker, is down 0.6%. So what we're seeing here is we've got more workers, we've got 1.1% more workers, but each worker post-Covid is doing slightly fewer hours,” Heys said.

CAPTURING PUBLIC SECTOR OUTPUT

Another goal for policymakers has been to boost public sector productivity which, under the previous ONS system was impossible to record as public service output was assumed to equal cost of inputs.

In a programme started two decades ago, Heys and his ONS colleagues can now measure the output of 60% of the public sector, looking at for example completed medical operations rather than just medical costs.

“Closing these gaps, improving that 60% number is very much the name of the game,” Heys said. Policing and defence are two key areas that do not yet have established output measures, with the ONS facing a deadline of March 2025 for its final report.

It remains a moot point whether capturing public sector outputs will lead to higher or lower productivity numbers. Experimental ONS data showed public sector productivity in 2022 down 0.3% on pre-Covid levels, with wide disparities between services areas. Healthcare productivity grew just below 1% per annum while public order and safety shrunk markedly.