1. Main points

  • Productivity of total public services decreased by 0.3% in Quarter 2 (Apr to June) 2019 compared with the same quarter in the previous year.

  • While there were increases in both inputs and output growth for Quarter 2 2019 compared with the same quarter in the previous year, inputs grew at a faster rate (4.1%) than output (3.8%), causing productivity to fall.

  • Inputs growth exceeded output growth despite the increase in output being the largest since Quarter 4 (Oct to Dec) 2008.

  • Productivity decreased by 0.5% in Quarter 2 2019 compared with the previous quarter; this was driven by the increase in inputs (1.6%) exceeding a smaller increase in output growth (1.1%).

  • This release incorporates new methods and data sources, consistent with changes made in Blue Book 2019, leading to revisions to estimates in earlier releases.

  • The estimates of productivity growth for 2017 and 2018 have been revised up to 1.4% and 0.4% respectively, continuing the modest growth seen in recent years.

  • These Experimental quarterly estimates are timelier than our annual National Statistics estimates, the next of which will be published on 8 January 2020, covering 1997 to 2017.

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2. Quarterly public service productivity decreases as inputs rise

Changes in productivity are normally a result of long-term structural trends. Therefore, we advise looking at changes in productivity between periods that are further apart. This can help to smooth any short-term fluctuations in growth rates.

Comparing quarters with the same quarters a year ago provides a rolling annual estimate of productivity and is therefore a good indication of the future path of the National Statistics annual estimates. Compared with the same quarter in the previous year (Figure 1), productivity for total public services decreased by 0.3% in Quarter 2 (Apr to June) 2019 because inputs increased by 4.1%, which is more than the increase observed in output (3.8%).

As inputs growth has a negative effect on productivity growth, both Figure 1 and Figure 2 show the inverted growth rates of inputs. The sum of the stacked bars (output, and inverted inputs) is therefore equal to productivity growth.

The increase in output was the largest on this basis since Quarter 4 (Oct to Dec) 2008, but this is partially attributable to the large increase in inputs in the indirectly measured service areas. The output of some service areas is measured solely by the growth rate of inputs, following the ‘output equals inputs’ convention. These service areas, including military defence and parts of central and local government activity, make up over 30% of public service output. While productivity cannot change in these service areas, increases in inputs will be mirrored by increases in outputs. This has been a driver of recent large increases in both inputs and output, which cancel each other out.

For the directly measured service areas over the past 12 months, output has been increasing but inputs have been rising faster. The latest quarter broadly continues that trend. Output in healthcare, education and social protection were all higher in Quarter 2 2019 than in the same quarter in 2018, but total inputs has grown by more than total output. Healthcare, in particular, continues to see large increases in labour and intermediate consumption inputs. Such spending may lead to higher output in future, or better patient outcomes, but in these short-term productivity series such improvements are not visible.

Figure 2 shows that public service productivity growth has been volatile over the last few years on a quarter-on-quarter basis. It decreased by 0.5% in Quarter 2 2019 compared with the previous quarter, following a decrease in Quarter 1 (Jan to Mar) 2019 of 0.2%. This has been revised up from the previous release, which reported a decrease of 1.1%. See Section 3 and Section 4 for further details on revisions.

The decrease in productivity in Quarter 2 2019 compared with the previous quarter was driven by a faster rate of increase of inputs (1.6%) than output (1.1%).

Placing these movements in the context of a longer time series, Figure 3 combines the experimental quarterly data in this release and the annualised versions of these for 2017 and 2018 with estimates between 1997 and 2016 taken from our latest 2016 annual release.

The latest annualised quarterly data suggest that 2018 saw an increase in public service productivity of 0.4%, but this should be treated as an Experimental estimate until the more robust annual estimate for 2018 is available in our National Statistics publication. In particular, the data in this quarterly release are not adjusted for changes in quality during the Experimental period. Public service productivity is estimated to have increased by a total of 6.3% between 2010 and 2018 (an average of 0.8% per year).

The annualised 2017 and 2018 Experimental productivity figures have both been revised up considerably from the previous release, by 0.8 and 0.7 percentage points respectively. See Section 3 and Section 4 for further details on revisions.

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3. Improved methods and data sources in this release

This release uses improvements to methods and data sources to measure public service inputs and output, resulting in revisions to past estimates. This section outlines the methodological changes used in this release, and Section 4 explains their impact.

Public service productivity estimates operate an open revisions policy. This means that new data or methods can be used at any time and will be applied to the entire time series. Revisions to estimates of productivity growth in recent periods are common, as new data improve the estimates. Analysis carried out in Historical revisions analysis of quarterly UK public service productivity (Experimental Statistics) and nowcast evaluation suggests that previous preliminary estimates of quarterly UK public service productivity, inputs and output did not systematically under- or over-estimate the growth rate relative to the later estimates.

Public service productivity estimates use an aggregate inputs measure that includes labour, goods and services (intermediate consumption); payments to private sector providers (social transfers in kind); and the use of capital assets (consumption of fixed capital). The Office for National Statistics (ONS) has made considerable improvements to the measurement of capital stocks and consumption of fixed capital, which have been incorporated into the National Accounts in Blue Book 2019.

Full details of these improvements can be found in Changes to the capital stock estimation methods for Blue Book 2019. The most notable changes are that the asset lives for various types of capital (including buildings and machinery) have been reviewed and updated – in most cases, asset lives are now estimated to be shorter, leading to faster rates of deprecation and higher estimates of consumption of fixed capital – and the quality of the input data has been updated and considerably improved, making estimates for different parts of government more accurate and consistent over time.

In addition to improvements to capital consumption, Blue Book 2019 also introduced an improvement to the valuation of government purchases of goods and services by better accounting for Value Added Tax (VAT). Government does not pay VAT on purchases of goods and services used to produce government output. The effective cost has to be estimated and added, to ensure that all intermediate consumption is valued consistently in the national accounts; this approach follows international guidance. The ONS previously implemented this adjustment inconsistently over time and has improved the approach in Blue Book 2019.

Full details of revisions to gross domestic product (GDP) can be found in Section 7 of the GDP quarterly national accounts, UK: April to June 2019 publication.

As in most quarters, we have made further improvements to our methodology, resulting in some minor revisions. These quarterly public service productivity statistics are classified as Experimental Statistics, indicating the ongoing improvement to the methods used to calculate them. Section 6 outlines some future developments we intend to explore.

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4. Analysis and impact of improvements

This section details revisions to the quarterly Experimental series since the previous release, published on 5 July 2019. Revisions have been made throughout our data series, but trends have remained broadly the same.

Revisions to capital consumption are substantial (Figure 4). As well as increasing the level, the growth rate of this input has also increased. The impacts vary by service area, but Figure 4 shows capital consumption for public services as a whole since 1997.

While increasing the rate of growth of this input, the higher level also means that a greater weight is allocated to capital in the aggregate inputs measure. The other inputs – labour, goods and services (intermediate consumption), and payment to independent sector providers (social transfers in kind) – are correspondingly allocated a smaller share.

As Figure 5 shows, capital remains a small contributor to overall public service inputs. However, since capital consumption tends to grow less quickly than other types of input (especially intermediate consumption and social transfers in kind), allocating capital a larger weight tends to reduce the overall growth rate of the aggregate inputs measure. This change has reduced the growth rate of inputs in 2017 and 2018, contributing to the upward revision to productivity in these years.

The introduction of improved valuation of intermediate consumption, as a result of Value Added Tax (VAT), has further reduced the growth rate of inputs in 2017. Previous estimates of intermediate consumption incorporated this valuation approach from Quarter 2 (Apr to June) 2017 onwards. The latest data incorporates this approach for the full time period, increasing the level of intermediate consumption in 2016. This reduces the growth rate of inputs between these years and so also contributes to the upward revision of productivity growth in 2017.

Figure 6 shows the cumulative impact of these revisions on public service productivity since Quarter 1 (Jan to Mar) 2017, measured on a quarter-on-same-quarter-a-year-ago basis. As explained earlier in this section, the upward revisions to productivity are primarily as a result of slower inputs growth. Output is also estimated to have grown faster than previously thought in 2018 and 2019, as a result of new data becoming available for the latest periods.

When comparing with the previous quarter, growth rates have been revised in most quarters since Quarter 1 2019, although the trend varies across the series. Figure 7 illustrates the volatility of the quarter-on-quarter revisions to productivity.

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5. Background to public service productivity measurement

Productivity is calculated by dividing output by the respective inputs used to produce it. Productivity will, therefore, increase when more output is being produced for each unit of inputs used. Estimates of inputs, output and productivity are given both as growth rates between consecutive periods and as indices, showing the cumulative trend over time.

For total UK public services, estimates of output and inputs are made up of aggregated series for individual public services, weighted together by their relative share of total expenditure on public services (expenditure weight). Inputs are composed of labour, goods and services, and consumption of fixed capital. Expenditure data, used to estimate most inputs growth, are taken from the GDP quarterly national accounts, UK: April to June 2019. The quarterly national accounts also provide estimates of government output, based on direct measures where they are available and indirect measures where they are not.

Users should be aware that all growth rates in this release are expressed as changes in (natural) logarithms, including previous estimates. These can differ slightly from the discrete percentage changes typically used in our other statistical releases and previous public service productivity publications. The use of log changes allows decompositions of productivity to be exactly additive between inputs and output. In general, when the growth rates are smaller, the deviation of log changes from discrete percentage change is small.

Further information on log changes can be found in Section 3 of A simple guide to multi-factor productivity.

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6. Quality, methodology and future improvements

This release presents Experimental estimates for total public service productivity, inputs and output, providing a short-term timely indicator of the future path for the National Statistics estimates of total public service productivity, which are produced with a two-year lag. Estimates of output, inputs and productivity up to 2016 are reported on an annual basis and use data from Public service productivity: total, UK, 2016. Further information about the annual, National Statistics release can be found in the Quality and Methodology Information (QMI) report.

Differences between the National Statistics and Experimental releases and information on data sources for quarterly total public service productivity can be found in New nowcasting methods for more timely quarterly estimates of UK total public service productivity.

As these statistics are Experimental, we are continuously improving our methods. To improve these statistics over the coming year, we intend to:

  • explore the feasibility of providing indicators of changes in quality of public service output, to make the quarterly estimates better predictors of the future trend of the National Statistics annual estimates, which include quality adjustment
  • continue to publish analysis of the underlying movements driving quarterly productivity movements, including analysis for service areas, and explore the feasibility of publishing more detail by service area
  • develop Experimental direct output measures for service areas that are currently indirectly measured, in particular central government (Civil Service) activities
  • continue to review our data sources and methods, and make improvements where possible

Feedback on the use of these estimates and suggestions for improvements will be essential for the future development of timely estimates for public service productivity. All questions and feedback can be sent via email to productivity@ons.gov.uk.

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7. Authors

Sophie Barrand and Sonny Ali, Office for National Statistics

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Contact details for this Article

Josh Martin
Telephone: +44 (0)1633 455425