In the wake of the Spending Review and a flurry of reports, including from the 'Big 4' consulting firms, about the “productivity gap” in public services, efficiency has once again become the dominant argument for how we measure the success of reform. The argument is simple: with public spending accounting for almost half of GDP, boosting productivity is essential to restore growth and put the public finances on a sustainable footing.
It is an argument with obvious political appeal. The UK economy has struggled with stagnant productivity for more than a decade, while demand for public services has risen. In a climate of constrained budgets, the case for doing “more with less” feels irresistible.
Yet this narrow framing of the challenge carries real risks. Productivity, important though it is, cannot be the sole lens through which the success of public services is judged. The danger is that reform once again becomes equated with efficiency alone: reducing complex social institutions to a set of input–output ratios, while ignoring whether outcomes that matter to citizens are actually improving.
Productivity is only a partial lens
Citizens expect government to use resources wisely and efficiency gains should be pursued. But productivity is only a partial measure of value.
Unlike the private sector, where outputs can be priced against inputs, public services have broader purposes. Their mission is not only to transact efficiently but to improve lives, strengthen communities and build trust.
Consider the NHS. Since the pandemic, NHS productivity has fallen nearly 4%. Inputs in staff and funding rose but outputs lagged behind as waiting lists have grown. Short-term efficiency measures such as getting everyone seen within 18 weeks, may raise productivity stats but they risk worsening outcomes if appointments are rushed, patient experience declines and already fragile staff morale declines.
In the justice system, productivity has fallen by around 12% since 2019, with criminal court backlogs now exceeding 65,000 cases. Remote hearings and tighter case management were introduced to squeeze efficiency but without investment in judges, legal aid and court infrastructure, the backlog persists.
And in schools, austerity years appeared to show productivity gains: exam results improved despite flat budgets, but at the cost of teacher retention, rising SEND demand and widening attainment gaps. Short-term efficiency masks deeper structural challenges.
Public services that are efficient but ineffective are failing in their mission.
When even the private sector moves beyond productivity...
Interestingly, even in the private sector there is a shift away from narrow measures of efficiency and productivity. Service-based industries have found productivity notoriously hard to measure. Banks now report customer trust and satisfaction scores alongside efficiency ratios; tech firms judge themselves by customer engagement and innovation velocity, not just throughput; and professional services have moved beyond “billable hours” toward measures of client outcomes and reputation. Even private healthcare providers increasingly rely on wellbeing and quality indicators, recognising that high patient volumes can undermine long-term value.
This raises an important question for government: how much of the UK’s so-called productivity dip reflects real inefficiency, and how much is a problem of measurement in a service-orientated economy? If private firms are broadening their metrics beyond simple efficiency, public services should be even more cautious about allowing productivity alone to dominate reform narratives.
Lessons from the past
The UK has long pursued efficiency as the lodestar of reform. From New Public Management in the 1980s to austerity in the 2010s, governments have tried to impose private-sector productivity disciplines.
But the results are familiar. Target cultures encouraged gaming and short-termism. Cost-cutting hollowed out resilience, leaving services ill-prepared for crises. The efficiency drive eventually reached diminishing returns: very few genuine savings remained without damaging service quality.
The lesson is clear. Productivity gains are necessary but on their own they are not sufficient. Without strategy, efficiency drives can weaken the very systems they are meant to strengthen.
The strategic gap
The bigger challenge today is not the productivity gap, but the strategic gap: the failure to align resources, capability and reform effort with the long-term outcomes the country needs. Narrow productivity interventions risk producing a cycle of short-term fixes. Departments are asked to shave costs or raise throughput without confronting fundamental questions:
- Purpose: What outcomes are services ultimately trying to achieve?
- People: How do we support and retain the workforce that delivers them?
- Pounds: Are resources aligned with long-term priorities, not just immediate pressures?
Without this clarity, efficiency can backfire. Digitising court processes may reduce backlogs, but if vulnerable witnesses are unsupported, justice is undermined. Efficiency without purpose is a false economy.
What works instead?
Examples at home and abroad show that alternative approaches are possible.
- Scotland’s National Performance Framework has, for over a decade, measured progress not just in GDP or productivity but in outcomes like health, education, fairness and sustainability. It has helped shift the policy conversation toward long-term wellbeing.
- New Zealand’s Wellbeing Budget asks every department to frame proposals in terms of intergenerational wellbeing. Investments in mental health and child welfare are judged not on immediate productivity returns but on their long-run social and economic dividends.
- Greater Manchester’s devolution deal allowed the city-region to join up health and social care. By focusing on outcomes – preventing ill health, reducing inequalities, and supporting people to live independently – it reduced emergency admissions and improved community care. Strategic integration delivered both better outcomes and more efficient use of resources.
These approaches do not ignore productivity. They seek to improve efficiency but they set it within a broader framework of purpose and outcomes. They recognise that efficiency gains are meaningful only if they enhance long-term public value.
Implications for reformers
For ministers and civil servants, three lessons present themselves.
First, efficiency programmes must be accompanied by honesty about trade-offs. Not every service can or should be judged by narrow productivity metrics. Quality, access and fairness matter just as much as throughput.
Second, investment in capability is essential. Workforce development, modern infrastructure and digital platforms are enablers of both productivity and outcomes but only if designed with purpose in mind. The state cannot cut its way to long-term efficiency; it must build the conditions for innovation and transformation.
Third, leadership must evolve. In complex systems, improvement comes from collaboration across sectors and levels of government. Whitehall’s role should be to set clear missions, support learning, and create space for adaptation and not simply to demand annual productivity improvements.
Conclusion
The renewed debate on productivity is important, but it must not become the whole story. Services cannot be reduced to input–output ratios. They are institutions of social purpose, charged with tackling the greatest challenges of our time: from climate transition to social mobility and health inequality.
If reform is to succeed, we need more than productivity plans. We need strategy: clarity about outcomes, investment in people and a willingness to stop doing what no longer works. Without this, productivity drives will be just another chapter in a long history of reforms that looked efficient on paper but failed to deliver in practice.
Productivity matters. But purpose is paramount.
Patrick Diamond is professor of public policy at Queen Mary University of London and a former head of policy planning in No.10. Vijay K. Luthra is a public service transformation specialist and former civil servant, local government councillor, school governor and NHS NED