UK: Intolerable Public Sector Mismanagement
Only serious payroll cuts can restore effectiveness
Whatever ills and shortcomings may afflict the UK economy, one thing is very clear: hiring more 'public sector workers’ is not the answer. This message is rammed home yet again yesterday’s labour market data and today’s services output data.
Taken separately, the results for government output, public sector wages and public sector are bad: taken together they represent intolerable and unaddressed public sector mismanagement.
First the headlines: July’s service sector output fell by 0.5% mom, with government services down 0.6% mom and down 0.9% yoy. Meanwhile, yesterday’s labour market data showed public sector weekly earnings up 10.5% yoy, whilst private sector wages were up just 7.5%.
Now the longer context. Between 4Q19, immediately prior to the onset of the pandemic, and 2Q23 total public sector output as measured by the services index is down 6.5%, whilst public sector headcount has jumped 8%, and public sector average wages have jumped 19.2%.
Public sector productivity (output per worker) has fallen 14.2%, since 4Q20, and is still falling - down a further 0.3% qoq and down 2.2% yoy in 2Q23.
Meanwhile, the wage bill of the public sector is soaring: with headcount up 8% and average wages up 19.2% In all, the public sector wage bill is up 28.6% since 4Q19.
So lets look at productivity and wage bill together, basing both from 1Q19.
It is impossible to imagine any genuinely private business tolerating such a gross mismatch between achievement and reward for so long. My reaction as an economist is shock. My reaction as human being and a British taxpayer is disgust.
This is a picture of dramatic and sustained failure of governance and management. It is easy, and right, that the initial blame should fall on both the government which presided over it, and the civil service senior management who administered it. Britain’s governing classes are incompetent failures who deserve neither respect nor continued access to the public purse.
But merely explaining this as a consequence of mere human failure and incompetence obscures half the picture. It isn’t just civil service laziness, incompetence and indifference to outcome which is doing the damage. Rather, I suspect that Britain’s system of governance is now so complex, so stait-jacketed by duplication and redundancy of roles, responsibilities and personnel, that it is exceptionally hard - impossible even - for the system to do anything useful. And, of course, such byzantine complexity ensures there are no clear and direct tracks of accountability.
Add to this, the ever-burgeoning evidence that most British public institutions are lumbered with ancient and obsolescent software incapable of either operating efficiently, or being upgraded/overhauled. Nothing gets done, because in these circumstances. doing anything is very very hard.
One thing, however, is very obvious: adding to the public sector payroll will achieve nothing except more damage to the public purse. Indeed, if public sector productivity was merely restored to 4Q19 levels, then the public sector could be cut by 14%, and total public sector wage bill by around 7.5%, even at today’s wages.