A new EY report, Mind the Productivity Gap, found that if UK public sector growth had kept pace with the private sector since 2019, UK GDP would have been 3% larger by the end of 2024. This means that weak growth in public sector productivity is currently costing the UK economy around £80bn a year in lost output.

EY analysis suggests that if public sector productivity growth was to continue on its current trajectory without improvement, the shortfall could widen to nearly 5% of total GDP by 2030. This would equate to £170bn of lost economic output for the UK every year from 2030.

Public sector productivity growth largely kept pace with that of the private sector between 2010 and 2019. However, the gap has widened since that point and while private sector productivity is over now 3% higher than in 2019, public sector productivity is nearly 5% below its pre-pandemic level.

While business productivity has outpaced that of the public sector, both have seen productivity growth slow from historic levels since the global financial crisis. Total UK productivity across both public and private sectors grew by more than 2% a year prior to 2008. However, this figure has averaged just 0.5% annually since 2008.

Peter Arnold, EY UK Chief Economist, said: “Productivity has been a longstanding challenge for the UK and a major contributor to the subdued levels of economic growth seen in recent years. The pandemic saw public sector productivity dip significantly as services were paused and, while the sector’s output has recovered in the years since, input pressures from maintenance and staffing costs to labour time, have grown substantially. This has caused a productivity imbalance and a widening gap to open between the public and private sectors, which if left unaddressed will continue to act as a drag on UK growth.”

Tracking the public sector productivity gap

Falling productivity means that, since the pandemic, the UK public sector is delivering a lower output for the resources put in by government and taxpayers.

Between Q1 2019 and Q4 2024, input into UK public services – which include labour time and costs, alongside maintenance of infrastructure and assets – increased by nearly 25%. In contrast, output – the goods and services provided by government to individuals and the wider population – grew by 14%, meaning that productivity fell by 8.3%.

Over the same period, productivity in the private sector grew by 4.7%.

The EY analysis shows that, if the public sector’s productivity growth rate had matched the private sector over that period, public sector output would have been 15% larger by the end of 2024, increasing total GDP by 3%. With UK GDP standing at £2.85tn in 2024, this growth would have been worth £84bn to the economy.

Chris Neill, EY UK Partner, said: “Public sector productivity largely kept pace with the private sector between 2010 and 2019, and realigning the two over the next five years would present an enormous economic opportunity for the UK. While there are no quick fixes, there are actions that could be taken now to help close the gap by 2030. These include modernising public sector assets, including real estate and infrastructure, to bring down high maintenance costs, as well as adopting digital and automation technology to enable consumers to accelerate and tailor their interactions with public services.

“It’s also worth noting that productivity varies considerably across different parts of the public sector, so creating opportunities to share best practice between departments could help to elevate productivity across the sector as a whole.”

Closing the productivity gap

The report identifies key measures that could accelerate growth in public sector productivity over the next five years, enhance the sector’s GDP contribution and add billions in value to the UK economy.

These include incorporating digital and automated technology into the delivery model of public services. AI and intelligent triaging tools could be used to help support members of the public to interact with public services and influence decision making around when and how they access public services.

The report also highlights that ageing public sector real estate requires higher maintenance costs, with the potential to impact the operational efficiency of key public services and lower productivity output. With this in mind, the report identifies investment in modern public infrastructure, estate assets and equipment as an opportunity to enhance public sector productivity.

Finally, the report highlights that greater collaboration between different areas of public services would contribute to good practice and learnings being shared across the sector. Certain areas of public services have seen greater productivity growth than others, and the report suggests that integrated digital platforms would enable the sharing of insights between departments and drive cross-government solutions to lift the sector’s overall productivity.