Chapter 6: The relationship between public services productivity and other statistical systems and outputs

This Review has been conducted within the wider context of national and international developments influencing the measurement of public services productivity (PSP). This chapter outlines how the Office for National Statistics (ONS) can integrate the findings of this Review, in terms of methods improvements, with two parallel streams of activity:

• Firstly, the implementation of the System of National Accounts (SNA) 2025 will provide the conceptual framework to take forward these recommendations.
• Secondly, the Review has undertaken its work in full awareness of the forthcoming United Nations (UN) led review of the Classification of Functions of Government (COFOG), which defines the service areas which countries use to produce these statistics. Changes to the COFOG may impact the scope of some of the methods proposals contained in this Review.

The Review has also become aware of considerable local activity within various services being undertaken by different branches of government. The latter often analyse at a finer degree of disaggregation, with focus on the performance of individual units within their system, rather than, as the ONS does, comparing between public services. Coherence with these local metrics is key to delivering a robust and useable set of data.

6.1 System of National Accounts and Gross Domestic Product

The UK National Accounts is the pre-eminent source of macroeconomic data on the UK economy, including headline indicators such as Gross Domestic Product (GDP), household consumption and business investment. As public services make up around 20% of total GDP, their measurement is a vital contributor.

There are two key distinctions between the methods used in national accounts compilation, and parallel measurement of PSP:

• Some measures of input and direct measures of output are currently out of alignment. This is because PSP is a self-contained statistic able to innovate at a faster pace; the national accounts has a time lag in absorbing some of these data because of its more comprehensive and structured framework. Also, national accounts reports primarily at a higher level of aggregation, therefore prioritising data which are required at this level, whereas PSP estimates are generally more disaggregated.
• The UK National Accounts currently excludes, by convention, quality adjustments because of the use of the existing national accounts frameworks in the UK. The concept of quality adjustments are included in the SNA 2008 and 2025. However, in July 2023 the National Statistician agreed the National Statistician’s Committee for Advice on Standards for Economic Statistics (NSCASE) recommendation that quality adjustments should be incorporated into the UK National Accounts, which presents the opportunity to close this gap.

National accounts data are used to understand what is changing domestically over time within an economy, but these data are also used for international comparisons. Both these purposes require consistency of methods to allow valid comparisons to be drawn. To support this, since 1948 the international statistical community has via the UN, agreed a statement of principles and methods which all countries align to (the SNA). The SNA is revised periodically and the latest version was published in 2008; the next is scheduled for sign-off by the UN in March 2025. SNA 2008 (paragraph 15.122) explicitly permits quality adjustment of the volume metrics (not the current price values) of public services.

However, through its membership of the European Union (EU), the UK was required to align to a separate standard: the European System of Accounts (ESA). This was revised in 2010 and in most areas aligns to the SNA 2008. The biggest difference in the context of this Review is in the treatment of public service quality adjustments: where SNA 2008 permits these, ESA 2010 forbids them.

This is because of the legislative and financial requirements of ESA 2010 and the ways contributions by Member States to the EU budget are set as a fraction of Gross National Income (GNI) in current prices. The methods to calculate GNI are defined within ESA 2010, and included as a regulation within European law, to ensure all countries pay an equitable share of the costs of the EU.

The ESA 2010 position, that quality adjustment should be excluded to prevent inconsistency amongst EU Member States given that standard methods do not exist, is one which the UK has long disputed. Whilst the UK has formally exited the EU there are two reasons the UK has not migrated away from applying ESA 2010. The first is under the terms of the various exit and trade agreements between the UK and the EU there is a continued requirement for coherent data for an agreed period of time post-exit. The second is, knowing that SNA is planned for revision in 2025, it was sensible to make one change to the latest framework.

Following a period of testing and quality assurance through application into PSP estimates, the methods outlined in this Report will be implemented through the usual ONS UK National Accounts ‘Blue Book’ challenge processes to ensure appropriate application into the national accounts in line with other changes to conform to the new 2025 SNA. Pending funding decisions, the Review anticipates this will occur in alignment with other SNA 2025 related changes, although implementation may be phased. Necessary changes to better align public sector stocks and flows data in the national accounts should be prioritised.

The Review is aware there are a number of recommendations in the SNA update, which will interact with elements of the Review when the process to take these improvements into the UK National Accounts is completed. The most important of these applies a rate of return to public sector capital. This will change input values included in the productivity calculations described in this Review. This should be viewed separately from the work described throughout this Review to augment output measures with quality adjustments, or the recommendations included in this Report which consider improvements to input measures on the current (SNA 2008 and ESA 2010) basis. The ONS should review how these effects interact as part of implementing the package of changes to deliver SNA 2025, once further international guidance on the exact methods to implement is made available.

In preparation, the Review has developed a high level ‘roadmap’ to incorporate quality adjustments into the UK National Accounts. This has been compiled as part of the ONS planning for implementation of SNA25 more widely. This roadmap will need to be maintained and updated in alignment with the final SNA25 implementation plans. The roadmap can be seen at Annex B.

6.2 The Classification of Functions of Government (COFOG) update

Alongside the SNA, the other major instrument the international community uses to achieve consistency of data is to agree a classification structure for public service activity. This is called the Classification of Functions and Government (COFOG), and is maintained by the United Nations.

The international community, led by the UN, has commenced a review of COFOG to ensure it remains fit for purpose in measuring government expenditure in the most useful way possible and to a lesser extent, assure alignment to the new SNA.

The review of the COFOG structure is outside the remit and life of this Review. However, the opportunity presented to influence future improvement of these classifications is significant. This Review has therefore made a substantive submission to the COFOG Review, included as Annex C of this report. The Review’s observations:

• The existing structure is insufficiently detailed in some areas making measurement challenging. For example, defence as a large proportion of spending could benefit from being sub-divided into land, sea and air capabilities to provide a similar level of granularity to other services.
• The structure is outdated now that the environment, climate change, and Net Zero are of far more policy relevance. Services targeted at addressing these are located in numerous COFOG classifications, with several, such as forestry, being recognised for their economic contribution (selling timber) rather than their environmental contribution (sequestrating carbon). This Review has undertaken research into how to best reflect which functions should be brought together into a single clearly defined environmental service which would allow spending on this area to be better understood.
• Some large services are grouped together in ways which simplify the system but may hinder analysis. For example, police and immigration services are merged into a single COFOG with the criminal justice system. In some countries this may be appropriate, but in the UK context, the Review notes the substantial benefits from separately identifying and analysing each of these.

Countries’ perspectives may differ on how much detail is desirable or feasible. The UK is in the lead internationally in the measurement challenge associated with PSP: the Review cannot identify another G7 country which has reviewed this area of statistics equivalent to this Review, or the Atkinson Review. Therefore, it is clear the ONS is seeking more data than its peers. However, a number of countries have contacted the ONS to discuss their parallel work in this field, and government efficiency and productivity remains hotly debated. The Review encourages other countries to proactively engage with the COFOG Review.

Changes caused by amendments to the COFOG structure would need to be implemented not just by ONS but also HM Treasury and the relevant spending departments in how they collect and submit data to HM Treasury’s Online System for Central Accounting and Reporting (OSCAR) system. Changes may create discontinuities with historical data, and resources to refresh the relevant IT systems to meet their new requirements, and ensure comparability of data through time would need to be prioritised.

Data published directly by departments may in some instances allow for more granular breakdowns than those in the COFOG structure, which may allow for more detailed analysis. As long as it is possible to aggregate data to the agreed COFOG categories there is nothing to prevent the ONS operating a more detailed system.

6.3 Coherence of local and national estimates

The Review has identified where some parts of public services have been developing frameworks to compare the productivity of their individual institutions. This has yielded opportunities to work with and share knowledge on methods development as well as, importantly, creating coherence in estimates in future. Where differences are necessary between the ONS official estimates of PSP and those of other organisations, this work enables transparent narrative for users.

National Health Service England

The National Health Service (NHS) England is undertaking a programme developing new measures of productivity for the acute and non-acute care sectors. These will be produced more frequently and with less of a time lag than existing measures and be produced at an organisational level (such as for NHS trusts and Integrated Care Systems), enabling localised comparisons of productivity performance.

The ONS is one of several bodies engaged with this project as part of a methodological advice and oversight group; the mutual knowledge sharing has informed development work the ONS has undertaken as part of this Review. NHS England is also developing supporting metrics associated with productivity. The objective of the new productivity measures and associated metrics is to enable the NHS to identify, share, implement and adapt the best policies for improving productivity more quickly.

There are differences in the various measures produced by different bodies, for example, NHS England produce data on an England basis whilst the ONS produces UK statistics, and there can be differences in time periods being compared. Being able to explain these differences is vital to ensuring the useability of different estimates of similar concepts.

University of York

The Centre for Health Economics (CHE) at the University of York measures healthcare productivity in their long-running series, ‘The Productivity of the English NHS’. This measure was developed in partnership with the Atkinson Review. CHE use volumetric measures of inputs and output, with output adjusted for quality. As a result of CHE’s engagement with the Atkinson Review, there is a degree of commonality between CHE and the ONS measures for England. In particular, the most substantial part of the quality adjustment used for healthcare output is common to both the CHE and the ONS measures, as it relies on Hospital Episode Statistics data processed by CHE.

However, there are a number of key differences. While the CHE measure focusses specifically on NHS productivity, the ONS measure is defined according to all general government final consumption expenditure defined as healthcare under the COFOG definitions. As a result, the ONS measure includes additional services, including public health services and NHS-funded privately-provided care (although the latter of these is measured on an ’inputs = outputs’ basis because of the paucity of data on private providers). This difference resulted in a substantial difference during the coronavirus pandemic, where COVID testing, tracing and vaccination services were included in the ONS measure but not the CHE measure.

Other differences between the two measures include:

• Different sources and methods used in the calculation of output, particularly Hospital and Community Health Services.
• Different data sources used in labour, intermediate consumption and capital inputs.
• Differences in the quality adjustment, particularly for primary care and out-of-hospital services.

Centre for Police Productivity

Measuring productivity in policing is seen as vital to both restoring public confidence in the service and unlocking investment. The independent Policing Productivity Review (November 2023), identified 26 cross-cutting recommendations with considerable scope to improve productivity in policing. It suggested that up to 15 million hours of police time could be saved through technologies such as redaction, robotic process automation and video response, and a further 3.4 million by overhauling policing’s outdated and siloed approach to sharing and analysing data.

In response the Home Office established a new Centre for Police Productivity (CPP), based in the College of Policing, to take forward these recommendations. It was also announced that, as part of the Centre, a National Policing Data Hub would be established allowing policing and government to access the data required to maximise improvements to police productivity and the further use of technology, including Artificial Intelligence.

The Centre’s aim is to support forces to harness innovations that will free up significant officer and staff hours, that can be redirected to the high impact activities that drive performance. The ONS should continue to work with the centre and other relevant policing bodies on development of metrics around police activity.

Local Government measures

The departments of state which have responsibility for local government have, for a prolonged period, worked to understand and estimate the productivity of the various local government functions.

The majority of these, by volume, are already accounted for in the services that the ONS currently measure, specifically Education, Adult Social Care and Children’s Social Care. These are discussed in detail in the relevant chapters.

In addition, there are a number of smaller services, specifically waste management and environmental services, highways and planning and local democracy that are currently part of the “other” group. The Review, because of resource constraints, has been unable to prioritise these. The opportunity for further work and associated recommendations can be seen in Chapter 16.

The productivity of the ONS

A simple measure of the productivity of the ONS was developed during the coronavirus pandemic to assess how productivity changed in response to the pandemic. It defines input as the number of full-time equivalent staff on the payroll, and output as the number of statistical bulletins and articles published, each quarter. Estimates have been produced several times since its development, to feed into financial reporting and planning.

Significant increases in expenditure related to the Census in 2020 meant that inclusion of expenditure on goods and services and the consumption of fixed capital, to provide a more comprehensive measure of inputs, was not fit for purpose. Therefore, the current measure of the productivity of the ONS considers labour productivity only.

There are limitations to the existing estimates: only a subset of the ONS outputs is included (additional published outputs, such as datasets, and any non-published outputs are excluded), and the quality of outputs is not measured. Having considered the feasibility and impact of possible improvements to the methodology, the potential improvements most worth pursuing are:

• Expanding the measure of published outputs to include other types of publication beyond statistical bulletins and articles.
• Developing a quality adjustment based on the number of major statistical errors.

Given that the ONS is relatively small in public sector terms, the Review has not prioritised assessing feasibility in depth. However, this could be explored further. Although limitations of the methodology would remain, it is considered that it would provide a measure that is adequate to feed into overall estimates of total public service productivity.