Baroness Neville-Rolfe
To ask His Majesty’s Government what assessment they have made of the United Kingdom’s capacity to increase productivity, particularly in the public sector.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, in the decade from 2010, the UK economy saw the lowest productivity growth since the Napoleonic Wars. This led to the lowest growth in living standards ever recorded. This Government inherited a situation where public sector productivity was 5.6% below pre-pandemic levels. Reversing that performance is the number one mission of this Government. As part of our growth strategy, we have set out measures to increase productivity, including reforms to planning and skills, record levels of investment in R&D, new investment in transport connectivity, and a modern industrial strategy.
Baroness Neville-Rolfe (Con)
My Lords, here is another statistic: the ONS has reported that total public service productivity in the UK fell by 0.7% in Q2 of 2025 compared with the previous year and that healthcare productivity fell by 1.5% over the same period. Public service productivity continues to lag behind that of the private sector, yet this Government have overseen a surge in the number of civil servants, with many still working from home; inflationary public sector pay deals, without specific and direct productivity links of the kind that are common in business; more state-controlled activity; and more regulation and taxes on business. Does the Minister agree that this is actually eroding the prospect of UK per capita growth, which is essential for the success of the Government’s ambitions?
Lord Livermore (Lab)
I do not agree with that. On a point of fact, the noble Baroness mentions NHS productivity. The latest figures from the NHS show that NHS productivity has grown by 2.4% in April to July 2025 compared to the same period last year. Once again, the noble Baroness criticises the fact that we are seeking to pay the public sector workforce properly. She will be aware that a workforce that is efficient and well rewarded is essential to increasing productivity—she always talks about the need for increased productivity, but she never backs the measures that actually go to deliver it. I hope that the noble Baroness will recognise some of the measures that this Government are taking. At the spending review, the Government established a programme of public service reform to drive greater productivity. As part of that, the Office for Value for Money worked closely with departments to identify £14 billion of efficiencies. The noble Baroness did not mention that in her question. At the Budget, the Chancellor announced that we will deliver a further £2.8 billion of efficiencies and savings in 2028-2029.
Lord Kakkar (CB)
My Lords, much of the future improvement in productivity in the NHS is predicated on the adoption of innovative technologies. Is the Minister content that there is sufficient investment in the continuing development of the NHS workforce to facilitate the adoption of that technology and deliver that improvement in productivity?
Lord Livermore (Lab)
I am. We are investing £10 billion in digital technologies within the NHS. We have introduced a 2% efficiency and productivity target in the NHS for each year of this Parliament. That is supported by the Government’s 10-year health plan for England, which will improve outcomes for patients and deliver better value for money for taxpayers. The noble Lord is absolutely right that digital technologies and their adoption is vital to that. As I say, that is why we have invested £10 billion in it. We are moving more healthcare into the community and we are focusing more on the prevention of illnesses.
Lord Woodley (Lab)
My Lords, in a recent pilot of private sector companies which were working a four-day week, over 90% chose to keep these arrangements because of seriously increased productivity. Does the Minister agree that this should be expanded to the public sector, as called for by the trade unions?
Lord Livermore (Lab)
I do not believe that that is government policy right now.
Baroness Kramer (LD)
My Lords, this Question caused me to take a look at how the Government measure productivity. It strikes me as extraordinarily quantitative, taking into consideration almost no issue of quality. I am concerned that if AI is trained on these existing models, we are going to dig ourselves into a worse hole rather than make things better. Are the Government looking at how productivity is measured to give us something far more useful and valuable?
Lord Livermore (Lab)
I agree with a great deal of what the noble Baroness said. I noticed the noble Lord, Lord Leigh, who is very interested in this point as well, was on his feet. We have discussed it before in previous debates. We recognise the challenges in measuring public sector productivity, given the diversity of inputs and outputs in public services. The ONS recently published a review of its metrics. It has done a wide-ranging review into how productivity is measured and set out improvements that are now under way in many areas, such as healthcare, education and social security administration. It has included new quality adjustments, which better account for outcomes. I will take back to the Treasury the point the noble Baroness makes about the future adoption of AI.
Lord Leigh of Hurley (Con)
It is fair to say the ONS has a particular problem measuring NHS and public sector productivity because of the difficulty in measuring the outputs and inputs. None the less, the ONS reckons that public sector productivity has dropped 4.2% since 2019 and that, if it was at the same level as private sector productivity, the UK economy would have grown by 3%. Part of the problem is the measurement and part of the problem is the employment policies in the public sector. Will the Minister recognise the OBR’s warning that the Employment Rights Act will
“likely have material, and probably net negative, economic impacts on employment, prices, and productivity”?
Lord Livermore (Lab)
No. As the noble Lord says, public sector productivity has dropped significantly since 2019. This Government inherited a situation in which public sector productivity was 5.6% below pre-pandemic levels. That is clearly unacceptable and there are far greater issues going on than those that the noble Lord raises. I hope, as I have said before, that he will acknowledge some of the things this Government are doing to drive greater productivity in the public sector. We are working with the Office for Value for Money to identify £14 billion of efficiencies. We have gone further than that and identified a further £2.8 billion of efficiencies. We are investing in digital and AI transformation, workforce reform, rationalising the Government estate and improving procurement processes.
Lord Londesborough (CB)
My Lords, there is growing support for a social media ban for all those under the age of 16. In the interests of public sector productivity, would the Minister consider a similar ban during working hours for all government officials and civil servants under the age of 60?
Lord Livermore (Lab)
I do not think I would. I suspect social media, when used correctly, can help enhance productivity.
Lord Howell of Guildford (Con)
My Lords, does the Minister recall that, under both parties at the end of the last century, we attempted to beat this problem of productivity in the public sector by developing the private finance initiative idea? For a time, it was quite successful, although it did not end happily. Is he aware—perhaps he is not—that seven or eight of the most advanced countries in the world use developed and expanded versions of PFI that are much more sophisticated than ours? As they learned from us in the first place, perhaps we can learn a bit from them.
Lord Livermore (Lab)
The noble Lord is absolutely right. Partnerships with the private sector have an important part to play in the public sector. Obviously, the public sector can learn a great deal from the private sector, and, I hope, vice versa. That is why we announced in the spending review that we will be carrying out more public/private partnerships. Clearly, there is a lot to learn from the previous experience of PFI; we must make sure that we learn those lessons, and we should also learn the lessons from other countries and their experiences in that regard.
The Earl of Devon (CB)
My Lords, productivity in rural Britain is just 82% of its urban counterpart— a number that is estimated to fall to 79% by 2040. Making up this difference would add over £40 billion to the UK’s GDP. What efforts are His Majesty’s Government taking to improve this disparity?
Lord Livermore (Lab)
We talked before about AI and digital adoption. Digital adoption is incredibly important when it comes to rural communities—ensuring that they have access to extremely fast broadband, for example, will be important. Working from home has been mentioned. There are interesting studies that show that, particularly in rural areas where it is more difficult to travel to work, working from home can significantly improve productivity.
Baroness O'Grady of Upper Holloway (Lab)
My Lords, my noble friend the Minister is absolutely right that the big impact on investment, and therefore productivity, in the UK came as a result of austerity policies, a poor Brexit deal and a failure of industrial policy. However, I want to ask about quality of management in the UK. We know that that is key to workforce engagement, health and well-being, and job design and satisfaction, which, in turn, impacts on productivity. Will my noble friend consider convening a discussion with business schools about whether our education system for managers is fit for purpose and whether we can make improvements to improve workforce engagement?
Lord Livermore (Lab)
My noble friend asks a really interesting question and I am very happy to consider the point that she raises. The quality of management makes a massive difference in both the private and the public sector. We talked before about working from home. It is well documented that the better the quality of management, the more productivity comes from working from home. I am happy to consider my noble friend’s point.