The public sector needs to hire 92,000 additional workers in order to stay productive

A forecast indicates that falling productivity in the public sector could increase labour costs by over PS5bn at the end of this decade.

If the productivity decline continues, the Centre for Economics and Business Research claims that 92,000 additional workers will be required to maintain the same level of public service by 2030. It predicts that this would result in PS5.1bn of employment-related costs.

Cebr analyzed the Office for National Statistics’ latest productivity data, which revealed a 0.3% drop in productivity for the public sector by 2024. This is below the levels of 2019 before the pandemic. The Cebr says that the two most recent drops have brought public sector productivity even lower than in 1997.

The forecast is made at a moment when Rachel Reeves, chancellor of the central government, has requested departments to cut budgets as part of an efficiency drive. By 2030, the civil service will have to save PS2 billion per year in administrative costs.

the same time the public sector unions demand higher wage settlements for 2025-26 than what is currently proposed, which could further increase labour costs.

Cebr emphasized that adding more staff would bring its own challenges.

“Hiring additional employees means higher labour costs. This pressure is exacerbated by the strong growth in earnings. The report also noted that higher wages increase other employment costs, such as employers’ National Insurance Contributions and public sector pension obligations.

The government is in a difficult position, as it must pay more to get less.

According to the Office for Budget Responsibility, Cebr estimates this increase in labour costs for maintaining output would consume “more than half” of the fiscal headroom available to the government for 2029/30. This is equivalent to PS9.9 billion.

The public sector may also struggle to find enough workers. Cebr points to the fact that historically, many roles in the public sector, like social care, relied heavily on international labour. However, there are now limitations on recruitment.

Cebr suggests that, in light of the budgetary and hiring challenges, there’s another solution: cap the number workers entering the public sector while accepting a reduction in service standards.

Or, departments and agencies could “address the productivity directly by taking measures to increase output per worker, whether through skill-development, operational changes, etc”.

In 2023, the UK’s overall productivity, including output from the private sector, was 19% below that of the US and ranked behind Germany and France.

The UK’s productivity problem is not new. However, the stakes for fiscal stability are higher now than ever before. The public purse faces mounting pressure from both shrinking productivity and increasing wages.

Policymakers will have to think about how to increase efficiency, while also navigating the tight fiscal rules of a changing labor market. If we don’t act, the public finances will continue to spiral into a black hole. Taxpayers would be forced to pay for more employees delivering less output.

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