Public sector productivity gap costs UK economy eighty billion pounds a year

by • News, Workplace

A widening gap in productivity between the UK’s public and private sectors is costing the economy around eighty billion pounds annually, according to new analysis from EYA widening gap in productivity between the UK’s public and private sectors is costing the economy around eighty billion pounds annually, according to new analysis from EY. The report, Mind the productivity gap, claims that if public sector productivity had kept pace with the private sector since 2019, the economy would now be three per cent larger. Instead, public sector productivity has fallen by over eight per cent since the pandemic.

The research highlights that inputs such as labour and funding for the public sector rose by almost a quarter between 2019 and 2024, but output increased by only fourteen per cent. By contrast, productivity in the private sector grew by nearly five per cent over the same period.

EY warns that the divergence could widen further. On current trends, the gap could amount to nearly five per cent of GDP by 2030, the equivalent of one hundred and seventy billion pounds a year.

Peter Arnold, EY’s UK chief economist, said the pandemic had exposed long-standing structural issues. Rising costs for labour, infrastructure and maintenance are adding pressure, while service levels in many areas have struggled to return to pre-Covid levels.

The report calls for a programme of reform to address inefficiencies. Suggested measures include investing in digital systems and automation, modernising public estate, and improving collaboration across departments.

Chris Neill, EY partner, said improvements in workplace design and technology adoption could help deliver better outcomes. “The challenge is significant but there are clear opportunities to enhance service delivery and reduce costs through innovation,” he said.

The findings come against a backdrop of sluggish productivity growth across the wider economy. Since the financial crisis, UK productivity has grown at an average of just half a per cent a year, compared with more than two per cent before 2008.

EY argues that closing the gap between public and private sector productivity should be a central policy priority, with annual improvements of at least two per cent required to prevent further drag on economic growth.