Public sector failings lead to poor growth in UK productivity levels

A poor growth in productivity levels in the UK is down to public sector failings, despite massive boost in public spending, according to the Chartered Institute of Personnel and Development (CIPD).

In the second quarter of 2006, whole economy productivity growth (measured by output per worker) was 1.8% compared with the same quarter a year ago, up from growth of 1.5% in the previous quarter.

The rise in annual productivity growth was due to an increase in output, according to the Office for National Statistics.

On a quarter-on-quarter basis, productivity increased by 0.6% in the second quarter, up from a growth of 0.2% in the previous quarter.

The alternative measure of productivity – output per hour worked – showed that hourly productivity grew by 1.7% in the second quarter of 2006 compared with the same quarter a year ago, down from 1.8% growth in the previous quarter.

Despite improvements, John Philpott, CIPD chief economist, said the figures were a disappointment.

“While UK productivity growth has clearly recovered from the trough of 2005, a better outcome might have been expected at this stage in the recovery cycle, adding weight to the suggestion that the underlying trend in productivity growth has deteriorated in recent years,” he said. “Although this might be attributed to a greater tax and regulatory burden on business, the main factor is more likely to be poor productivity in the public sector despite a massive boost from public spending.”

Unit wage costs in the second quarter of 2006 were 2.0% higher than the same quarter a year earlier, down from a growth of 2.2% in the first quarter of 2006.

The slower rate of unit wage cost growth was due to a decrease in the growth rate in average wages and salaries, together with an increase in the growth rate of output per worker.

Philpott said that given the disappointing productivity figures, the fall in growth in unit wage costs is also less than might be hoped for at a time of modest growth in whole economy average earnings.

“But with an excess supply of labour at present keeping pay settlements in check, this should not be a matter of any great concern to the Monetary Policy Committee,” he added.

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