Ahead of the Spending Review, the Chancellor is reported to have agreed deals with 11 departments - equating to an average of 24 per cent cuts in real terms over the next four years. For other unprotected departments, such as the Home Office, it remains likely that they too will face cuts of more than 20 per cent. These unprecedented levels of financial restraint mean that, if service quality is to be maintained, similarly unprecedented productivity gains will have to be made.
The Government has recognised this challenge. Launching their Productivity Plan in July this year, the Chancellor argued "Productivity is the challenge of our time. It is what makes nations stronger, and families richer." Similarly, HM Treasury's Spending Review framework committed to "increase productivity and efficiency to ensure that every extra pound is put to the very best use." However, whilst the Chancellor is right to prioritise public service productivity, he is in danger of missing what matters.
Currently the most widely cited productivity statistics published by the Office for National Statistics (ONS) are simply a calculation, at sector level, of output (i.e the goods or services provided by, for example, the health sector) divided by its inputs (i.e the resources and labour required to produce that output). It is only in health and education that they quality adjust these figures, for example using attainment at GCSE level in education and patient feedback in health. This means that in all other public services, productivity rates bare no relation to the outcomes sought by citizens or the quality of services they receive.
The prison service provides a case in point. The Coalition Government introduced the Prison Unit Cost Programme, achieving savings of £83 million in 2013-14. Applying the ONS methodology, where prison productivity is measured by dividing the total number of prisoners by the total spend, these savings would lead to the conclusion that productivity levels in the prison service had increased.
However, over the same period, there is strong evidence to suggest that the overall quality of penal provision has declined. In his most recent annual report HM Inspector of Prisons, Nick Hardwick found that all areas of outcomes - such as levels of violence, drugs and overcrowding - had deteriorated sharply. In fact performance measures across the estate were the worst they had been in over a decade. In this context short-term productivity gains through cost-cutting have resulted in poorer quality service provision which in the long term may be unsustainable. Traditional methods of measuring prison productivity also take no account of reoffending rates, which are a key public concern.
Additionally, the Coalition's laser focus on cost-cutting led to a number of high performing prisons being closed. In fact, of the 18 prisons closed or identified for closure, eight had been considered high performing in their most recent inspections or assessments. Whilst all public services, where possible, should look to deliver savings for the taxpayer, consideration must be given to the way in which they delivered to ensure service levels are maintained for citizens.
The prison service is just one example of the need to take a longer term view. Reform's new report argues that simply stripping back costs, or indeed increasing expenditure, to solve problems will not necessarily deliver better services and in the most efficient way. Instead, if the Chancellor remains committed to getting "the best value for money for taxpayers", he must measure public organisations on their ability to deliver the right sort of outcomes at the right price. Only then will Departments be able to meet the demands of the current Parliament and the upcoming Spending Review.