Changing costs of public services

Abstract

This article presents new estimates of how much the unit costs of public services, such as the NHS and schools, have changed compared to unit costs in general: the change in the relative cost of public service output. Between 1997 and 2007, the unit cost of public service output in total grew by 13.7 per cent more than unit costs for the whole economy, an annual average relative rise of 1.3 per cent. In 2007, the unit cost of public service output rose by 0.6 per cent less than costs in general, the only time relative costs fell over the 10 year period. The relative cost of public service output changes as a result of a combination of two factors: changes in the price of inputs used in the public service, such as pay rates for people employed and prices paid for the goods and services used as inputs. The aggregate price index for these inputs rose by 9.8 per cent more than prices in general for the whole economy between 1997 and 2007, an annual average rise of 0.9 per cent changes in the efficiency and effectiveness with which resources are used to produce the output. In other words, there is a change in productivity. Between 1997 and 2007, public service productivity fell by 3.4 per cent, meaning that the volume of input needed to produce a unit of output rose by an annual average of 0.3 per cent These are experimental statistics and work continues to develop the measures.