Changing Costs of Public Services Mike G Phelps UKCeMGA ONS November 2009
Changing costs of public services • Public sector output and measures • Relative costs of public services • How costs are related to productivity and input prices • Relative costs of healthcare • Relative costs of education Note: Estimates are experimental
Output measures ONS measure approximately 65 per cent of government output directly As a result we can measure: • Productivity: output divided by input • The change in the cost of a unit of output: a measure of inflation for public service output
Cost of unit of public service output Changes in the unit cost of public service output give a measure of public service cost inflation However, most interest lies in how public service cost inflation compares with some overall measure of cost inflation This is the relative cost of a unit of public service output
The cumulative change in relative cost of public services, 1997-2007 United Kingdom Percentage change from 1997 16 14 12 10 8 6 4 2 0 -2 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Relationship between relative cost and productivity Productivity and Relative Cost are related measures Relative price of inputs = Relative cost of output Productivi ty
Cumulative change in relative price per unit of input and input per unit of output, 1997- 2007 United Kingdom Percentage change from 1997 16 Input per unit output Relative price per unit of input 14 12 10 8 6 4 2 0 -2 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
What are the drivers of rising relative unit costs? • The rise in input requirements has driven up relative unit costs of public service output • But the fact that aggregate public service input prices rose faster than whole economy costs made a bigger contribution
Cumulative change in input per unit of output, relative price of input and relative cost of output in healthcare, 1997-2007 United Kingdom Per-cent 16 Input per unit of output Relative price per unit of input Relative cost per unit of output 14 12 10 8 6 4 2 0 -2 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in labour prices in healthcare and whole economy, 1997-2007 United Kingdom Per-cent 80.0 Healthcare W hole Economy 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in goods and service prices in healthcare and whole economy, 1997-2007 United Kingdom Per-cent 80.0 Healthcare W hole Economy 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in input per unit of output, relative price of input and relative cost of output in education, 1997-2007 United Kingdom Per-cent 50 Input per unit of output Relative price per unit of input Relative cost per unit of output 40 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in labour prices in education and whole economy, 1997-2007 United Kingdom Per-cent 80.0 Education W hole Econom y 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in goods and services prices in education and whole economy, 1997-2007 United Kingdom Per-cent 80.0 Education W hole Economy 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in input per unit of output, relative price of input and relative cost of output in adult social care, 1997-2007 United Kingdom Per-cent 50 Input per unit of output Relative price per unit of input Relative cost per unit of output 40 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in input per unit of output, relative price of input and relative cost of output in children’s social care, 1997-2007 United Kingdom Per-cent 50 Input per unit of output Relative price per unit of input Relative cost per unit of output 40 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in input per unit of output, relative price of input and relative cost of output in social security administration, 1997-2007 United Kingdom Per-cent 50 Input per unit of output Relative price per unit of input Relative cost per unit of output 40 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Cumulative change in input per unit of output, relative price of input and relative cost of output in public order and safety, 1997-2007 United Kingdom Per-cent 50 Input per unit of output Relative price per unit of input Relative cost per unit of output 40 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: ONS
Conclusions Between 1997 and 2007: • cost of a unit of public service output grew by 13.7 more than cost inflation across the whole economy (annual average relative rise of 1.3 per cent) • the aggregate price of inputs grew by 9.8 per cent more than cost inflation across the whole economy • public service productivity fell 3.4 per cent However, in 2007, the relative cost of public service output fell for the first time since 1997 as productivity improved and relative input cost growth fell
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