The productivity puzzle in the UK is a complex challenge, and in Wales, this issue is even more pronounced. The Welsh economy has consistently lagged behind the UK’s overall productivity levels, raising questions about what needs to change to bridge this gap.
At a recent event in Cardiff, organised by the Development Bank of Wales, Economic Intelligence Wales, and the Federation of Small Businesses Wales, key speakers, including Professor Max Munday from Cardiff Business School, addressed the pressing question of how Wales can boost productivity.
While the conversation mostly focused on private sector productivity, Professor Munday raised an important point: the public sector in Wales must play a more significant role in improving the country’s economic output.
Let’s break down the productivity challenges faced by Wales, the key role the public sector plays, and how finance professionals can drive change.
Why Productivity Matters for Wales
Productivity growth is not just an economic issue—it’s a matter of public welfare. Professor Munday explained that improved productivity is closely tied to higher wages, better public services, and improved infrastructure.
In Wales, where the public sector employs a larger percentage of the population compared to the UK average, it is essential that this sector contributes more to national productivity. According to ONS data, 31.6% of people in Wales are employed in the public sector, compared to just 24% across the UK as a whole. This highlights the sector’s significant role in the economy.
So, what does this mean for Wales?
- Wages: Higher productivity tends to lead to higher wages, improving living standards across the country.
- Public Services: More efficient public services, like the NHS, depend on the revenue generated from a productive economy.
- Investment: Efficient use of resources can unlock more investment in key areas like infrastructure and education.
Public Sector Productivity Challenges in Wales
Wales’ productivity performance over the past 20 years has been concerning. Research by Professor Andrew Henley in 2023 showed that, although Wales’ real productivity growth was close to the UK average between 2004 and 2021, its performance has been poor compared to other devolved nations.
- Scotland has improved its productivity significantly, while Northern Ireland has seen improvement and convergence with the UK average.
- In contrast, Wales’ productivity has stagnated over the last two decades.
This disparity is largely due to a combination of factors, including an over-reliance on traditional industries and a smaller private sector. But perhaps most importantly, the public sector in Wales, which accounts for a large portion of employment, has not been a driver of productivity growth.
A Public Sector Solution to Boosting Productivity
To improve economic performance, Wales needs to transform its public sector. While the private sector has been the focus of many productivity initiatives, the public sector’s substantial contribution to the economy makes it an ideal starting point for a broader productivity drive.
Key Findings from ACCA’s Report on Public Sector Productivity
A recent ACCA report, titled A Productive Approach: Finance Professionals Improving Productivity in the Public Sector, offers actionable insights for improving productivity in the public sector. The report focuses on the role of finance professionals in driving this transformation.
The findings, which include input from Welsh finance professionals, emphasize several key areas:
- Proactive Scenario Planning: Finance teams must evolve from focusing solely on cost-cutting to incorporating long-term strategic planning that aligns with national goals.
- Multi-Year Budgets: A long-term approach to budgeting is necessary to ensure sustained productivity improvements. Annual budgets are too short-sighted to support real, lasting change.
- Harnessing Technology: New technologies, including AI and data analytics, can streamline public sector operations and improve decision-making. However, outdated public sector IT systems often limit these advancements.
According to Mark Johnson, ACCA’s senior subject manager for the public sector, the growing debt levels and competing demands on public services make the need for innovation and efficiency more urgent than ever.
The Role of Finance Professionals in Driving Change
Finance professionals are uniquely positioned to influence how public resources are allocated and how services are delivered. By embracing strategic planning, improving efficiency, and adopting new technologies, finance professionals can drive real change in public sector productivity.
How Finance Teams Can Lead the Change
- Long-term Budgeting: Finance professionals should push for multi-year budgets that support long-term productivity goals.
- Use of Data: By harnessing data analytics, finance teams can improve decision-making and drive operational improvements.
- Adoption of AI: Public sector organisations can use AI and machine learning to streamline operations, reduce costs, and improve outcomes.
As the public sector often faces pressure to manage in-year budget adjustments and unexpected costs, it is essential that finance teams have the flexibility to focus on strategic priorities rather than firefighting short-term financial issues.
Public Sector Investment and the Welsh Government Budget
In recent years, the UK Budget has increased public investment, with funding for Wales expected to rise through the Barnett Formula. The Welsh Government has also set ambitious productivity targets for the public sector, with a focus on improving health and social care and local government services.
The Welsh Government’s upcoming draft budget will be critical. Will it incorporate similar productivity targets as those set in England? It will be interesting to see if the Welsh Government recognises the need to prioritise productivity alongside investment in public services.
The Importance of Modernising IT Systems
One of the major obstacles identified by participants in the ACCA report is the need to modernise public sector IT systems. Often, these systems are outdated, fragmented, and inefficient, which makes it difficult for public sector organisations to gather reliable data and streamline operations. Updating these systems is essential for improving productivity and driving long-term economic growth.
The Path Forward for Wales
Improving public sector productivity in Wales is not an easy task, but it is one that must be embraced. The public sector in Wales, which accounts for a significant portion of employment and government spending, has the potential to be a major driver of economic growth.
By focusing on long-term strategy, adopting new technologies, and modernising systems, Wales can make substantial strides towards improving its productivity and closing the gap with the rest of the UK.
As finance professionals continue to play a central role in shaping the future of public services, the call to action is clear: we must work together to boost productivity, not just in the private sector, but across the entire public sector.
Conclusion
Wales has a unique opportunity to turn the productivity challenge into a success story. By focusing on the public sector, adopting new technologies, and pushing for long-term strategic planning, the country can unlock its economic potential. As finance professionals in Wales, we must lead the charge to make these changes a reality.
