Healthcare not the big driver of UK public sector cost

Sometimes those really boring statistical documents shows very interesting figures and I must say that the latest report from the UK Office for National Statistics (ONS) Centre for the Measurement of Government Activity is one of the most interesting documents I seen for a long time.

They have studied how the costs in public sector have grown over a period of 10 years. And they make a productivity measure by looking at cost per unit. Interesting enough the results shows that the healthcare expenditure actually with its average of 3.8 % per year grows exactly on average in the public sectors! The educational, social care, Police, Public order and safety, Children and Adult social care all grew more. Now this type of material is not my speciality but I did miss a comparison with the general inflation in society. I didn’t see anywhere that this material was inflation adjusted and if not its sort of hard to put the yearly 3.8 % increase in cost in perspective.

What was in there was a calculation showing that labour cost grew faster than in the broader economy (5.6% against 4.5% on average). So the reason the lower total spend despite the higher spend on cost of labour is probably that in healthcare the cost of goods and services only increased with 1% compared to the average 2.5%. Generic substitution is pointed out as one of the major reasons behind this low increase in costs for goods and services.

I can only make two conclusions:
1. Its not healthcare that is the problem in public spending.
2. To increase productivity for the future its not the products used in the system that needs to be in focus but the processes and not products to ensure a lower price per unit.

Healthcare is the largest individual spending area (30 % out of the total) in the UK. The study took place from 1997 to 2007 and can be found here.