The recent Labour party proposal to reduce the working week to 4 days (or 32 hours), without loss of pay, is probably a seductive one for many people. After all, who wouldn’t want to reduce the amount of time they spend in the office without having to reduce their pay?
But as we at the Centre for Policy Studies show, it’s a proposal which puts the cart before the horse. You need to increase productivity before you can afford to reduce working hours, not the other way around. The substantial decline in hours worked in the UK (and across the developed world) since the beginning of the 20th century has only been possible because of massive gains in productivity – and the consequent increase in wealth that produced.
There is little evidence to support Labour’s claim that by reducing hours you can magically increase productivity. There’s certainly no evidence that shows a long-term increase of the magnitude required to make their proposal cost neutral.
We quite rightly hear a lot about the very poor recent record of productivity growth in the UK economy. But the private sector is an image of health and vitality compared to the public sector. Between 1998 and 2016 the UK economy saw average annual productivity growth (as measured by GDP per hour worked) of 1.19%. Cumulatively, that translates into almost a 25% increase. It should be emphasised here that this isn’t very high, largely because of the so-called “lost decade” we’ve seen since the financial crisis.
However, annual public sector productivity growth over the same period averaged a measly 0.21%, which cumulatively works out at just 4.1%. That’s almost two lost decades, rather than the ten years Labour hark on about. If Labour failed to generate any productive gains, it could cost up to £45bn to move to a 4-day week in the public sector while maintaining wages – more than the entire defence budget, and the equivalent to an extra 10p in the pound on the basic rate of income tax. If Labour somehow magically ramped up productivity rom around 0.2% to 6%, the cost of would still be an eye-watering £17bn – equivalent to the annual budget of the Home Office and the Ministry of Justice combined
Labour also claim that by investing more in public services, you can help to increase their productivity. But simply pouring more money into the public sector is not the solution. As previous CPS research on productivity growth in the NHS showed: vast injections of money and resources under Labour led to negligible productivity growth – averaging just 0.6% a year from 2000 to 2010 – whereas under the coalition, when resources were harder to find, NHS productivity growth increased significantly, averaging 1.6% annually from 2011 to 2015.
This pattern is reflected in the wider public sector. It’s under the so called austerity of the coalition and then Conservative governments when public sector productivity grew most rapidly, averaging about 0.8% between 2011 and 2016. Under the Labour governments of Blair and Brown, all the money they poured into the public sector resulted in merely sclerotic productivity growth. In fact, between 1998 – 2010 it was actually slightly shrinking, averaging just -0.005% per year.
Just as in the private sector, where increased productivity is key to increasing wealth and reducing hours, so it is in the public sector, where productivity growth is crucial to securing better and cheaper services for taxpayers, and shorter hours for public sector workers. There is little evidence that Labour’s proposal of a four-day week would generate the sorts of productivity gains necessary to make them cost neural. Therefore, either the taxpayer would end up facing substantial tax rises, or the quality of public services would decline and new cuts would have to be made.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.