Progress in measurement of output

The ONS is a world leader in public service output measurement.

The ONS has over the last decade made considerable headway in improving measurement of output from the public sector and is a world leader. In 2005, following the final report from the Atkinson Review, the ONS formed the Centre for the Measurement of Government Activity to take forward the recommendations from the review, driving towards better measurement of government output and productivity. This built on a series of changes implemented during the previous decade.

In the UK, output measures for health, education and social security were adopted in 1998.

The first changes from the use of inputs to proxy outputs in the United Kingdom national accounts occurred in 1998 when new volume measures for health, education, and social security were introduced using output series backdated to 1986 (Caplan 1998). This work followed from the general agreement that the assumption of zero productivity change in the public service was no longer acceptable. Also, public service reform had enabled change by making a better range of output data available.

The health output measures were based on a combination of a cost-weighted index of hospital output for secondary care and an index of tests, prescriptions dispensed, and consultations for primary care. The education volume index was based on the number of pupils at each level of education. This measure was quality adjusted by 0.25% per annum based on trend improvements in the results of the General Certificate of Secondary Education exams taken by secondary school students aged 14 to 16. This adjustment assumed that exam outcomes were improving because of general improvement in the quality of education. For social security services, the number of claims for different types of benefits was used, the different types being weighted together using the cost of administering each type of claim. Introducing these output measures added, on average, 0.04% each year to the growth rate in the United Kingdom’s GDP during the 1986 to 1997 period.

Output for administration of justice was added in 2000.

During 2000, the ONS introduced new output measures for administration of justice and agricultural intervention in the national accounts (Baxter 2000). The output measures were cost-weighted series backdated to 1994 for prisons, legal aid, Crown prosecution service, and courts. Prisons output was based on the annual average prison population. Legal aid, Crown prosecutions service, and courts output were based on the number of cases handled by classification. The agricultural intervention output was based on the Intervention Board’s own cost-weighted activity index. These changes resulted in a 0.07% increase in the level of GDP for 1999.

Output measures for the fire service, probation services and personal services then followed in 2001.

The ONS continued to improve in 2001, adding further government output measures to the national accounts for the fire service, local authority personal services and probation (Ashaye 2001). Direct output measurement in the United Kingdom now covered just less than 70% of total government spending on output. The new output measure for the fire service was a weighted index of the number of fires attended and false alarms, the number of hours spent on fire-prevention activities, and data on road accidents and other special services. The output for personal social services was a cost-weighted index of the number of children in different types of care, the number of elderly people in homes and the number of contact hours for home help. Probation was based on the probation service’s own cost-weighted activity index. The introduction of these new output series reduced the implied growth rates for these services and, over the 1995 to 2000 period, reduced GDP growth by 0.1%.

Figure 2 shows an index for the output of the United Kingdom government up to 2002 implied by the output measures described above. The implication of the measures was that output had grown much less than expenditure on output and also less than inputs. This prompted concern and criticism that the output measures were not fully capturing increases in government output. Following this, the United Kingdom’s government statistician commissioned the independent Atkinson Review into the measurement of government output and productivity.

The Atkinson Review began in 2003 and independently reviewed the ONS’s use of output measures.

The ONS worked closely with the Atkinson Review team and in 2004, on interim recommendations, used improved output data from the National Health Service in the national accounts (Pritchard 2004a, b). The main changes were to break down treatment categories into smaller, more homogenous categories, changing from 16 to around 1700 categories, and to increase the coverage of the output measures. This meant that the output measure took much greater recognition of trends in the use of different types of treatments at a fine detail and were better able to capture changes from low-quality treatments to higher-quality ones.

Figure 2 - United Kingdom government output, expenditure on output, and government input

The Atkinson Review at its conclusion in 2005 made a number of recommendations for improving the ONS’s methods and, soon after the review, a number of changes were implemented. Changes were made to the volume output measures for health, education, personal social services, administration of social security, and fire services (UK Centre for the Measurement of Government Activity 2005). The changes made were incremental improvements in methodology and resulted in a small 0.5 percentage point increase in cumulative GDP growth from 1995 to 2003. A number of recommendations from the Atkinson Review remain outstanding, notably the introduction to the national accounts of comprehensive quality adjustment for public services.

The ABS has introduced output measures for health and education.

Along with the ONS, the Australian Bureau of Statistics (ABS) has also investigated output volume measures in a number of service areas. In Australia’s June 2001 national accounts, volume measures for health and education (backdated to 1993/94) were introduced to replace the previous input = output methodology (Australian Bureau of Statistics 2001). For health, the ABS uses a cost-weighted index of volumes in 660 different treatment categories to measure hospital output and cost-weighted indices for nursing homes, specialists, general practitioners, and pathologists. The new output-based method increased health output growth by a considerable 2.4 percentage points per annum. The volume estimates for education were mainly based on annual student numbers, with a component for university research output based on the number of publications and student research project completions. The new education measure increased education output growth by 0.4 percentage points per annum. Neither of these measures captures quality change aside from compositional quality changes.

The ABS investigated output measures in the justice sector but lacked good data for police.

In 2001, the ABS produced a discussion paper on output volume measures for police, justice services, and corrective centres (Northwood, Hinchcliffe, Henderson and Rawnsley 2001). This paper investigated the way output should be measured in the justice sector and constructed experimental indices for each part. The output of justice services was measured by the number of cases finalised, broken down by court level and jurisdiction. The output of corrective centres was measured by the number of prisoner days in various kinds of detention programmes. The measurement of output of police was formed based on estimates of the number of investigations completed, but this was confounded by lack of appropriate data. Because of this difficulty deriving an index for the police, it was decided that input-based measures should remain for the justice sector, pending better data for police output.

In 2003, the ABS produced unpublished estimates of volume of output measures for the Australian Taxation Office and the Australian Government social security agency, Centrelink (Australian Bureau of Statistics 2004). The new measures aimed to measure the volume of services the organisations deliver to government, businesses and the community. Initial results were promising but the data time series was short and it was concluded that the behaviour of the data should be examined over a longer period before the output measures could be added to the national accounts.

The US uses input = output methods but is looking to change to direct output measures.

Other countries have also experimented with output measurement of the public sector for their national accounts, although no major economies have treatments as comprehensive as those of the United Kingdom. The United States uses input = output methodology for the public sector, despite a long history of productivity measurement. Because health care in the United States is mostly produced by the private sector, the main focus in health output measurement has been on the correct measurement of price changes. In education, the United States government has a larger role and the Bureau of Economic Analysis is moving toward real output measures of the education function in the United States national accounts (Christian and Fraumeni 2005). This is part of a larger research project to measure real output of federal, state, and local governments (Bureau of Economic Analysis 2006). Italy and the Netherlands have also used volume of output measures in their national accounts (Collesi 2000, Kazemier 1997).