NAO chief: innovation key to fixing public sector productivity

In a speech to Parliament today, the head of the National Audit Office (NAO), Gareth Davies, will emphasise the need for an active and innovative approach in the UK public sector to address long-standing productivity and resilience challenges. His remarks come amid growing concerns over the rising demand for public services and the constraints imposed by limited resources.

A call for system reform

Davies will highlight the "immense opportunities" that emerging technologies such as AI present for boosting productivity. However, he will caution that realising these benefits requires a structured approach to investment, an openness to experimentation, and a culture that embraces learning from both successes and failures.

“Since the 2008 financial crisis, we’ve seen lower productivity growth across the whole economy than in the decades before. That’s well known – and Covid-19, of course, didn’t improve the picture, particularly in the public sector,” Davies is expected to say.

He will cite the example of acute hospital productivity, which remains 8% lower than pre-pandemic levels according to NHS England figures from May 2023. Similar pressures are evident across other public services, reinforcing the urgency of driving efficiency improvements.

In his address, Davies will outline four key principles essential for fostering innovation that enhances both productivity and resilience:

1. Establishing a clear risk appetite: Public sector organisations must acknowledge that not every project will be successful. Setting a clear risk appetite for investment in innovation is critical, ensuring that failures are viewed as opportunities to refine and redirect resources rather than as deterrents.

2. Harnessing new technology: AI and automation offer significant potential to streamline routine tasks and augment the expertise of public servants. However, Davies will stress the importance of good governance to manage AI-related risks while ensuring fairness and maintaining public trust.

3. Embedding a culture of fast learning and evaluation: The NAO chief will advocate for an approach where failed experiments are swiftly identified and halted, while promising innovations are rapidly scaled. “Another feature of successful innovators is their ability to learn quickly what works and what doesn’t, so that failed experiments can be stopped promptly and resources redirected to more promising ideas,” he is expected to say.

4. Strengthening accountability and scrutiny: Contrary to concerns that NAO and parliamentary oversight may stifle innovation, Davies will argue that scrutiny should encourage well-managed risk-taking. “Our refreshed strategy from 2025 to 2030 takes fully into account the risk appetite set for innovative projects. We will continue to highlight positive examples of innovation, including cases where unsuccessful initiatives have been responsibly discontinued,” he will state.

The public sector productivity challenge

The speech will also focus on the pressing need for productivity improvements across the public sector. Davies will point to four critical areas requiring attention:

• Artificial intelligence and automation: AI can help reduce time spent on administrative tasks, support expert decision-making, and enhance public service accessibility.

• System reform: Tackling avoidable demand and ensuring that resources are allocated where they can deliver the greatest impact.

• Investment in workforce skills and organisation: Creating a culture of continuous improvement and professional development.

• Infrastructure maintenance: Ensuring that public sector assets are adequately maintained to support long-term service efficiency.

“The question is not whether AI will make a difference to productivity but how to maximise the benefits whilst managing the risks,” Davies will state, underscoring the necessity of strategic AI deployment.

Resilience & productivity

Beyond productivity, Davies will stress the importance of resilience in mitigating risks such as pandemics, extreme weather events, and cyber threats.

“All this evidence points to the same thing: we need to be better prepared nationally and locally; to have sound risk management in place; and to be ready to adapt to new information and events quickly and effectively,” he will say.

He will also challenge the misconception that resilience investments conflict with productivity goals, arguing that well-planned measures—such as infrastructure improvements and agile service delivery—serve both objectives.

The NAO, as the government’s spending watchdog, will play a crucial role in fostering a pro-innovation culture. Davies will highlight that the organisation’s new strategic framework for 2025–2030 will place a strong emphasis on:

• Identifying and disseminating best practices in innovation across the public sector.

• Ensuring that scrutiny mechanisms support responsible risk-taking rather than discourage experimentation.

• Encouraging departments to learn from unsuccessful initiatives and redirect resources effectively.

Davies' remarks reinforce the necessity of embracing innovation with a structured and well-governed approach. The speech signals strong support for AI-driven transformation while also highlighting the importance of system reform, workforce development, and infrastructure resilience.

As government departments prepare for the upcoming multi-year spending review, the principles outlined in Davies’ address provide a roadmap for making strategic investments that balance innovation with accountability.

With public services under increasing pressure, innovation - particularly in AI and digital transformation - are viewed as critical to unlocking new efficiencies and improving resilience.