NAO Chief talks public sector productivity, innovation & resilience

At a recent event hosted by the National Audit Office, Gareth Davies, Comptroller and Auditor General, delivered the annual review of the independent body's efforts to drive effectiveness, efficiency, and value for money in public services.

The productivity problem

Davies highlighted a stark reality: productivity growth in the public sector has stagnated, worsened by the pandemic’s impact. He cited NHS England data showing an 8% drop in hospital productivity in 2023/24 compared to pre-pandemic levels.

“We face rising demand with insufficient resources - systemic reform is essential,” he warned. Davies expanded on these concerns, noting that beyond the NHS, similar trends are evident in other public services facing rising costs and declining efficiency.

He emphasised the need for a cross-government approach, adding, “Without fundamental reform, public services will struggle to deliver value for money.”

Davies also pointed to productivity gaps spanning local councils, education services, and law enforcement, advocating for better data-sharing and performance benchmarking to drive improvement. This, he argued, requires investment in both technology and human capital to break the cycle of inefficiency.

He outlined four pillars for productivity improvement:

• Technology and AI: Davies championed AI’s potential, noting examples like the Department for Transport’s AI tool that combats fraud by verifying photo submissions for EV charger subsidies. “AI is not a question of ‘if’ but ‘how’—and we must maximise benefits while managing risks,” he asserted.
• System Reform: He identified service inefficiencies, such as the SEN system’s soaring costs with poor outcomes. “The current systems are unsustainable—redesign is vital,” he stated.
• Investment in People and Skills: Davies praised the Independent Office for Police Conduct for empowering teams to allocate cases based on strengths, increasing productivity by 30%.
• Asset Management: He flagged the consequences of neglected infrastructure, citing a £49 billion maintenance backlog. “Poorly maintained schools and hospitals directly impair productivity,” he said.
  
  

Innovation as a driver of productivity

Davies stressed innovation’s role, expanding on the critical components of successful public sector innovation: risk appetite, technology adoption, fast learning, and accountability. He explained that effective innovation requires a culture willing to test, fail, and scale successes.

Highlighting examples, he pointed to ARIA, a new research body with a mandate for high-risk, high-reward innovation, and detailed the Department for Education’s ‘test and invest’ approach for energy efficiency, which pilots projects before scaling them.

Davies elaborated, “Innovation thrives when we learn from failures and scale successes,” adding that the public sector must embrace experimentation with clear evaluation frameworks.

He also noted that successful innovators in government often align their risk appetites with their long-term missions, ensuring that failed projects provide learning opportunities rather than setbacks. Additionally, he pointed to international examples, suggesting that the Government should draw lessons from public sector innovators abroad, where iterative pilots and agile methods have delivered significant gains.

Cultural barriers to innovation

Davies emphasised that a fear of accountability should never deter innovation, arguing that accountability frameworks, when properly understood, supported experimentation by ensuring that failures lead to learning rather than blame: “Our role is to promote well-managed risk-taking, not punish experimentation.”

Davies also warned that innovation efforts are doomed without leadership equipped with digital expertise.

“Digital literacy at the top is now mission-critical,” he stressed, adding that senior leaders must understand the capabilities and limitations of emerging technologies to guide effective adoption.

He cited examples from successful public bodies where digitally informed leadership accelerated AI implementation, process automation, and citizen service improvements. 

Measuring success & accountability

Davies acknowledged that many existing metrics focus on inputs rather than outcomes and stressed the importance of measuring the quality and impact of services. He went on to praise ONS efforts to integrate quality adjustments into productivity metrics, describing this as a crucial step towards meaningful evaluation.

He elaborated that improved measurement would enable better comparisons across departments and public bodies, highlighting both successes and areas for reform.

Davies also called for more robust performance benchmarks and consistent data-sharing across agencies to track improvements and identify best practices: “Measuring outcomes, not just outputs, is essential for driving public sector productivity and ensuring services deliver real value to the public.”

Davies underscored the NAO’s uncompromising stance on championing innovation while holding leaders accountable for results.

“It’s time to break from the cycle of complacency - courageous leadership, digital mastery, and a culture that values learning from both failure and success are not optional; they’re imperative,” he declared.

The path forward, he noted, requires courageous leadership, digital competence, and a culture that values learning from both success and failure.