NHS productivity crisis risks £20bn hole in public finances

EMMA TAGGART

Wed, February 11, 2026 at 3:15 PM GMT+9 4 min read

The NHS is the largest single employer in the country with around 1.5 million staff - Jeff Moore/PA

Rachel Reeves has been warned that an NHS productivity crisis threatens to blow a £20bn hole in the public finances.

The health service failing to meet government productivity targets would put the Chancellor’s fiscal plans in jeopardy, according to the Centre for Policy Studies.

Mending a shortfall of that size would require tax rises equivalent to increasing income tax by 2p in the pound.

The Government has set the NHS a target of increasing productivity by 2pc a year by the end of the parliament, but the health service has been dogged by years of sluggish productivity.

The review, carried out by Lord Redwood, a former Conservative minister, said that if output does not return to pre-pandemic levels by 2028-29, borrowing will be £20bn higher than currently forecast.

The NHS is the largest single employer in the country with around 1.5 million staff, so boosting productivity would have a significant economic impact.

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Lord Redwood warned that unless output returns to pre-pandemic levels by 2028-29, Ms Reeves would be left with a £20bn hole in public finances.

He said sluggish productivity had come despite successive years of increased spending on the NHS.

“There’s been a substantial recruitment of staff, but there hasn’t been a meaningful increase in output in order to prevent a fall in productivity,” he said.

During the pandemic, productivity fell sharply as appointments and procedures were cancelled. Official figures show that the efficiency of the health service is yet to recover. In 2024, NHS productivity remained 8pc below its 2019 level.

Lord Redwood said that the slump in public sector productivity had come despite vast investment in computer systems and new technology.

He said: “We haven’t captured all the gains, or in some cases, any of the gains from the last 25 years of spending money on perfectly good computer systems that were designed originally to replace human effort.”

He warned that public spending on AI needed to be justified through improvements to efficiency.

Wes Streeting, the Health Secretary, has pledged to cut through bureaucracy in an effort to boost productivity and improve patient care.

Last year, he announced that NHS England, the world’s largest quango, would be scrapped and ministers would retake control of running the service in an effort to reduce costs and bureaucracy.

However, Lord Redwood warned that there is more to be done to improve efficiency in the public sector.

He said: “The Government is overstocked, it has too much property, it often has too many staff with the wrong jobs to do. Whenever it wants to do something new, it thinks it should have a whole set of new resources, and so it normally wants extra people and extra money.”

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“There are billions of pounds of savings to be made in the public sector without the need for compulsory redundancies and unfair demands on staff.”

He added that there “clearly needs to be better managerial and ministerial supervision” of the health service.

The report also called for public sector employees to be kept in roles for longer in an effort to boost efficiency.

Lord Redwood has said billions of pounds needs to be saved in the public sector - Joras/Getty

Lord Redwood said: “Moving staff around all the time is a very bad idea, because they’re never in a job that they get really good at. As soon as they start to get good at it, they’re moved up and sent on to something else.”

The recommendations come as the UK has been grappling with a widespread productivity challenge for over 15 years.

Since the financial crisis, annual productivity growth has averaged just 0.4pc, compared to yearly growth of 2.1pc before 2008.

Estimates from the think tank show that if productivity were to return to pre-pandemic levels, the public sector would be 5.7pc more efficient than it currently is.

A government spokesman said: “Taxpayers’ money must be spent wisely. That’s why we are expecting all government departments deliver nearly £14bn of efficiencies.

“This is working, with a 2.6pc increase to NHS productivity in the first half of this year, while the number of people on NHS waiting list has fallen by 312,000 since July 2024.”

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