Understanding productivity trends in UK tax collection

Productivity is defined as the ratio of outputs to inputs. When applied to the public sector, productivity becomes a key performance indicator that shows how efficiently public resources are employed in providing public services. Until not too long ago productivity in the public sector was assumed to be flat as outputs were given the same price as the cost of producing them. Recent methodological approaches suggest to measure outputs directly in order to count with realistic productivity estimates. Empirical public sector productivity studies are still in its infancy. This paper proposes to contribute to this new field by analysing productivity changes in the area of tax collection. This is a key area in which, as of 2008, the central government spent over £3.3bn in administrative resources and which provided more than £450bn in revenue, involving the processing of more than 24 million different tax forms. We contend that key changes in public management approaches in the UK during the last twenty years may be related to the observed changes in tax collection productivity. Specifically, we posit that the transition from the so called New Public Management (NPM) approach to Digital Era Governance (DEG) one, which focuses on the re-centralisation of government agencies and the reliance on Information and Communication Technologies (ICT) to simplify administrative processes, must have had an impact on productivity. We test this assumption by analysing productivity trends during an eleven year period from 1997 to 2008. We find some support for our assumption, showing that the transition to DEG in the early 2000s led to a drop in productivity, which recovered its upward trend towards the mid 2000s. We also analyse how ICT and outsourcing expenditure contributed to productivity increases and we also explore how service quality levels have performed during the analysed period. We conclude by highlighting that recent productivity increases should be coupled with higher service quality levels in order to improve customer experience with this public service. Overall, this paper shows the potential to expand this analytical framework to other public services to expand our comparative knowledge of performance across the UK public sector.