For many years the Ƶ has been grappling with ‘the productivity puzzle’, and in Wales the issue is even more acute, with the Welsh economy lagging behind the Ƶ as a whole.

At a recent event in Cardiff led by the Development Bank of Wales, Economic Intelligence Wales, and the Federation of Small Businesses Wales, attendees heard from Professor Max Munday from Cardiff Business School about the longstanding productivity challenges facing Wales.

Research by Prof Munday’s colleague, Professor Andrew Henley, in 2023 noted that in Wales, real productivity growth over the period 2004 to 2021 was at, or close to, the Ƶ average.

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However, the comparison of productivity across the devolved nations was striking. Scotland was already doing well and has improved. Northern Ireland was doing badly but has seen improvement and some convergence. By contrast, Wales’ productivity performance was already poor and productivity growth has not improved on the Ƶ rate over the last 20 years.

At the event, Prof Munday addressed an important question: why should people care about productivity? He explained that productivity growth influences wages, public services, and infrastructure.

He said: “The funding for services like the NHS relies heavily on tax revenues, which are linked to the success of productive businesses.” Without productivity improvements, public services and overall welfare could decline over time.

Although the discussion focused on private sector productivity, and the range of factors that could boost productivity and grow the economy, one of the points made by Prof Munday related to the relative size of the public sector in Wales. According to ONS data, the percentage of people working in the public sector in Wales is 31.6% of total people employed, compared to 24% across the Ƶ.

It’s therefore very timely that ACCA recently published a new report ‘A productive approach: finance professionals improving productivity in the public sector.’ Amid mounting fiscal pressures and rising demands on public services, the report calls for a sharper focus on productivity and outcomes in the public sector as part of a ‘transformational shift’ broadening the focus from cost-cutting and cost control.

The report provides practical insights and a ten-point plan for finance professionals to drive productivity at every stage of public service delivery. Findings are based on six roundtable discussions, including participation from members based in Wales. The topic was discussed at a session at our recent conference in Cardiff, with contributions from finance professionals working in the NHS, Ƶ Government, local government and housing associations, as well as at our recent global public sector conference.

Key findings of the report include:

  • The need for finance teams to evolve from a focus on cost-cutting to proactive scenario planning and long-term strategy alignment.
  • The importance of multi-year budgets to support sustained productivity improvements.
  • How public sector organisations can harness new technologies, including AI, to streamline operations and foster innovation.

“With governments worldwide managing unprecedented debt levels and competing demands, the call for innovation and efficiency in public finance has never been more urgent,” says Mark Johnson, ACCA’s senior subject manager for the public sector.

The Ƶ Budget in October saw a significant increase in public investment, much of which will be front-loaded in 2025, with additional funding for Wales through the Barnett Formula. The Budget also set out ambitious productivity targets for the public sector (for example, 2% for the Department of Health and Social Care in England).

With the draft Welsh Government budget set to be published this month, it will be interesting to see whether similar targets are included alongside additional investment in Welsh public services.

In Wales the public sector is an important contributor to the economy, employing a significant percentage of the workforce, and Welsh Government spending on health and social care and finance and local government accounting for £11.7bn and £5.1bn of the 23/24 Welsh Government budget of £23.8bn.

If we’re to boost productivity in Wales, clearly the public sector has its part to play. But all too often colleagues working in public sector finance are taken away from focusing on strategic planning to short-term activity, such as managing in-year budget adjustments or dealing with additional costs such as wage settlements, within the budget year. In addition, while technology and AI could help the public sector gather better data on costs and outcomes, public sector IT systems are often outdated, with different systems that don’t always talk to each other. Indeed, one of the key issues cited by participants in the research was the urgent need to modernise the IT systems used by the public sector.

ACCA plays a pivotal role in Welsh public sector finance, with our members and students at the heart of many organisations. The report gives actionable recommendations for public sector leaders and we look forward to discussing how it can be used to improve public sector value for money.

Finance teams are at the heart of public sector organisations, uniquely positioned to influence how public resources are allocated, processes are streamlined, and impactful outcomes are achieved.

The report is a blueprint for transforming financial leadership into a driver of sustainable public value. As set out in the report, Welsh public sector finance professionals need to look at the main elements of the public service delivery chain in sequence – budget efficiency, organisational productivity, and the effectiveness of outputs and outcomes.

It is not an easy or straightforward task, but hopefully one that can be embraced for the benefit of us all across Wales.

Lloyd Powell is head of ACCA Cymru/Wales.