Public and private sectors

Some contributors seem to think the public sector cannot add to national output or incomes. This is not true in either accounting or real terms.

A person attending a private school is paid for out of fees. Their education adds to national output. A person attending a state school has a similar education but their parents do not pay directly. It has a similar effect on national output to the private school place.   The state provision is as much output as the private sector and is paid for out of taxes.

There could be a productivity effect. If in a particular activity public sector or private sector productivity lagged then the total economic impact would be affected accordingly. In the case of schools private schools may well have higher staff ratios to state schools.

When the UK had  a lot of nationalised monopolies producing energy and transport we had an efficiency problem in those  sectors. In those cases privatisation led to an improvement in productivity, which was possible to bring about because people accepted the principle of paying for use out of their own incomes. Market pressures encouraged adoption of better technology and more efficiency.


  1. Lifelogic
    November 12, 2019

    Of course the public sector can and indeed does contribute “something” to national output. But they are alas so very inefficient and often so totally misdirected by politicians and bureaucrats. Much of what they do in reality produces almost no real value and quite a lot of what they do produces a negative output. All the absurd “renewables” agenda for example.
    Given that they start off by taking money of people who clearly would have used it better (in most cases) then the more government stick to the essentials like defence and law and order.

    You say “Market pressures encouraged adoption of better technology and more efficiency” Indeed it can do, but if you have free at the point of use, tax payer funded “free services” like the NHS, education, universities (funded by soft loans), the BBC funded by the anti-competitive licence fee and daft market interventions in energy, trains etc. …..all these kill fair competition and efficiency.

    Every pound the state takes off people and businesses probably gives about 1/3 of the value it would have given if left with them plus taking it off them cost them in extra admin too. So if you have a state sector at 50% of GDP you might get useful output of 60% of what it might have been were it only 20% of GDP.

    1. Mark B
      November 13, 2019

      The problem with the Public Sector is that it does not have shareholders. Shareholders have traditionally kept the Board and the Executive honest by demanding greater efficiency, output, market share and of course, profit. The Public Sector has MP’s whose constituents may work for it so, there is a political dimension to keeping inefficient departments and state owned business running. Witness the car industry of the 60’s and 70’s.

  2. steve
    November 12, 2019

    “When the UK had a lot of nationalised monopolies producing energy and transport we had an efficiency problem in those sectors”

    Unions, and their misguided sense of entitlement.

    “In those cases privatisation led to an improvement in productivity”

    Yes, once they realised they were no longer sack proof.

    Re private Schools. I think the left should not be including private Schools in their bash the rich campaign.

    Every child is entitled to education, and I don’t care whether it’s private or public…..Corbyn should lay off.

    Besides some of the finest minds that saved this country time and time again were developed in private education, and Grammar Schools.

    Corbyn wants to abolish the slide rule class, as it were, because he isn’t bright enough to use one himself, and is scornfully jealous of anyone who is.

    Likewise he’s just as jealous of those who understand economics….because he doesn’t.

    It’s a class thing with him, and his followers. They just sound like an old record and frankly people don’t buy their crap any more, as Labour will find out in December.

  3. Lifelogic
    November 12, 2019

    Anyone who thinks the best way to stop flooding in say “Doncaster” is for the UK to limit its C02 output as the BBC seem to is clearly lacking in any logic or understanding of science and engineering.

    Still I see that Formula One has announced a new 10-year plan to “change the face of the sport” and become carbon neutral by 2030!

    The world clearly has gone totally round the bend!

    1. Lifelogic
      November 12, 2019

      Green wash lies and drivel wherever you care to look.

      1. hefner
        November 13, 2019

        Funny for as great an engineer as you claim to be not to know about the “trickle down” effects (some real ones, not like in economics) of improvements in racing cars into Mr (and Mrs) Joe Bloggs’ car(s): fuel injection (and FI cleaners), lighter and stiffer composite materials, tests on fuel economy, electric cars racing in winter conditions?
        Well, one cannot know everything …

        1. Martin in Cardiff
          November 13, 2019

          Yes, I can see them pulling over into the pit lane for a quick change of lithium ion battery, or whatever.

          I don’t know why we can’t just do that with ordinary electric cars, rather than wait for recharging.

          No one (no one) was claiming that playing our part globally would have an immediate measurable impact on local problems either, so the accusation by LL is groundless.

          1. libertarian
            November 13, 2019


            “I don’t know why we can’t just do that with ordinary electric cars, rather than wait for recharging.”

            Well as most people dont own an inspection pit or a car ramp and the cost of a battery currently for a Tesla is around £7000 but ONLY if you exchange it for your old battery I’m guessing theres a fairly simple reason why people dont currently have spare batteries

            As for Formula E

            Up until last season “refuelling ” stops in Formula E involved swapping cars

            From this season each team only has one car and there is no refuelling

            Of course the whole auto industry are working really hard on fast recharging

            The new Porsche Taycan can be recharged up to to 80% in 20 minutes but currently there are only 140 odd recharging stations capable of delivering this in the whole of Europe

            The problem with all of this is that electric vehicles dont really help the environment very much either

      2. dixie
        November 13, 2019

        Pike’s Peak hill climb record is held by an electric car

    2. Mike Wilson
      November 13, 2019

      Notwithstanding your observations, surely you could agree that energy from sustainable, renewable sources must be preferable to burning oil. Or is it just a matter of money for you?

      Surely it is time to give up on all the blackcrap.

  4. Iain Gill
    November 12, 2019

    I’ve been inside various parts of the public sector, and it’s all as if run by clowns.

    The quality of services we get are not good enough.

    And the lack of choice for citizens, and the virtuous cycle of improving that forces on providers is missing.

    You are starting to sound like a blairite labour politician.

    Money is spent far more efficiently by individuals than the state.

    1. Martin in Cardiff
      November 13, 2019

      John is merely pointing out a simple fact.

      The private sector does not “pay for” the public one. Value-added activity in both are all part of the same economy.

      The clue is in the word…”sector”.

    2. Fred H
      November 13, 2019

      similar experience for me…

    3. Lifelogic
      November 13, 2019

      Exactly – as Milton Freidman put it:- (though now the UK government spends/wastes well over 40% of our national income)

      “There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.”

    4. Mark B
      November 13, 2019

      The best thing the Tory government (Thatcher era, who else) introduced into the Public Sector, was Compulsory Competitive Tendering (CCT). Essentially private firms could tender to provide public services. If the contracts were done right it could deliver great savings and efficiencies.

  5. mancunius
    November 12, 2019

    ” In the case of schools private schools may well have higher staff ratios to state schools.”

    But they may well also have staff more actively concerned to raise standards, rather than trying to impose equality of outcomes out of a mistaken groupthink ideology.

  6. nhsgp
    November 12, 2019

    The average outputs of all schools are liabilities. There’s is a deficit.

  7. agricola
    November 12, 2019

    I find your analysis of private and public education a tad confusing. In terms of outcomes those educated privately win every time. Better results at school leading to better universities, leading to better jobs. Those paying the fees for private education are probably in the top 1% of earners in the UK who contribute 26% of income tax collected. They are also relieving the state of the responsibility for paying for their childrens education. I do not understand your definition of “output”.

    If productivity lags in the private sector they go out of business. If it lags in the public sector it can vary. If it was in the NHS it would affect recovery and any organisation employing that patient. In other public sector activity government tend to throw taxpayers money at it. Continued public sector failure is a direct drag on the private sector. Inefficient railways and inadequate roads for instance.

    The drag on the energy industry is poor government decision making, leading to very expensive energy. I would say that our energy and transport industries are markedly lacking in technology and efficiency. You have been saying no less for a long time, so I find it difficult to see the point of this submission, unless of course you are checking that we are alive. The only other excuse of course is that we are in election mode where words lose their meaning.

    1. agricola
      November 13, 2019

      Just to emphasise the failure of the public sector I cite HS2. A project that the private sector would feed off but not one they would invest in. There being no credible financial return. Costs have now risen to £88 billion, admitted by the current enquiry with the exception of the enquiry vice chairman who considers it to be over £100 billion. He has declined the findings of the official enquiry and is producing his own report and findings.

      The above of course only refers to the cost of building it. Question, will the cost of running it be covered by the fares paid by those who use it or will this be another black hole that government chooses to feed. With adequate infrastructure at each end you could travel Birmingham to London City for £20.00 and do it in 30 minutes. Roughly what HS2 claims it would save in time on the existing rail journey. HS2 won’t be doing it for £20.00, with the addition of vast public capital cost. It does not add up but what does when when government spends our hard earned money.

  8. Rule Britannia
    November 13, 2019

    Quote: “Some contributors seem to think the public sector cannot add to national output or incomes.”

    The example you went on to give is rather a strange, unrelated issue. Schools are not the point.

    The key issue on the sentence you wrote is that public sector EMPLOYEES are paid out of the tax take, therefore any tax on their incomes is simply recouping a proportion of what was given to them from tax in the first place.

    So, you give them 100% of their salary from monies that were already collected as tax, then you get back about 31% of that in income tax and NI. Net effect is a loss to the taxpayer/Exchequer of 69% of whatever you pay them.

    I think that’s what people mean by the public sector cannot contribute to national wealth, what you quoted was a bunch of intangible and unquantifiable side effects of paying for state schools from the tax take. That’s very different.

    Reply I was telling you how national accounts work. Commonsense also says £1 of pubic service adds in a similar way as £1 of private service, given the way people can choose between the two, subject to issues of quality and productivity.

    1. Rule Britannia
      November 13, 2019

      Reply to reply.

      I am assuming that when you used the term “National Output” you mean GDP not productivity since I don’t think anyone would suggest that work done in the public sector never has any actual value in terms of producing something of use. That would be silly.

      In terms of GDP, £1 of public service does not add to GDP (national output) for the reasons I gave. That, to me, is common sense, backed up/proven by simple arithmetic.

      Reply I was describing national out and income. I think the education the state provides and the healthcare is much valued by many people.

  9. Big John
    November 13, 2019

    When is your party going to stop this unscientific attack on CO2 ?
    It just seems as if your party goes along with whatever crap the BBC pushes on the population !!!
    It might be a good plan to stop forcing everbody to pay for the BBC.

    1. Lifelogic
      November 13, 2019

      Indeed the BBC is grossly unfair competition and it is endless propaganda for lefty PC lunacy, climate alarmism, ever higher taxation, pro the anti-democratic EU, for ever larger government, over regulation and magic money tree quack economics. In short it is wrong on nearly everything. Why should be pay taxes to be told by the BBC how we should think it their absurdly wrong headed way!

      Freedom and choice please in health, media, education, energy and for self government …..

    2. Lifelogic
      November 13, 2019

      Indeed CO2 is greening the planet wonderfully plants and trees grow much better with a bit more of it. Anyway the C02 concentrations largely follow, rather than cause, the temperature variations. CO2 is harmless plant and tree food which increases crop and plant growth – and is breathed out by every human and animals in every breath they take. Without CO2 the plants would clearly be unable to split it up to give us carbon and oxygen and the world would be largely dead.

      So all those rain (and other forests) need C02 and a bit more is actually beneficial.

    3. Lifelogic
      November 13, 2019

      When will they drop it? When they think is politically expedient of course, hopefully straight after the election. Boris should get Piers Corbyn (1st in Physics at Imperial) or Lords Peter Lilly or Matt Ridley to explain the real science to him then he should go for cheap reliable energy and fracking immediately and cut all the green crap subsidies. Let it compete if and when it can do on a level playing field.

    4. Martin in Cardiff
      November 13, 2019

      A statement, signed by eleven thousand scientists, connected with climatology is the “crap” that you allege that the BBC is “pushing”.

      But maybe those guys with the head tattoos, smoking outside of the bookie’s of a Wednesday afternoon know more than they do, eh, BJ?

      1. libertarian
        November 13, 2019


        You are hilarious.

        There are NOT 11,000 scientists connected to “climatology”

        The number of scientists that have indicated their belief in temperature rises purely agree that the climate is changing, there is NO consensus on the cause

        The people to whom you allude outside a bookies probably know more than you about a lot of things though

  10. Mark B
    November 13, 2019

    Good morning.

    Whilst I do not necessarily disagree with our kind hosts latter arguments, the one concerning education is flawed.

    A person’s education is a cost and only a cost. My reasoning is this. Many people for the EU and elsewhere have come here to live and work. All of them received an education in the home countries which that country paid for. We paid nothing for their education yet, we receive the benefit of it through their production. Well those that are working anyway.

    1. Lifelogic
      November 13, 2019

      If they go on to use that education to benefit society and themselves it is an investment if not it is a cost. On balance it is a net investment I think, but then so much of education is now bogus “BBC think” climate alarmism and lefty PC drivel rather than real science, economics, real history and reality.

      1. Mark B
        November 13, 2019

        So you think that getting a PPE at uni’ then going on to be an MP, even though most of the work is done by the EU, to be a benefit ?

        Serious question.

        Reply National accounts have to be neutral over the moral value of the work done. We do exclude private sector gambling or cigarette smoking from the output figures, though they have their critics. We put in all paid work at the price paid for it. In a competitive market the price is the public view of value. In the state sector the price is the public view of value as expressed through lobbying government and voting in elections.

        1. Mark B
          November 13, 2019


    2. Timaction
      November 13, 2019

      Not if they are on minimum wages with children. Their health, education and other in work benefits means the English taxpayer subsidises them for their employers! Last time I checked some time ago it was in the order of £3 billions. Maybe more now.

      1. Mark B
        November 13, 2019

        So it’s a lose lose scenario. Unless you are an employer.

  11. Dame Rita Webb QC
    November 13, 2019

    As Richard Murphy sez …

    Overall since 1946 and through to the end of the 2019/19 financial year Labour has been, overall, in office for 28 years and the Tories for 45.

    In that time according to the House of Commons Library net total government borrowing has been £1,618 billion: £155 billion of borrowing predated that period, most paying for WW2.

    Of that sum 67.5%, or £1.092 billion was borrowed by the Tories. 32.5% or £526 billion was borrowed by Labour.

    The Tories have been in office for longer, of course. Restated per year the Tories have borrowed £24.3 billion a year on average in historic prices.

    Labour has borrowed £18.8 billion a year on average.

    Labour repaid debt in 7 years. The Tories in just 4.

    In current prices Labour has borrowed approximately £28 billion a year and the Tories £33.6 billion.

    The Tories are always the party that borrows most.

    Reply Labour is the party that plunges the country into dangerous amounts of debt which leads to a recession, as in 1976 with the trip to the IMF to have cuts imposed from them, and in 2008-9 with the great recession leading to big spending cuts before they left office.

    1. acorn
      November 13, 2019

      Total nonsense from “As Richard Murphy sez …” to “big spending cuts before they left office.” Have a look at

      The steep rise in Sep 2008 was the Treasury bashing the magic money tree to bail-out the banks – no treasury bonds (Gilts) were issued into the bond markets to finance this bank bailout spending. The muppet economy budget spending continued to covered by the issue of Gilts by the Debt Management Office under the “full funding rule”, which doesn’t apply to the banking economy.

      Exactly the same would have happened if a Conservative government had been in office. The bail-out peaked in June 2011 at £3,000 billion. Only a third of that was for the non-bank muppet economy (households and businesses) the rest went into the busted banks.

      If the Labour Chancellor, in 2008, had had the balls to nationalise at least RBS, at no cost to the Treasury; just think of the dividends the Treasury would now be getting to replace taxes to balance the budget.

      Reply I proposed an alternative way of handling the banks at the time which did not entail big taxpayer bailouts.

      1. acorn
        November 13, 2019

        The taxpayers were not involved in bailing out the banks. The “taxpayer economy” is totally separate from the “banking economy” in a sovereign fiat currency-issuing economy.

  12. Dominic
    November 13, 2019

    It would be naive of anyone to suggest that taxpayer financed political spending does not in some way impact upon a nation’s economic performance (the production of physical goods and services and the financing of dependent activity exercise by the State). I don’t believe anyone on this site thinks in this way. Therefore I fail to understand why our host make his assertion

    My gripe is a simple one. It is that your party have stepped back and watched while Marxist Labour has constructed a client state using taxpayer’s money. That is abhorrent. You knew it was happening. You could see their intentions. You chose to remain silent. Indeed I would say the Tory party’s chosen to remain silent on many issues involving that cancer of a party.

    Labour have systematically take political control of many aspects of the British state and they have achieved that using taxpayers money. Reform would undermine Labour’s grip. You propose, yes a Tory MP, to finance their client state even further using other peoples money. Jesus wept.

    For some inexplicable reason the Tory party still campaign and treat Labour as a normal political party. When are you going to wake up and smell the coffee and understand what the nation is facing? If Labour achieve power they will destroy this nation and your party will be too blame for all the years you have turned a blind eye to their Gramsci inspired takeover of our nation’s institutions

  13. Narrow Shoulders
    November 13, 2019

    My beef with the public sector is not primarily output or production as these are the product of income raising methods.

    The public sector is given money raised by taxation, therefore improvements and even need are not driven by demand. If you make something free to use there will of course be customers and users whatever their actual need.

    If public services came with a cost (however small) then their actual requirement would become apparent, users would demand better service and mandarins could be judged on their income raising abilities rather than on their ability to demand taxes and shuffle paper.

  14. Andy
    November 13, 2019

    These policies are akin to you trying to tackle a major fire in your home with a glass of water. Far too little, far too late.

    We need to take radical action in the face of the climate emergency. Mandatory insulation in all homes. Scrap double glazing, make triple glazing a requirement instead. Ban all new petrol cars by 2025. Lifetime interest free loans for the domestic installation of heat pumps, solar panels, batteries etc.

    100% carbon tax on big business polluters. An outright ban on all single use plastics by the end of 2020. Cars banned from city centres. Electrification of all railways. Huge investment in research to produce electric powered passenger planes – with the aim to have them operational by 2040. 100% renewal energy target by 2035.

    This’ll do for starts.

    Interestingly I notice that Tesla – leading electric car and solar company – have just opted to build a giant new factory in Germany, rather than Britain. Brexit the reason for not investing here.

    1. Fred H
      November 13, 2019

      Andy – wonderful news – Elon is a smart cookie – if he thinks Brexit is going to happen I’m thrilled. Putin is also happy – imagine all that energy he can sell to Germany once they roll of the production line. BMW/Mercedes will need to stop making diesel engines – a relic of the past in no time. What will Elon call the first model – Muskwagon?

    2. Edward2
      November 13, 2019

      If we implemented all your ideas how much would global temperature rises be reduced?

  15. Gareth Warren
    November 13, 2019

    While the public sector is part of the economy I do question its value.

    Here I experience delay and indecision from the NHS, it takes a long time to see a doctor yet appointments are very short. The is no one deliberately giving poor service yet I see waste in thrown away drugs that are perfectly safe, excessive bureaucracy often feeling political and wasted supplies.

    Contrast this to the private dentist, optician and orthodontist I see and things are very efficient, costs are competitive and wait times are low with excellent results. For this reason I do not value public services as much.

    1. Mark B
      November 13, 2019

      You raise the important point of, ‘value’. Value is the point at which the buyer and seller work towards an agreed price. When you remove competition and place the seller (eg NHS) at the mercy of the buyer (patient) the value of the latter to former is skewed in the formers favour. Whereas if you create either a level playing field, or one that slightly favors the buyer, you have a better service.

      1. Gareth Warren
        November 14, 2019

        Agreed, I do feel that the value of the patient drops too when services are stretched, here too often our specialists are in triage.

  16. Newmania
    November 13, 2019

    Depends how you define National output. If a cave dwelling tribe live by hunting mammoths , let us say, its jolly nice if a few old lame story tellers teach children about how the great river god begat the animals and what not ( Teachers and MPs for example , are usually old story tellers ..see J Redwood so the practice of throwing them a few bones continues )
    However, if the tribe stops hunting it starves whereas if the old/lame , stop with doctoring we just know less ( arguably) . The same is true today .Economic success has little or no relationship to the extent education and many well educated counties are notably poor.
    If you count National output up for zero obviously any activity contributes but if you consider an output norm as the start point , the choice to organise publicly when may reduce it. The Public sector adds in accounting terms and may do in real terms but it is not clear it adds much in real terms outside infra structure law defence and other naturally collective functions

    Reply You wouldn’t have any electronic engineers or doctors without education.

    1. libertarian
      November 13, 2019

      JR Reply

      The state school system doesn’t educate engineers or doctors , all it does is obsess about totally worthless GCSE’s ( in a survey 2 years ago of 17,000 small businesses just 4% said they took any notice go GCSE’s)

      The technically private and paid for universities educate engineers and doctors

  17. Dominic
    November 13, 2019

    Wake me up when you and your colleagues openly condemn the leftist political bias and partnership that the BBC now have with Marxist Labour. You never do, ever. That tells its own story

    Wake me up when you and your colleagues publicly condemn leftist political bias in the judiciary, at the CPS, at the Electoral Commission, in State education. All come under Labour’s subtle manipulation

    You have no plan to dismantle all of this. You sit around talking about fiscal matters. I believe that’s deliberately avoiding the confrontation that is inevitable when reform comes up against hard left control of our public services

    The modern Tory party’s lack of conviction and principle is the left’s greatest asset

    Reform not more spending…that’s why we oppose your stance

  18. alastair harris
    November 13, 2019

    You make a fair point, but there is a question over whether, using your example, the government should be in the business of providing education. Centrally planned systems are known to be inefficient, and there is no doubt that “private” schools manage to deliver better outcomes on average, with lower class sizes, and a perception at least of better discipline!

  19. libertarian
    November 13, 2019

    Blimey anyone who thinks our dire and appalling GCSE factories are investments needs to give their head a wobble

    Employers have to invest in re training and delivering the right skills and experience to the output of these failed institutions before they can become productive

    Still very soon Mr Corbyn will reward all the holders of fantastic university degrees by making Maccie D pay them £15 per hour….. lol

  20. Derek Henry
    November 13, 2019

    Not paid out of taxes.

    It is decided in parliament when the budget is passed. Then the treasury instructs the BOE to credit a bank account. Then taxes are collected as it flows around the economy because your spending is someone else’s income.

  21. Mike Wilson
    November 13, 2019

    Figures quoted on here yesterday by Dame Rita Webb QC indicated that massive government borrowing – and spending – has not increased GDP in any proportionate sense. Yet you persist with the argument that it does.

    Reply The alternative strategy you seem to propose would have led to fewer jobs and less output.

    1. Mike Wilson
      November 13, 2019

      The alternative strategy you seem to propose would have led to fewer jobs and less output.

      I guess anyone could borrow a load of money and use it to employ people. I could do it. What happens when the money runs out? No money left to pay the salaries and no money to pay the interest. You have to admit this sort of nonsense is unsustainable in the long run. If I borrow a million pounds and employ 40 people on 25k for the year – do their jobs become self sustaining? I can’t see how they can.

      As for ‘less output’ – you can’t seem to get beyond the mindset of ‘more output’ (more consumption) being a holy grail. Surely if we have to accept anything it is that 7.5 billion people cannot go on consuming like drunken sailors consume booze on shore leave. I don’t need to keep buying new cars, TVs, smart phones, holidays, clothes etc. I am perfectly happy to ‘make do and mend’ and put up with stuff that is out of date. Don’t think I need you to borrow money to raise output.

      Reply You need some borrowing in the system so people can afford the products and companies can afford to produce them

      1. Derek Henry
        November 13, 2019


        You have to understand the difference between

        a) An “issuer” of a currency the monopolist

        b) A “user” of a currency households and business

        It is a huge mistake to compare the two as if the government accounts operate like that of a household.

        Gold standard and fixed exchange rates – myths that still prevail

        Helps to think about it.

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