How David Cameron can cut the deficit and get the economy moving

In the end the rate of growth of the economy and of living standards will depend on the rate of growth of productivity. Ministers will be concerned that productivity growth has been so disappointing. The economist Tim Congdon has pointed out that in the four years to the end of 2011, output per worker fell for the first time since 1960 and, in all probability, since the start of the Industrial Revolution in the 18th century. There is at least one clear opportunity to improve this, which is to tackle the poor productivity performance of the public sector. Excluding welfare benefits, the public sector now contributes a quarter of GDP. Its productivity growth has actually been declining, on the best estimate, and is now likely to be flat. As a result, if the public sector became as productive as the private sector, it would act as a very powerful boost to growth. But, again, this is not just going to happen of its own accord. Above all it requires a reform of the public sector workforce so that its working habits are indistinguishable from those of the private sector. The Education Select Committee gave a hint of a change in this direction last week by advocating that teachers' pay should be related to their performance. The Chancellor's proposed introduction of regional public sector pay could help if it went together with a link between pay and competence. The Prime Minister said on Tuesday that "the Government is determined to do whatever needs doing to succeed". Challenging the ways of working of the public sector workforce should be an essential part of his growth strategy.