By Neil O'Brien
Never has a piece of old news got such attention.
Yesterday Danny Alexander was snapped reading a briefing which said: “The OBR’s [Office for Budgetary Responsibility] Budget forecast was for a reduction in public sector workforce numbers of 490,000." This figure is splashed all over the front pages today, as though it was some brilliant secret discovered by the snappers.
But another way to find out this “top secret” information is to go to the OBR website, and simply download it.
Nor are the headlines telling the full story.
Firstly, this does not mean half a million people are about to get the sack.About 400,000 people leave jobs in the public sector every year. If you didn’t replace just one in four of those leaving, the total employed would fall by 100,000 a year. So a headcount reduction on the scale foreseen by the OBR could be achieved mainly through what economists call “natural wastage”, rather than redundancies.
Secondly, the OBR also predicted that the private sector would more than take up the slack, with private sector employment growing by 1.8 million. As a result, they predict that overall employment will rise by 1.34 million. Is that realistic? The chart below shows how public, private and total employment have grown over time. As you can see, the private sector employs many more people than the public sector, so the total tends to reflect what’s happening in the private sector. The OBR are assuming private sector employment will grow pretty fast in the coming years, but not crazily so. In fact private sector employment is predicted to grow slightly less quickly than it did during the last public sector squeeze, from 1994 to 1999.
Thirdly, It’s also worth putting the public sector total in context. The state will still be employing more people in 2014/15 than it did during the decade 1993-2003. It will be pretty close to the average for the period since 1979. These cuts will not take us to some kind of minimalist libertarian state, just back to business as usual.
In fact, you might wonder if the state won’t still be much bigger after these cuts than it was in the past. The OBR projections are all based on official estimates of the public sector. But this isn’t the only measure of how many people are “working for the government”. Privatisation, outsourcing and the Private Finance Initiative mean that a lot of people are now being paid for by the taxpayer but “officially” employed by a private sector company. Since government often pays for contracted services by invoice, total headcount from this source is not collated centrally.
The “public service industry” – that is, suppliers who provide services to government but are not officially part of government – now accounts for around 5.7% of GDP. This workforce is indirectly employed by the state and paid for through taxation. This has the effect of masking the total increase in the number of jobs providing public services. Using Labour Force Survey (LFS) data, which is based on a huge poll of individuals, we can gain a better view of the true number of people working for the Government. As the process of outsourcing has accelerated, the gap between those who say they are working for the government, and the number “officially” working in the public sector has grown.
In fact if we compare the ONS’ Public Sector Employment estimates with LFS, we find an extra 1.4 million people working for the state. In fact a total of 7.3 million people say they are working for the government. So it looks like the state payroll expanded rather faster under Labour than the official figures would suggest.
Lastly, but not leastly, the more that public sector pay can be restrained, the more people can be kept in the public sector.
Between 1997 and 2009 pay in the public sector rose a third (32%) faster than in the private sector. On an hourly basis, the typical public sector worker is now 30% better paid than the typical worker in the private sector. On top of this, public sector employees have better pensions. The difference is worth an extra 15% of their salary. Over their lifetimes, people in the private sector work 23% more hours (equivalent to 9.2 years of a public sector employee’s working life) than their private sector counterparts, because they have shorter hours, more time off, and retire earlier.
The total pay bill for public sector "managers" doubled in real terms over seven years. The amount spent on managers pay increased by £14 billion. Spending on non-core jobs like marketing, office managers and customer service roles also increased by £4 billion.
The Liberal-Conservative Government must unwind Labour's pay splurge. When the public sector unions march to defend their generous pensions, their higher pay and other perks, we will see whether they really prefer "jobs" - or higher pay for people already on the inside.
Obviously, the coming cutbacks in spending will be difficult. Transferring lots of new jobs into the private sector will be tough. And the Government should do everything it can to boost growth and job creation: be it reforming planning law, reducing regulation, improving infrastructure, or reforming welfare. But we need to have a sense of perspective.
This new Government have inherited the worst fiscal position ever: the biggest deficit as a share of GDP since the second world war; the national debt doubled in real terms; government borrowing a quarter of all it spends; spending more on debt interest than running schools in England... the list of shockers goes on and on.
It seems like the government have tried to protect the NHS and schools, and bear down on benefits – what Tony Blair called “the bills of social failure.” Perhaps they should have gone further in some areas. And I’m sure they will make some mistakes today.
But overall, it seems like they are playing a terrible hand pretty well. Ironic then, that the people who are gloating today are the people who dealt it to them.
