Job cuts: Where the axe will fall

The coalition's Spending Review could mean 500,000 job losses. Are you in the firing line?

If the UK economy were a hospital in-patient, it would certainly be in the high-dependency unit, if not intensive care. Hence, in his long-awaited Comprehensive Spending Review, Chancellor George Osborne today revealed the biggest round of spending cuts since World War II.

Osborne’s austerity programme is aimed at reducing the £3 billion-a-week gap between the government’s spending and its income in 2010/11. This is the second-largest deficit in British history, and means that the government borrows £1 of every £4 it spends.

Trimming the bloated public payroll

Today, the Chancellor announced that government departments face an average 19% cut in their budgets over the next four years. By creating lasting reductions in public spending, Osborne hopes to eliminate the UK’s ‘structural deficit’ of £109 billion a year -- the highest in Europe.

As public-sector pay accounts for around half of departmental spending, job losses, pay freezes and cuts, and reduced hours are a certainty. Indeed, these cutbacks are likely to lead to a loss of 490,000 public sector jobs between now and 2014/15.

Although this seems a huge figure, it must be put into context. Every year, around 400,000 people leave jobs in the public sector. This ‘natural wastage’ is largely due to retirement, resignations and dismissals, not compulsory redundancies. Therefore, not replacing one in three leavers would be more than enough to meet this target for job losses, rather than mass redundancies.

At present, there are 6.05 million public-sector workers. When Labour came to power in 1997, this figure stood at 5.18 million. Hence, the past 13 years have seen the public payroll expand by 872,000. In addition, a further 1.4 million are indirectly employed by the state in ‘public-service industries’. Thus, a total of 7.4 million workers rely on the government solely or mainly for their income.

Furthermore, shrinking the public-sector workforce by 490,000 jobs would mean losing only one in 12 jobs, or 8% of employees. Also, 651,000 private-sector workers have lost their jobs since early 2008, which is a much greater loss to the public purse.

Where the axe will fall

These are the headline cutbacks and job cuts announced today:

• £81 billion of spending cuts over four years;
• A 7.1% cut in local council budgets;
• An 8% cut in Defence spending (the RAF and Royal Navy will each lose 5,000 jobs; the Army 7,000 and the Ministry of Defence 25,000 workers);
• A 6% cut at the Home Office, with police spending fall by 4% a year (which could mean 11,000 coppers on the dole instead of the beat);
• A 15% cut at HM Revenue & Customs;
• A 24% cut over four years at the Foreign Office, which will mean fewer diplomats and support staff;
• A 6% cut in the Justice budget;
• The TV licence fee frozen for the next five years, which equates to a 16% cut for the BBC;
• A narrow escape for the Department of Education, which faces a 1% cut per year; and
• A 0.1% rise in the NHS budget for each of the next four years.

Women and older workers at risk

Only a relatively small proportion of public-sector and public-service workers face the axe over the next four or five years.

Then again, public-sector job cuts will hit women particularly hard, as they account for almost two-thirds (65%) of this workforce, versus two-fifths (41%) of workers in the private sector. That's why the next five years could see many women shift from the public to the private sector.

Also, the government employs a higher proportion of older workers than the private sector. Almost three-quarters (72%) of public-sector workers are over 35, versus three-fifths (62%) of private-sector workers.

With 2.45 million unemployed and only 459,000 vacancies reported in September 2010, some of these women and older workers may struggle to return to work outside of the public sector.

Good news: the private sector will step in

Although unemployment has risen since 2007, more than seven in ten adults (70.7%) of working age are in work. Although this employment rate is lower than it was before the credit crunch and economic recession, it’s still relatively high in historic terms.

What’s more, adding in 23.11 million people working in the private sector, total employment is 29.16 million. Thus, the public sector accounts for 21% of the workforce, and the private sector 79%. In other words, for every public-sector worker, there are four private-sector workers.

Hence, as the economy returns to growth, the private sector is easily large enough to absorb these public-sector job losses. Indeed, one estimate is that the private sector could create 1.8 million jobs over the next four years -- almost four times as many as will be lost in the public sector.

Bad news: it’s tough in the private sector

On an hourly basis, pay is 30% higher in the public sector than the private sector, plus public-sector employees get generous pensions worth an extra 15% of their salary. Over their working lives, private-sector employees work nine years more than public employees.

Hence, employees moving from the public to the private sector could be in for a shock. They can expect lower salaries, inferior pensions, longer working hours, fewer holidays, smaller pay rises, and later retirement. Ouch!

Finally, after a decade of debt-fuelled spending under Labour, it will be good to get back on an even keel. Last night, Mervyn King, the Governor of the Bank of England, warned that we should expect a ‘sober’ decade ahead, consisting of ‘Savings, Orderly Budgets, and Equitable Rebalancing’. Let’s hope so!

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