500,000 job losses and the Spending Review

At last the BBC and others accept what readers of this website have known for weeks – that cash spending carries on rising under the government’s  plans.  We have heard of the increases in Health, Schools, Pensions, EU, Overseas Aid and debt interest.  Today we hear of the programmes that are being cut, and doubtless there will be much reporting of those. Viewers and listeners need to remember that where cuts are being made, they will be made over a four year period, and are often reported in so called “real terms” where various estimates are made of how much extra cash a service says it needs to stand still.

Much  is being made today of the 500,000 job loss figure seen on Mr Alexander’s briefing document photographed through his car window. Let us put this into perspective. There are around 6 million public sector jobs in the UK, an increase of more than 1 million over the last decade. At least 250,000 public sector employees resign or retire every year, so over a four year period you could cut the workforce by 500,000 without a single redundancy, whilst replacing people in  all important posts like doctors, nurses and  teachers.

Let’s have one last go at putting public spending into a normal perspective. Let us say your salary last year was a healthy £60,000, thanks to Labour. You are told that you will have a cash rise every year, taking your salary up to £69,250 in 2014-15.  Unfortunately your interest bill is going up because you have a large mortgage and you are  still adding to your credit card debt.  How much do you think you would have to cut out from your “real” budget by 2014-15?   Would you be planning major surgery if your pay increase was only £9,250 a year by 2014-15? If you simply add 7 noughts to those figures you have current total public spending, or the public sector’s total income including  borrowing for current purposes.

In order to make the most of the extra £92.5 billion by 2014-15 the public sector needs to keep down its costs. If it buys more cheaply the money goes further. If there is a wage freeze there will be a bigger real increase in total spending, and more jobs can be saved. In the recession the private sector was most flexibile in cutting costs and preserving jobs, faced with a far worse revenue  position than today’s public sector.

I just hope the public sector will now seek to manage well and wisely. It might be surprised to see how far £650 billion can go. I will also be more interest in the 2011-12 figures, than alarm over the 2014-15 figures. A lot can happen before 2014-15 arrives.

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26 Comments

  1. Stuart Fairney
    Posted October 20, 2010 at 8:40 am | Permalink

    What an absolute amateur! If I had revealed sensitive information in many a previous job, I would have been sacked on the spot and rightly so. I understood this and never did.

    Doubtless lower standards are expected of honourable members…

  2. Brian Tomkinson
    Posted October 20, 2010 at 9:01 am | Permalink

    The government is planning to increase its tax receipts from £548billion to £737billion over the period and cash spending is increasing to £757billion. So, far from reducing the size of the state the government is overtaxing its citizens. We seem to be involved in a massive spin exercise where politicians as they have always done are wedded to the thought that they can spend other people's money batter than they can themselves. At the end of this parliament the national debt will have increased to £1.3trillion or as the Taxpayers' Alliance has pointed out, £7.8trillion when all the off-balance sheet liabilities are included. Why have we still got an AAA credit rating?

    • waramess
      Posted October 20, 2010 at 9:54 am | Permalink

      Spot on. JR should be careful because to get this wrong could be a reputation destroyer. The others have almost no reputation to worry about losing.

  3. nick
    Posted October 20, 2010 at 9:08 am | Permalink

    60,000 Salary, but spending 70,000?

    Easy to fix. Just go out and rob someone else of 10,000.

    I don't know why the government didn't think of that solution.

    • waramess
      Posted October 21, 2010 at 9:18 am | Permalink

      QE?

  4. P H
    Posted October 20, 2010 at 9:14 am | Permalink

    The Tories will probably regret, at the next election, their abject failure to cut the state sector properly down to size- thus allowing the private sector to compete on the world stage.

    This may be their only chance and they have funked it.

  5. Robert K
    Posted October 20, 2010 at 9:22 am | Permalink

    All this just shows how much resolve it will take for any government to get a grip on rampant state spending. The anti-"cuts" rhetoric has been staggering. Where exactly does the public sector think it gets its money from? Answer: wealth creators in the private sector, but you’d never believe that from watching the ten-o’clock news.

  6. Andrew Johnson
    Posted October 20, 2010 at 9:30 am | Permalink

    I wonder if the Coalition has any plans to abolish the present method of accounting in the Civil service and local government, whereby if you don't spend all your departmental budget by the end of the accounting period, it gets reduced by at least the amount you haven't spent in the next year? Yes, really. You didn't know that? Go ask some contractors and suppliers what happens as the end of the accounting period looms, as worried departmental heads scramble to order goods and services they don't need in order to protect next years budget and their own little empire. Do the sums. Even 1% reduction of overall departmental spending (always achievable) amounts to a huge saving.

    • REPay
      Posted October 20, 2010 at 6:03 pm | Permalink

      Spot on – A friend of mine at the BBC was bullied annually into buying things not needed so as to assure next year's budget!! This is a cause of massive waste…

  7. English Pensioner
    Posted October 20, 2010 at 10:02 am | Permalink

    A major problem in this country is the poor state of education whereby large numbers of people simply don't understand finance and can't perform simple calculations, let alone understand any form of statistics. Thus all your figures, and those produced by intelligent commentators, simply go over the heads of the majority, from whom you hear such statements as "Tax the banks, they've got lots of money" without comprehending it is not the bank's money but their customers' money placed there for safe[?] keeping. Another favourite (particularly of the left) is to "Tax the millionaires", without realizing that if you took all the money from all our millionaires, it wouldn't even dent the problem!
    In the long run, without education, we will never get people to understand the state of the country's finances as large numbers will still believe "The government (or the council) can do it because they've got stacks of money"

    • REPay
      Posted October 20, 2010 at 6:05 pm | Permalink

      I always assumed that ignorance was a key aim of the state education system…in that we are becoming world beaters – down in every major category over the last decade.

    • waramess
      Posted October 21, 2010 at 9:34 am | Permalink

      Wherever the government says it gets its money it will all end up coming out of the publics pocket. That is why there is such a body of opinion that wants the government to cut down its size.

      Tax the banks tax the utility companies tax the whatever, this is not really the issue, its all an attack on the pockets of the UK public by its own government.

      The government of course do have stacks of money and whilst they get bigger we will not notice that we, as in a mirror image get smaller. Have you noticed that your money seems not to be going as far as it did last year? That's because the government is now spending more of it than you do and it aint spending it on you

  8. markj
    Posted October 20, 2010 at 12:37 pm | Permalink

    Would someone please stand up and publically slate Ed Milliband and Alan Johnson – two people heavily involved in helping to create the massive defecit. I am sick and tired of seeing these two (men) continue to take the moral highground on the cuts when they know full well that they and their beloved Labour party are responsible for this mess. I am fed up with hearing about their "proposals" for tackling the defecit, that as far as I can see includes a tax on Banks (too little to late – why wasn't a proper agreement drawn up before handing over billons of taxpayers cash) and spending yet more money (have they not learned anything!)

    These two have the economic skills of a two year old, and their "solution" to the problem is just plain laughable that will push the country even further into debt, whilst protecting their union friends and shoring up their core vote in the public sector/

  9. Daphne Else
    Posted October 20, 2010 at 12:42 pm | Permalink

    The slight problem with these figures of £650 billion is that the country owes far more than is ever admitted by our governments, Labout or coalition. Check out the Tax Payers Alliance video. http://www.youtube.com/watch?v=jGAdzE13qMI&fe

  10. Sally C.
    Posted October 20, 2010 at 12:52 pm | Permalink

    I don't want this to sound gushing but I can't help thinking that we were so lucky that the election cycle turned out the way it did, with most people sick to the back teeth of Labour after thirteen years in power. Of all the western economies in trouble, I think we in the UK ended up with the best chance of dragging ourselves out of the mess created by Labour.

  11. Derek Buxton
    Posted October 20, 2010 at 2:45 pm | Permalink

    "AAA credit rating", just lucky I guess. However the point about "management" is interesting, they have not managed so far, why should they suddenly change. Over the years money has been thrown at them but with no improvement in efficiency/productivity. I find it hard to believe that those charged with looking after the public purse insist that although they are doing the same things as before, this time it will end differently. It won't

    • EJT
      Posted October 20, 2010 at 6:57 pm | Permalink

      The credit rating agencies are not at the leading edge when it comes to government debt. Any default decision is highly political ( particularly in the eurozone).

  12. Matt London
    Posted October 20, 2010 at 2:49 pm | Permalink

    "What an absolute amateur! If I had revealed sensitive information in many a previous job, I would have been sacked on the spot ". Really? A bit of an over-reaction I'd think – the 500,000 figure – which appears to be the thing that attracted attention – was a published OBR statistic that's been around – and a subject for public debate – for weeks if not months.

    • lola
      Posted October 20, 2010 at 3:08 pm | Permalink

      I have just done exactly that to an employee of mine who disclosed sensitive business information to third parties.

    • Stuart Fairney
      Posted October 20, 2010 at 4:52 pm | Permalink

      Either ministers treat briefing information as confidential or they don't. Once we start deciding what's okay to be cavalier about we are in murky waters indeed.

  13. lola
    Posted October 20, 2010 at 3:06 pm | Permalink

    I just hope the public sector will now seek to manage well and wisely Really, Mr R, I would have expected better. That statement really is a triumph of hope over experience.

  14. Robbo
    Posted October 20, 2010 at 3:56 pm | Permalink

    What is the effect on the deficit , John ? It seems to me that it is going to remain at much the same disatrous level. What is worse is that much of public spending is of negative benefit – rolling back the state to 2008 is falling short of the target to put it mildly.

  15. Keiran M
    Posted October 20, 2010 at 5:14 pm | Permalink

    Let's not forget that aside from cuts, there is a credible strategy for growth in the spending review. More apprenticeship places, colleges freed up from pointless bureaucracy, additional lending to small businesses, protecting spending on science.

    Of course, growth stories won't interest the BBC news at ten, but it is the new jobs that will help the bring the economy back to health.

  16. Alan Jutson
    Posted October 20, 2010 at 5:42 pm | Permalink

    John

    Did I understand Correctly.
    Did GO say that the Benefits System would slowly change over the next two Parliaments (assume 10 year period) after an initial trial.
    If so, you have to win the next two elections to see this through to its completion in 15 years time, which sounds rather too little, over too long a period, to make any impact.

    Impressed by the amount of thought and work done by GO and his team so far, but is it enough to make any REAL difference, and will it have any REAL impact to UK PLC in the next few years.

    Much stronger impact would be to reduce substantially Company and Personal taxation for those who create and earn the wealth, and take the handcuffs off of the willing.

  17. REPAY
    Posted October 20, 2010 at 6:07 pm | Permalink

    I listened to the Chancellor and I don't recall any number of redundancies…was I missing something? The figure of 500,000 has been about for weeks.

    I though Osborne did well…

  18. AlteFritz
    Posted October 21, 2010 at 5:36 pm | Permalink

    A lady who apppeared to be close to tears announced today that 100,000 local government workers would lose their jobs leaving the remaining 900,000.____I know this is crude, but since local authority workers are said to take six days a year more sick leave than private sector, if the 900,000 remaining work an extra 5,400,000 days then, assuming that a local thorty worker should work 230 days a year, that is the equivalent of 23,478 full time jobs, so a net loss of 76,522 jobs.____Put another way, excess sickies equate to 2.5% of the work force which is a lot.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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