Cost of austerity economics

Tom Gordon has an interesting piece in today’s Sunday Herald based on Scottish Labour research. This shows that more than £600m has been spent to pay off Scottish public sector staff in redundancy and similar payments over the past five years. Part of my response is quoted in the article, but space limitations means a fuller analysis is justified. 

My first reaction might surprise many people because £600m was smaller than I would have expected. 51,700 public sector jobs have been lost in Scotland since the crash and that is a net figure allowing for some new recruits. It would appear that this is the cost of getting rid of 34,300 staff; therefore some 20,000 staff have gone through natural wastage at no cost to the public purse. 

Labour’s Ken Macintosh is of course correct in saying that it is ‘perverse’ to spend this amount of money to fire rather than hire staff in the current economic circumstances. John Swinney is also correct in identifying the primary cause as being the UK Government. Although the Scottish Government has exacerbated the problem with decisions such as the Council Tax freeze and the police civilian staff debacle.    

The problem is primarily at UK level because the cuts are a key element of the ConDem austerity economic strategy. Contrary to assurances at the outset, the public sector jobs have not been replaced by private sector jobs and the deficit has not been reduced as they claimed. As we and others predicted it simply increased unemployment, with the consequential additional public spending, and damaged the economy even more through the loss of demand and consumer confidence. 

The other reason for the problem resting at UK level is more complex. Councils, health boards and others consider their decisions on cutting staff based on the payback to their budget. For example, councils will typically let a worker go on voluntary redundancy/early retirement if the cost can be recouped within three years. That’s fine as far their budget goes, but it ignores the wider costs to the Scottish and UK governments of adding to the ranks of the unemployed. For example, for every £1 spent by a local authority 64p is reinvested back into the local economy. This means that only a fraction of the savings made on paper from cutting staff are a real saving to the public purse. 

Of course councils and other public bodies have to balance their budgets although they could do more to challenge the consequences. They may not have to take account of the bigger picture, but the UK government can and should. They don’t because staff cuts are nothing to do with the budget deficit, and everything to do with an ideological drive to reduce the size of the state.