Why cutting jobs and pay is the wrong approach

I am heading down to London today for the launch of UNISON's new 'Worth It' campaign. We all expect high quality public services but funding cuts mean that budgets are under pressure and staffing has been reduced. On top of that, UNISON members have suffered a real terms pay cut of between 8 and 17%. That damages the local economy as well as essential services.

Long train journeys are a good opportunity to catch up with some reading and today that included the very relevant IFS analysis, 'Hard choices ahead for government cutting public sector employment and pay'.

The Office for Budget Responsibility (OBR) forecast, based on the 2013 UK budget, that general government employment (that is employment by central and local government) would fall by 1 million between 2010–11 and 2017–18. However, following the Chancellor's latest cuts, they have increase the forecast to a cut of 1.1 million by 2018–19. In Scotland, public sector employment has been cut by around 58,000 since the financial crash and based on this forecast I calculate that we can expect to lose around a further 60,000 jobs by 2018.

If this isn't bad enough, the IFS also noted the OBR forecast reductions to growth in public sector pay. Public sector pay is now forecast to be 3.6% lower in 2017–18 than expected in June, in part because earnings growth in the public sector has been weak so far this year, with no growth in pay in the 3rd quarter of 2013 compared with the same quarter a year before. This has led the OBR to reduce its forecast for public sector pay growth in 2013–14 to only 0.5% compared with a forecast of 2.2% in March. It has also reduced its forecast for each year up to 2016–17 compared to the March forecast. This is unlikely to be much different in Scotland because the Scottish Government generally follows the Treasury on pay policy, with the honourable exception of a more positive approach to the living wage.

The IFS analysis also suggests an acceleration of the fall in public sector pay relative to private sector pay by about 8%. This is not driven by a change in the composition of the workforces as public sector workers are still more likely to be highly educated and in professional or similar roles. 

The IFS identify some important implications from this analysis. Primarily, that some public sector employers may well find it increasingly difficult to retain and recruit high quality workers. In Scotland, I would add that the ageing public sector workforce will exacerbate these pressures. A secondary point made by the IFS is that measures to mitigate recruitment problems might come at the cost of further job cuts if the budget targets remain at planned levels. 

For the UK and Scottish governments squeezing public sector pay has been viewed as a relatively easy way to cut departmental spending. Given the current OBR forecasts, the choices ahead now look rather harder.