Cutting public sector jobs is expensive

There was precious little discussion about the UK’s deficit in last night’s TV election debate. Hardly surprising given that politicians have spent months trying to dodge all the difficult questions.

Too much work and not enough blogging time has left me seething in impotent fury at the newspaper headlines, unable to get to my computer and tell the world what mendacious crap the politicians have been spouting about public spending. Apparently the Tories have found a way to make the deficit disappear without cutting frontline services or making people redundant. A bit of natural wastage, a public sector recruitment freeze and a ban on using contractors and agency staff will, it seems, miraculously get rid of 40,000 civil servants and save “perhaps £1bn to £2bn”.

Fortunately other people have been on the case. The HRD explains why recruitment freezes never work:

The idea of a recruitment freeze makes a number of assumptions, that all roles are equal, that all roles are interchangeable and that the right people will leave.  And that just doesn’t happen.  You either stick dogmatically to the freeze to the detriment of the service and the health and well-being of those that remain, or you have to exercise a degree of judgement.  We became adept at renaming the freezes as slowdowns, restrictions even chills….that was my choice but no-one found it funny.  Everyone has an argument about why their specific vacancy is “critical” and some poor sucker has to wade through the pile of requests and exercise the judgment of Solomon.

I wish it were this easy, if it were well hell we’d all be doing it and redundancies would be thing of the past.  It isn’t, they aren’t.   Nice try, but no cigar.

Manchester University’s Colin Talbot doesn’t belive any of it either and has a number of posts on his blog picking holes in the politicians’ claims. When he was interviewed by the BBC last week, he incurred the wrath of the Telegraph’s Charles Moore who accused the Beeb of employing an anti-Tory stooge in the guise of an impartial expert. Professor Talbot responded by pointing out that he has spent more time exposing Labour rubbish than Tory rubbish. His blog will be going straight onto the sidebar for future reference.

The problem with claiming that natural wastage and cutting contractors and agency staff will save an extra couple of billion is that these factors have already been built into the government’s savings plans. Government departments were ordered to halve their spend on contractors after the Pre-Budget Report. Many of these savings are part of the £15bn the government has promised to save so they can’t also be part of the extra £12bn the Tories have pledged. Confused? Don’t worry, it will get much worse over the next few weeks.

So if you have already given most of your contractors the boot and allowed for natural wastage in your original calculations, what would the implications be of getting rid of another 40,000 public servants? You’d have to pay them off, of course.

Now given that the HRD described his blog as the Sunday Sport and the Beano and this one as the Guardian and the Observer, I suppose I’d better quote some figures and do something that looks like analysis.

The average salary for a civil servant is around £23k per year. The civil service redundancy scheme offers 1 month’s pay per year of service. The average length of service of a civil servant is 15 years. A civil servant on £23,000 with 15 years service would get £28,750 (it’s actually slightly more because there are some enhancements but let’s not over-complicate things.) Multiply that by 40,000 and you get £1.15bn.

OK, not all public sector organisations have schemes as generous as that of the civil service but, set against that, the redundancies would probably be skewed towards the middle and senior grades, so the average salary of those getting made redundant would probably be more than £23,000. It is also probable that those selected or who volunteered for redundancy would be those with the longest service. That too would put the cost up.

These calculations, albeit crude, are based on reasonable assumptions. The bill for getting rid of 40,000 public servants could therefore be ‘perhaps £1bn to £2bn’ – the amount Sir Peter Gershon said could be saved. Making public servants redundant will cost more than it saves in the first year or so. That’s the trouble with redundancies, it’s not until the 3rd year that you start to see a return on your investment. In all the huff and puff about efficiency savings no politician has mentioned this.

Now don’t get me wrong, I’m not saying that efficiency savings are impossible only that, as I said last week, they will require up front investment and will take a lot longer to pay for themselves than the politicians are letting on. They certainly won’t deliver in time to contribute much to the halving of the public deficit.

No politician is coming clean about the level of cuts and tax rises that they will be forced to enact when their efficiency savings fail to make it off the spreadsheets and project plans in time. Promised tax cuts or spending increases simply mean tax increases and spending cuts to frontline services elsewhere.  It really is that simple. Efficiency savings will not be big enough, or delivered soon enough, to soften the blow.

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11 Responses to Cutting public sector jobs is expensive

  1. Politicians rarely come clean do they! I managed to avoid the stage-managed pantomime last night. Did you?

    j

  2. Rick says:

    I’m afraid I did Jeremy. It wasn’t very inspiring.

    I didn’t think anyone ‘won’ so where all this stuff about Nick Clegg doing so well has come from is beyond me. Perhaps it is because no-one really knew who he was then they saw a new face and decided he was a bit different to the other two so gave him the benefit of the doubt.

    • CherryPie says:

      Saying the cuts will save money is a bit of smoke and mirrors.

      Did you know that the government imposed a change to civil servants redundancy and early retirement benefits recently?

      • Rick says:

        Yes I did Cherry. These back-of-a-fag packet calculations are based on the new scheme. Even with the reduction in entitlement, longer serving civil servants would still get over 1 year’s pay if made redundant. I still reackon it would cost something over £1bn to sack 40,000 public sector workers.

  3. CherryPie says:

    I am not convinced because there are so many agency workers and casual workers. They will be the ones to go first, quite cheaply.

    There will be a ban on recruitment, so if some departments have shed more posts than others this will lead to problems in delivering the services in some departments.

    The issue is far more complex that any government in my experience has been able to tackle effectively. There are few simple solutions that they could put in place that would save money and address some of the issues.

  4. Mark says:

    Furthermore, the Government gets back about 35% (or more for higher paid) of the cost of a civil servant through income tax and NI contributions. Then there are the indirect taxes generated through being in employment that will be lost and the impact of taking that amount of public sector spending out of the private sector economy. If that person then remains unemployed there are the welfare costs that follow (I’m sure there are averages per lost employee for this). The ex-employee also becomes a cost (albeit maybe a deferred one) rather than a contributor to the pension fund, which, given that employees’ contributions are fixed, will mean higher costs to the Government through employer contributions.
    So the saving to the economy is much less than the headline salary (it could even be a cost), without taking into account the well-being impact to the individual.

  5. thehrd says:

    Rick, great post and good analysis (as ever *sigh*). One day I will write something intellectually worthy I promise!

    Although being quoted next to a brain from Manchester University (not United) has to be a good first step!

  6. Colin Talbot says:

    Thanks for the mention (above). Channel 4 did a reasonably good job of analysing some of these issues in a special 90 min prog on Sunday night – you can find it at http://www.channel4.com/programmes/election-uncovered-what-they-wont-tell-us/4od

    Colin

  7. Sam says:

    Only “a months” salary per year of employment ?
    I received over 2 months per year of service – £210k

    • Rick says:

      Sam – did that include any pay in lieu of notice? If it didn’t your settlement was generous compared to most organisations. My guess is that you worked in the public sector or one of the large corporations.

  8. Sam says:

    I also received 6 months PILON – And yes this was Public Sector – I received almost 7 years gross pay – which, of course was taxed – but took account of the extra £37k on top of the standard £30k, that I was allowed tax free (Reserved rights)
    I consider myself pretty lucky – but I had worked for over 28 years to earn this…..
    Sam

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