Against the Tide: Public Finance

Posted on January 27, 2009 · Posted in Public Finance

While all around fear for their jobs, the government is promising a major programme of public works to counter the effects of recession. But dig deeper, and the public sector is simultaneously coming under pressure to slash its workforce

Unemployment is widely expected to reach 3 million by the end of the year. Given that it is now 1.92 million – its highest level under this government and up by 300,000 from last year – this underlines how tough 2009 will be.

The latest round of staff cuts suggests what might happen throughout the year. Barclays has announced that 4,600 employees will go. Thousands more jobs have been lost with the collapse of retailers, including Woolworths, Zavvi, MFI and Land of Leather. In manufacturing and distribution, jobs are going as consumers and businesses cut non-essential purchases, such as replacement cars and IT equipment. In the property sector, it is nothing less than a slump – with a 60% fall in home sales last year.

Now Prime Minister Gordon Brown says he wants to create 100,000 new jobs to ‘act as a counter to the ongoing recession’. In part, these will be generated by £10bn to be spent on bringing forward public investment over the next two years – a programme that Brown likens to the building of roads, bridges and railways in previous recessions.

His package is wide-ranging. There are hints that it will include a big increase in employment in green technologies, the digital infrastructure and parts of the public infrastructure. Projects mentioned include the Severn Tidal Barrage power station, clean vehicle technologies, upgrading broadband networks and bringing forward planned spending on new schools and social housing.

The details of which schemes are part of the programme remain unclear. A spokesman for 10 Downing Street told Public Finance that the 100,000 figure is ‘made up of various public infrastructure projects which are being brought forward’. There are no specified numbers for how many jobs will be in the public sector, how many will be contracted out by the public sector, or which will be infrastructure projects handled within the private sector.

The spokesman was also unsure whether the extra jobs include those related to the controversial third Heathrow runway – which Transport Secretary Geoff Hoon says would create up to 60,000 jobs during construction.

‘Announcements will be made one step at a time,’ the spokesman added Ian Brinkley, associate director of the Work Foundation, is frustrated at the lack of detail. ‘It is hard to work out if it is new money or not,’ he says. ‘It’s quite possible that you might get 100,000 jobs from those schemes, but some of those jobs would have been created anyway.’

It is also unclear when any new jobs will come on stream, says Brinkley – especially those related to Heathrow’s expansion. ‘That depends on how quickly BAA wants to push on with it.’ But, he adds, the principle of greater spending on public infrastructure during the recession is a good one. ‘I am sure that if money is going into employment measures it will have a positive impact, especially for the construction sector. But this is all small-scale stuff if unemployment is going to reach 3 million.’

And there seems to be a stark contradiction between the desire to create employment and the reality of massive job cuts now taking place in the public sector, with more to come, particularly in local government (see box overleaf)

According to the Local Government Association, one in seven councils has already axed jobs. In a survey conducted by the LGA, the Improvement and Development Agency and Society of Local Authority Chief Executives and Senior Managers, 13% of councils that responded had cut jobs because of the economic crisis, while 22% had frozen recruitment. Another LGA survey found that 73% of councils had been forced to revise their budgets.

As local authorities and other public bodies finalise their budgets for the coming financial year, it seems inevitable that far more cuts will follow. London Mayor Boris Johnson has announced a freeze on the Greater London Authority’s council tax precept and a £7m cut in City Hall spending. But he also wants to put an extra 500 police officers on the street. Whether all this can be achieved without redundancies might not be clear until the budget is finalised on February 11. A spokeswoman for the Mayor’s Office said: ‘It has not been decided if there will be any job cuts.’

One of the biggest cuts announced so far has been at Nottingham City Council. Unison claims that 780 jobs will go, but Graham Chapman, deputy leader of the council, insists the figure is actually 400, plus up to 100 vacant posts to be deleted. He also insists that the impact of the council’s £42m of losses in Iceland is ‘nil’ in terms of its revenue budget. ‘These are structural changes,’ he says. The factors that have led the council to make the cuts include big increases in child protection, with more children being taken into care, he says. ‘I think people are being extremely cautious and taking into care children who would not have been taken into care in previous years.’ The council is also losing income from car parking, property rentals and lower interest rates on investments.

Should the Conservatives win the next general election, they plan an expanded programme of rationalisations and back-office reorganisation. In a recent online discussion on the Conservativehome.com website, then shadow communities minister Eric Pickles, now party chair, said that the party would ‘expect councils to share back-office functions to co-operate and work together’. A spokeswoman for the party said that it would provide more details of its proposals in a forthcoming green paper. These are expected to be radical, involving not just obligatory shared services across local government, but shared senior officers too.

Lord (Digby) Jones – the former trade minister and director general of the CBI – added to the pressure on public sector workers in his evidence to the Commons public administration select committee. Speaking of his experience as a minister, he said: ‘Frankly, the job could be done with half as many.’ He added: ‘I was amazed how many people frankly deserved the sack.’

Not surprisingly, the public sector unions are upset at both the existing and potential job losses. Unison general secretary Dave Prentis says: ‘Last year, 50,000 jobs went in the public sector. We know there are many more cuts planned by councils. This is not the time to put public sector workers on the dole. In the recovery process, public sector workers have a key role to play. We have already seen a rise in demand for public services. We know from our members more people are looking for help with things like housing, social care and home helps. In a downturn, people rely on these services more. And we know that a million more care workers are needed by 2025, because of the demographics. In local government there are huge problems with shortages of workers in social care. That was clear in the recent child care cases. There are problems in planning and housing as well.’

Similar concerns are raised by the Public and Commercial Services union. It says the civil service intends to cut 7,000 jobs at Revenue & Customs (17,500 have already gone), with thousands more likely at the Ministry of Justice. PCS points out that it was only the recession that prevented the Department for Work and Pensions proceeding with 10,000 job cuts and the closure of many local offices.

PCS members also stand to lose jobs at Hewlett Packard, which has taken over an R&C contract from EDS, and at the now Banco Santander-owned Alliance & Leicester, where 450 PCS members are a legacy of the acquisition of the old Post Office Girobank.

PCS general secretary Mark Serwotka says: ‘These are uncertain times for everyone – 80,000 jobs have already gone in the civil service, with more to go in key areas such as courts and tax. As recession bites, people and the government become more reliant on the successful delivery of a whole host of public services. Budget cuts, planned when the economy was in better shape, will not only result in the government adding to the growing unemployed, but undermine service delivery at a time of most need.’

There are also fears of large-scale job losses in the health sector, although Unison points out that swingeing cuts have already been made. The union is opposing transfers of many primary care trust staff into semi-independent units and not-for-profit social enterprises.

Mike Turley, UK public sector lead partner at consultancy Deloitte, accepts the unions’ argument that there is a contradiction between the government’s aspirations to restrict job losses in the wider economy while cutting public sector jobs. But, he implies, it is inevitable.

‘We have higher demand on many public services, for example, through increased pressure on children’s services and services for the elderly,’ he says. ‘Changes to people’s individual financial circumstances might also lead to a rise in non-payment of taxes and charges, such as council tax, vehicle and TV licensing, and business rates. This will hit public sector revenue streams up front, but will also lead to a rise in the cost of recovering this money, and managing arrears. So we have a combination of higher demand for services, alongside a fiscal regime that has lost money because of the Icelandic investments, higher energy costs and reduced income from traded services and charges – often a significant source of revenue for councils.

‘In this climate, authorities and officers are able to take decisions that would be unpalatable in normal economic conditions. So a lot are thinking the unthinkable regarding back-office reorganisation and reducing management tiers. Back-office and middle management jobs are under threat. And there are a lot of activities that have reduced: [such as] building control and planning, where there are limited opportunities for redeployment.’

Turley predicts that in local government there will be particular pressure on discretionary areas of spending, such as libraries. But while there will be further job losses, there will also be a big transfer of staff away from back-office functions towards front-office activity, he says, which is already happening in jobcentres. ‘Within back-office functions you will see more rationalisation and more mandation towards shared services, predicated on head count reductions,’ he suggests.

Yet the reality of the job losses clashes with a very different public perception – that public sector jobs remain jobs for life. A recent survey from recruitment consultancy Hays found that three out of four private sector workers are now more likely to consider moving to the public sector, because they believe their jobs would be more secure.

And, indeed, the most recent figures from National Statistics show that the current round of cuts in the public sector follows a period of renewed growth, with jobs rising by 14,000 to 5.764 million in the third quarter of 2008 (the most recent period for which figures have been published). There is added evidence of this contradiction in a report on the graduate recruitment market from High Flyers Research, which found that the public sector alone is continuing to recruit heavily.

Significantly, the Hays report also found that those disheartened with private sector employment are willing to take a pay cut to move to the public sector, because of the perception of greater job security.

And there are signs that the traditional pay differential between the private and public sectors is resurfacing. Research just published from Income Data Services’ Pay Databank found that the public sector is already being awarded below-average pay awards. Further signs of this are emerging. For example, Kent County Council – which has opted out of national pay negotiations – told Public Finance that its staff are accepting a 1% pay rise in return for assurances on staffing levels. Elsewhere, public sector workers will be under pressure both to accept low pay increases and staff redundancies.

It might be a contradiction – but it is a pretty small one compared with a government that claims it is creating 100,000 jobs while perhaps even more are being lost within the public sector. These are grim times.

 

 

 

 

The local government jobs cull

 

Buckinghamshire County Council – about 400 jobs could go as the council adopts an extensive outsourcing process. A further 100 posts could be deleted through internal reorganisation.

 

Nottingham City Council about 400 jobs will go as the council grapples with a financial crisis and another 100 posts deleted. The council says this is not the result of £42m of losses in Icelandic banks.

 

Oldham Borough Council – about 550 posts would be deleted over two years under plans being examined. It is working with KPMG to look at options, including increasing income generation. Proposals include reducing up to 10 layers of management to a maximum of 5. Staff have been invited to apply for voluntary redundancy and early retirement.

 

Wolverhampton City Council – 350 jobs or more may go because of a financial crisis. Plans to achieve greater efficiencies through outsourcing may have to be abandoned as the short-term costs may now be unaffordable. Service cuts could include making the smallest libaries unstaffed; changing day centre provision for the elderly; and reorganising the youth service.

 

Worcester City Council – 85 posts are to be deleted over next two years, of which 30 are currently vacant, because of a financial crisis.

 

The London Borough of Barnet the council is looking to extensively outsource services, though final decisions have not yet been taken. The council says the decision is unconnected with its £27m losses on investments in Icelandic banks.

 

Essex County Council the council has invited tenders to outsource vast quantities of its operations, but the plan has not been approved and the council has not estimated what the effect would be on jobs.