Darren Williams says the notion that the private sector would plug the gap caused by the public sector’s shortfall has proved to be unrealistic

April 23rd, 2012

The widespread trepidation that greeted the accession of a Tory-led government in Westminster two years ago was particularly strong in Wales. Many Welsh communities have yet to recover from the damage done to our economic and social fabric by the Thatcher and Major governments. The increased importance of public services to Wales, following the destruction of so much of our heavy industry, means that the commitment by Cameron’s cabinet to impose the deepest public spending cuts since the Second World War represents a further twist of the knife in the wound first inflicted in the 1980s.

Dealing with the deficit

This is the first of a weeklong series of articles dealing with the fall-out in Wales from the Westminster Government’s efforts to reduce the budget deficit. Tomorrow Ceri Jones, Employment Support Officer with Gingerbread in Wales, describes the frustrations of dealing with the bureaucracy that is reducing support for single-parents

Wales’ vulnerability to the cuts is due to its greater deprivation and higher levels of unemployment and economic inactivity than most other parts of the UK. The consequent importance of state benefits in shielding so many of our citizens from destitution means that the government’s welfare ‘reforms’ will adversely affect a quarter of the Welsh population. This figure is contained in the recent Cuts Watch Cymru report, Wales on the Edge.

Wales is also vulnerable because we have a higher proportion of our workforce employed in the public sector than any other part of the UK, except Northern Ireland. According to the latest ONS figures, 26 per cent of Wales’ economically active population (some 335,000 people) is employed in the public sector compared with 20 per cent across the UK. Government employment is even more heavily concentrated in some areas of Wales. For example, almost four in ten people employed in Swansea are public sector workers. In some towns and villages, the public sector provides the only good-quality, long-term employment available.

It was inevitable, therefore, that the cuts announced in Osborne’s June 2010 ‘emergency’ budget and in the following October’s Comprehensive Spending Review would exact a heavy toll in Wales. The Welsh Government was left with the toughest budget settlement of any of the devolved administrations – a £1.9 billion (12.4 per cent) real-terms funding shortfall by 2014-15. Moreover, this came on top of long-term underfunding, thanks to the Barnett Formula. Comparable cuts imposed on Whitehall departments have also hit Wales, since these departments employ around 80 per cent of Welsh civil servants.

Eighteen months after Osborne’s first budget, Wales had already lost 11,000 public sector jobs. The bulk of these will have been in local government, which accounts for around half of public sector employment, but the NHS and further and higher education have also been hit. The civil service has seen significant job losses as well. Most notoriously, the Passport Office in Newport – a landmark in the city since 1967 – was threatened with closure until a high-profile campaign supported by the whole community, including a 1,000 strong march and rally, forced a rethink. Even then, staffing in the office was halved and the long-term future of what is left remains in doubt. Sixteen Welsh law courts have already been closed and Wales’ busiest coastguard station, in Swansea, is also now to go, jeopardising public safety as well as cutting jobs.

The Tory theory that the private sector would fill the gap has been exposed as unrealistic by the unemployment figures. The latest show the Welsh jobless total was 10,000 higher over the three months to January 2012 than the year before, taking it from 8.5 per cent to 9.1 per cent of the economically active population. Only an incurable optimist would have expected the requisite surge in private sector employment, given the extent to which the Welsh economy was laid low by the 2008-09 recession in which we lost 49,000 jobs, three per cent of the total, almost 40 per cent of them in manufacturing.

Cutting public sector jobs will do nothing to promote economic recovery. Apart from throwing thousands of public servants on the scrapheap, it hits the private sector through the reduced spending power of those made redundant. This may need to be spelt out to government ministers but it’s understood all too well by local businesses. The shopkeepers in Newport city centre eagerly supported the campaign to defend the Passport Office, alarmed by the implications for their own livelihoods if the office were to close.  The same argument applies to the pay freeze and the ‘reform’ of public sector pensions. Both are holding down the living standards of public employees, while simultaneously harming the prospects of economic recovery.

Of course, the latest threat to the Welsh economy is the government’s plan for regional pay. Its introduction in the Courts Service by the last government has resulted in Welsh courts staff being paid less than colleagues in Birmingham, Bristol and Liverpool for doing the same work.

In its defence of the regional pay proposal the Westminster government has cited research by the Institute of Fiscal Studies, suggesting that Welsh public employees enjoy an 18 per cent ‘pay premium’ over comparable private sector workers. This is questionable. As the Welsh Government’s Finance Minister as Jane Hutt has pointed out, it was based solely on the period 2009-2011, when the recession had seen pay fall more rapidly in the private than the public sector. Pre-recession data shows that full-time employees in the public sector with qualifications below degree level were paid no better than their private sector counterparts. Moreover, by now the cumulative impact of the ongoing public sector pay freeze has already reduced the gap with the private sector.

But what if we were to follow to its logical conclusion Osborne’s assertion that the supposed 18 per cent ‘pay premium’ prevents the private sector from competing for staff? To remove that ‘premium’ from the salaries of all 335,000 public employees in Wales would take £1.25 billion out of the Welsh economy, causing further hardship.

Rather than cut further, the government should be investing in job creation to revive the economy. The unions will continue our attempts to convince ministers of that. In the meantime, we will not stand by and allow further attacks on the jobs, pay and conditions of people providing vital services to the public. Our fight is also to protect the well being of everyone in Wales.

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Darren Williams is Welsh Campaigns Officer with the Public and Commercial Services Union.

5 Responses to:Cost of the cuts 1: Wales dealt the toughest budget deal in the UK”

  1. Dr John Ball says:

    “Cutting public sector jobs will do nothing to promote economic recovery.”
    So the logical response presumably is to develop public sector jobs – but how would that drive the Welsh economy, already stifled by the overblown public sector?
    Can we please stop vested interest trade unionists bleating about Thatcher and Major – there has been a labour administration in Cardiff since 1999 (with fully devolved powers on economic development) supported by a labour administration from 1997 until 2010. The failure to develop the appropriate environment in which the private sector can grow lies with the labour party.
    Incidentally, according to no less a journal than The Economist, the public sector premium in Wales is substantially more than 18%. Nice work if you can get it.

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  2. Howell Morgan says:

    The economic ‘crisis’ affecting Europe cannot be wished away, as it was caused/based on whole countries/regions living way beyond their means, as we have done in Wales for generations. The reductions in public expenditure are being driven by the Treasury and would have taken place who ever won the election in 2010, as without re-balancing the markets would have hammered our currency and where would we be if that had happened. The Labour Party is being totally dishonest in its constant bleating about ‘cuts’, as they were responsible for the unwarranted/unaffordable growth in public funding after 2000, without the huge structural changes needed to public services. The strange thing about this ‘recession’ is that there is growth in the economy of London/south east of England as is evidenced by myself when I visit family, however jobs seem to be filled with non-British people, who have travelled huge distances to work. The same has happened in Ireland, where half the staff in a good hotel were from eastern Europe!! We in little and penurious Wales have lived in a fantasy land for years, with politicians still wish we were living in 1945, however the world has changed whilst we still want top-down services provided by inflexible/out dated practices etc etc. At a time of such reductions in public expenditure the priorities of the Welsh Government, particularly on the Welsh language, the police are a disgrace and complete waste of money. We need first class minds to sort out Welsh public life on the basis of what the economy can afford, without borrowing for capital projects, rather than so many paid third rate politicians who just tell the ‘masses’ what they want to hear, in order that they get re-elected to well paid jobs.

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  3. Jamie von says:

    As if capital did not constitute a vested interest in its own right! Are we to forget the 124 billion pound bank bailout? What is ‘austerity’ other than a transfer of private liability to the ‘public purse’? Given that it was this single act that so unsettled the ‘markets’, it will be interesting to see how Moody’s responds to Wednesdays quarterly growth figures?

    Moreover, in light of recent scandals concerning failing academies, A4E, rampant energy profiteering and rail ‘ticket-price inflation’, it is quite clear that taking public-services outside the sphere of democratic accountability and into the ‘private sector’ provides no freedom other than that to freeze, fester, walk or pay!

    In the UK, a relative fall in wages (and rise in exploitation) was frequently subsidised by ‘consumer’ borrowing against equity. If the trade union movement had recovered sooner, it is quite possible that our economy might have been made sustainable. Who can forget the ‘pension holidays’ of the late eighties/nineties? The ‘great moderation’ was a failed experiment; the NAIRU model of accumulation collapsed because capital cannot get labour for nothing! Consequently, let us not be deceived by those fans of ‘austerity’ who suggest that we can simply cannibalise public services – it is they who would seek to build a sweatshop on the wreckage (though god knows where they expect to find the start-up capital)!

    Eitherway; bleating the shop-worn shibboleths of failed orthodoxy can do nothing other than add a tinge of farce to the mean-tragedy that now threatens to engulf so many ‘ordinary’ welsh lives.

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  4. Tredwyn says:

    John Ball is right, we have to get away from a politics of vicitimisation and address our problems without excuses or scapegoats. Howell Morgan, on the other hand, retails a lot of vague right-wing prejudices without intellectual content. What are the “huge structural changes” required for public services? Is this code for selling them off to private providers who would negelct the needy in order to maximise profit? What is wrong with priorities with regard to the Welsh language and the police? First-class minds – oh dear the heroic view of political leaders that gave us Mussolini. Whatever Wales needs it is not this brain-dead regurgitation of cliches.

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  5. Steffan ap Dafydd says:

    It is a well researched article with an obvious reflection on reality.

    People at work and in pensions in Wales are being poorly treated by the UK government – and all because greedy people speculated irresponsibly with money and assets that they did not own.

    The people now suffering are not those greedy people. The greedy have got away with it!

    It has been left to people who work in the public sector to pay for negligent business people from the finance and banking sectors who brought about the Crash in 2008.

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