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Mismanaging public sector cuts could wreck chances of private sector growth

18 June 2010

Research on how to manage public sector cuts, conducted by The Work Foundation, shows how employment will be affected across both the private and public sectors. The research is the first to examine the impact on both sectors and it concludes that managing the cuts correctly is the most effective way to encourage private sector growth crucial to economic recovery.

 

Local Government Yorkshire and Humber (LGYH) commissioned the report, Managing Change: Responding to reduced public expenditure in Yorkshire and Humber, to identify ways of mitigating the impact of spending cuts.

 

Katy Morris, co-author and researcher at The Work Foundation said, “In the past decade the public sector was the primary driver of employment growth outside London and the South East. This high dependence on publicly funded employment in the regions has been exacerbated by relatively weak private sector growth over the past decade.”

 

The research shows that over three-quarters of net new jobs created in the North of England (the North East, North West and Yorkshire and Humber) over the last decade were in the public sector. In the West Midlands, dependence on the public sector is even greater. Between 1998 and 2008, the public sector was the only source of net job growth in the West Midlands: the region lost 65,000 jobs in the private sector but gained 130,000 net new jobs in the public sector.

 

A scenario assuming significant public spending cuts would be made over the next five years, modelled by Oxford Economics, showed that this could lead to the net loss of 65,000 jobs in the public sector and as many as 81,000 jobs in the private sector in Yorkshire and Humber by 2017 when compared with 2008. In addition, as many of the jobs created were in education and health, it is going to be difficult to protect the frontline as cuts are made in the months ahead.

 

Katy Morris added, "The report shows the complex symbiotic relationships between the public and private sectors and wider economic growth. Reducing the public deficit requires all parts of the UK to reduce public expenditure and increase economic growth.

 

Public procurement of goods and services is a significant source of revenue for many private sector businesses: IT and construction will be hit hard by the spending crunch. Spending by public sector employees also helps to support regional employment in a wide range of sectors such as retail, tourism and leisure. Cuts need to be made – but they also need to be managed with regard to the impact on the local labour market so that economic growth can be supported.”

 

The report argues that local authorities should be given the autonomy to manage how cuts are implemented because of the variation at local level. Even within Yorkshire and Humber, the challenges vary at local level: in Selby only 19.2% of jobs are dependent on public funding as opposed to 34.5% in York. This means it is vital for local authorities to take a lead because they have the most in-depth knowledge about their local economies and will be able to mitigate the impact of cuts more effectively.

 

Cllr Roger Stone OBE, Chair of LGYH and Leader of Rotherham MBC commented “The impact will be felt across the entire economy, not just in areas funded by the public purse. The way to tackle these cuts is for local authorities to be given autonomy to manage them. Councils know their own backyard and we are already working with our business partners and neighbouring areas to reduce costs and try to support private sector growth.

 

“Decentralising decision making and devolving a genuine mandate to councils to manage the nature of public sector cuts is a much more effective way to support private sector recovery, based on what local areas, businesses and citizens really need.”

 

 

 

Notes to editors:

 

  1. Local Government Yorkshire and Humber LGYH is the partnership of the 32 councils, fire and rescue, police and national park authorities in Yorkshire and Humber.
  2. The deeper cuts scenario referred to above assumes that reductions in spending begin in 2010/11, current spending is cut by a further £22bn by 2017 and Public Sector Net Borrowing falls to £10bn by 2017. The figures are based on scenarios developed by Oxford Economics in February 2010.
  3. Katy Morris at The Work Foundation is available for interview and briefings.
  4. Cllr Roger Stone at LGYH and Neil McCullough at Oxford Economics are available for interview.
  5. Managing Change: Responding to reduced public expenditure in Yorkshire and Humber, by Alex Jones and Katy Morris is available at: www.theworkfoundation.com
  6. The Work Foundation is the leading independent authority on work and its future. It aims to improve the quality of working life and the effectiveness of organisations by equipping leaders, policymakers and opinion-formers with evidence, advice, new thinking and networks www.theworkfoundation.com.

 

Media enquiries:

 

The Work Foundation

Gideon Benari 020 7976 3584 or 07825 527 040

gbenari@theworkfoundation.com

 

LGYH:

Paul Cartwright 01924 331631 or 07976 577646

paul.cartwright@lgyh.gov.uk