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Stephen  Bevan

490,000 jobs to go: Will 'Natural Wastage' deliver?

Authors: Stephen Bevan Stephen Bevan

28 October 2010

George Osborne was very keen in his CSR speech earlier this month to reassure the 490,000 Public Sector workers who will lose their jobs over the next four years. He hoped that a significant proportion of the jobs could be lost through ‘natural wastage’, implying that compulsory redundancy will only be used as a last resort. But should public servants be comforted by this?

Natural Wastage refers to the three main ways that people leave their jobs without being sacked or made redundant. They resign, they retire or they die. What Mr Osbourne is hoping is that the normal levels of resignations, retirements and deaths in service – accompanied by a freeze on recruitment – will make a major contribution to reductions in the public sector ‘headcount’.

Well, retirements are predictable of course, although an employer can choose to allow people to retire early – which is costly – or on the grounds of ill-health. In reality the ill-health retirement option was closed down several years ago. At its peak in the mid-1990’s, 40,000 public servants left their jobs through ill-health retirement at a cost of £1bn each year. Ill-health retirement accounted for almost 40% of retirements from the Police and Local Government and 22% of retirements from the Civil Service.

Death in service, though it sounds grim, is also statistically predictable at a workforce level, especially within a given age profile. Of course there’s nothing much an employer can do about this other than build the death rate into its assumptions about natural wastage – it is only a small component compared to resignations, which account for the lion’s share.

Resignation rates do vary. Often by a considerable margin. As a general rule people who resign are younger, with shorter service with their employer, they are more likely to be single, unhappy in their jobs and sufficiently skilled to be attractive to other employers. We also know, of course, that resignation rates go up when there are lots of vacancies in the wider labour market. And there, as they say, is the ‘rub’.

For many years employers have tried (usually in vain) to make big staff reductions through natural wastage when labour markets are depressed. In these circumstances very few alternative jobs exist and many staff – especially those with longer service – will prefer to hang on to see if they will get a decent redundancy package rather than chance their arm in a hostile job market. There’s no reason to think this time around will be any different.

The desire to sweeten the pill of job losses is understandable. But offering false hope is dangerous. Mr Osborne has already delegated the task of handing over the brown envelopes to managers in the Civil Service, Local Government and in Police Forces. It’s important that he is straight with people at a time of high anxiety for many.

A hint of things to come – and an acknowledgement of the limitations of natural wastage – might be found in a comment by Sir Gus O'Donnell today. In response to a question on how he planned to manage a 34% cut in administration budgets across Whitehall and quangos he replied that compulsory redundancies were “part of the answer”.

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