The second wave
Author: Kieran LarkinDate: 05/10/2009
Publication: Regeneration and Renewal
Northern Regeneration Summit delegates will gather in Manchester later this month to discuss the future growth of northern economies. But, while it appears output is beginning to recover, UK cities are now faced with the prospect of a ‘second wave' of job losses - in the public sector.
The expansion of the public sector fuelled much of the growth of the last decade, but over the next 10 years this isn't going to be the case. Future employment growth will have to come from elsewhere.
Nationally, the public sector employs 7 million people, providing more than one in four jobs in UK cities. So far it has cushioned cities from the impact of the recession. Between early 2008 and early 2009 nearly half a million jobs were lost in the private sector. Over the same period the public sector gained an additional 55,000 jobs.
In fact, the public sector has been the major source of employment growth for many UK cities, over the past decade. High government spending has stimulated the creation of new jobs, particularly in the education and health sectors. 69 percent of the 1.2 million jobs created in UK cities between 1998 and 2007 were in public sector activities, with Sheffield (55 percent) and Warrington (54 percent) seeing the biggest percentage increases.
During this period, cities have welcomed public sector jobs as a means of bolstering their economies. In some cities, such as Birmingham and Nottingham, additional public sector jobs actually provided all the net jobs growth over the past decade, masking ongoing industrial decline. Cities with waning private sectors saw the public sector swell as a proportion of total employment.
Vulnerable to cuts
Gaps in this safety net are now starting to appear. A survey of employers, carried out by the Chartered Institute of Personnel and Development and KPMG, found that while on balance only 2 percent of private sector employers are still planning to cut jobs; 28 percent of public sector employers now see job losses on the horizon.
The reason for this turnaround - the dire state of the public finances - is widely understood. The recession has resulted in a £90 billion annual hit to the Exchequer's purse, with tax revenues unlikely to return to their previously high levels. In July, the International Monetary Fund (IMF) forecast that the UK government deficit would exceed 13 percent of GDP in 2010.
The result of this public finance black hole is that - whatever the political colour of the next government - spending cuts seem inevitable. This will impact on the way public services are delivered and the number of people employed by the public sector. Research by the Centre for Cities suggests that between 240,000 and 290,000 public sector jobs could be lost over the next five years, with the bulk of the cuts likely to take place after 2011.
So what does this mean for Northern cities? Firstly, most will be affected. Public sector employment is above the national average in 18 of the north's 24 cities, and has cushioned the impact of deindustrialisation. Secondly, some cities will be affected more than others - our research has highlighted five Northern cities that are particularly vulnerable to public sector job losses - Barnsley, Blackpool, Liverpool, Newcastle and Sunderland.
But what is it about the composition of the public sector in these cities which leaves them vulnerable to cuts? While the majority of public sector employment growth has been in education and health it is unlikely that these jobs will bear the brunt of the cuts. Government will always try to commit to the preservation of frontline staff.
Quangos most at risk
Job cuts are more likely to fall on other, less visible areas of government activity. Quangos and regional civil service functions are most at risk in a spending squeeze, followed by local government. The lumpiness of quango and regional civil service employment means that cities that have one or more of these bodies will find themselves exposed to public sector job shedding.
Newcastle, for example, has benefited from the growth of central government functions and the relocations of civil service positions out of London. 32 percent of employment in the city is in the public sector, in bodies such as the Inland Revenue's National Insurance Contributions Office and the head office of the Regional Development Agency, One North East.
Many cities have explicitly targeted civil service relocations as a route to renewed economic success. Under the most recent round of relocations - the Lyons programme - Liverpool received 1,700 posts, Manchester 1,200, Sheffield 800 and Newcastle 700.
While Sheffield has not been identified as a highly vulnerable city, it does have a sizable public sector - having done well from public sector growth. Targeting further government relocations out of London has been an explicit part of the city's overall growth strategy and as a result the civil service is now well represented in Sheffield. The Department of Children, Schools and Families, the Department of Work and Pensions, HM revenue and Customs and the Home Office all have offices in the city.
But with public sector employment unlikely to continue to grow, this ‘public sector growth model' now looks less relevant to cities' future economic growth. Relocations are unlikely to be high on the next government's agenda - whichever party wins the general election. In a climate of fiscal tightening, cities like Sheffield will need to rethink the viability of this model.
While Newcastle and Sheffield are vulnerable because of the number of central, non-visible government functions they have, other cities will be susceptible to public sector job cuts simply because they have a small private sector. In Barnsley 35 percent of employment is in the public sector because the number of private businesses is well below the national average. Despite efforts made to reinvent the city as a digital and creative cluster, employment in the private sector has fallen by 6,000 jobs since 1998, with the public sector making up the shortfall, adding just over 6,500 jobs.
It is not just the north that is vulnerable to public sector job losses. Hastings, Plymouth, and Gloucester all appear equally susceptible to public sector job cuts, as do the Welsh cities of Swansea and Newport. But while public sector job losses will affect cities across the country, the impact is likely to be more severe outside of the Greater South East, where there is less disparity between average wages in the private and public sector. At senior levels the difference actually reverses in favour of the public sector. As a consequence the loss of the purchasing power of those employed in the public sector will have greater impact on places like Newcastle, Middlesbrough and Sunderland.
Flexible working solutions
The overall size of the public sector will be determined by the decisions of central government. The next government's primary preoccupation will be getting the public finances back on track. Indeed, the Conservatives have suggested that should they win the election, they would hold an ‘Emergency Budget', within days of entering power.
While there is certainly a pressing need to fix the fiscal hole, cutting public sector employment too soon, may create more problems than it solves. Flexible working solutions and pay freezes should also be used as short-term measures to reduce the wage bill. Within the fiscal constraints, the next government should look to phase spending cuts that result in large public sector job losses until after employment prospects in the private sector begin to recover.
At the city level, all cities will need to re-evaluate their expectations for public sector growth over the next decade. The cities most affected by public sector job losses will need to quickly reassess how they can deliver sufficient low and medium skilled employment. Thus far, it has often been the public sector that has filled the gap at the lower end of the labour market, vacated by declining manufacturing industries. Councils may also be able to use similar flexible working solutions to central government, to reduce their wage bill in the short term. But in reality cities have limited scope to cushion the blow of future public sector job losses.
UK cities have undergone a renaissance over the past decade. However, in many places resurgence has been reliant on high levels of public expenditure. Public sector job losses are likely to have a severe impact on many UK cities and, in future, cities will need to become less dependent on the public sector as a source of employment growth. If they can do so, they will be better placed to be more internationally competitive and prosperous in the years ahead.
A version of this article first appeared in Regeneration and Renewal.
