COMMENT
The bloated public sector is stifling any chance of a strong recovery
We are close to the point where the state will squeeze the life out of the private sector
Inflation is accelerating, and interest rates are already going up to bring it under control. The omicron variant is shutting down whole sectors of the economy just as they were starting to recover from the pandemic. And government debt is about to spiral dangerously out of control as we pay for all that.
There is no shortage of economic challenges for policymakers to grapple with. But the real problem is something hardly anyone is paying attention to right now. The public sector is starting to crowd out the private sector.
The latest employment data make it clear that the UK is still creating new jobs at a formidable rate. The problem is far too many of them are for the Government. The public payroll is exploding in size.
Sure, we need some more people in the health service to cope with the virus. But too many of those extra workers are a long way from the front line. In reality, its rapid expansion is making the labour shortages elsewhere in the economy far worse. And it is concentrating workers in a sector that is rightly notorious for its miserable productivity growth.
The UK is close to the point where the public sector is squeezing the life out of the private sector – and until we work out a way of fixing that we can forget about a sustained recovery.
Even with our departure from the European Union, the pandemic and the chaos caused by global supply chains freezing up, the British economy remains remarkably good at creating new jobsIn
In November, despite the furlough scheme ending and despite older workers opting for early retirement in worryingly high numbers, there were 257,000 more people in work than there were a month earlier.Perhaps even more remarkably, there were 424,000 more people in employment than there were before the pandemic started. Whatever else has been going on, at least more people are in work than ever before
In total, the UK has 29.4m employees, close to a record high. Here’s the catch, however. More of them than ever are working for the state in one way or another. The latest public sector employment figures released last week showed that in the latest quarter alone, the Government payroll rose by 22,000 to hit 5.7m.
It is up by 137,000 people in the past year. It is almost certain to have accelerated even more since then. If you add in what are now in effect parastatal organisations, such the rail companies, for example, and arguably much of the energy industry, as well as dozens of out-sourced services, the real total is far higher.
Sure, some of those people were needed in the NHS. But in fact the health service accounted for only 2,000 of the total increase for the quarter, and 73,000 for the year as whole (although it now employs a staggering 1.85m people – and we wonder why it is increasingly unmanageable).
The vast majority of the extra people were employed in generic civil service roles, no doubt mainly working from home. Very few appear to be on the front line delivering public services.
We had been bringing the total number of people working for the state under far tighter control over the past decade. The percentage of employees on the government payroll peaked at 22pc at the end of the New Labour era in 2010, but under the coalition, and then Conservative governments, fell steadily to 16.4pc by 2018 (although in fairness, a big chunk of that was due to reclassifications).
We were close to the point where there were more self-employed than government workers. And yet now it is going steadily back up again. The percentage of the labour force working for the state is close to 18pc, and will soon be above 20pc.
In truth, that rapid rise in the number of people in government is crowding out the private sector. There are two big problems with that.
First, it is contributing massively to critical labour shortages elsewhere in the economy. We already know that with fewer immigrants following our departure from the European Union, and with older workers leaving the labour market in alarming numbers, companies are scrambling to find the staff they need.
That might be most acute in sectors such as trucking and logistics, but it is happening everywhere. If those 127,000 people who had joined the public sector over the past year were available then it would be a lot easier for companies to fill the hundreds of thousands of vacancies they have open.
Next, we know from long experience that the public sector has an abysmal record on productivity growth. It hardly matters how many extra people it employs. Neither the amount it produces nor the quality of its output ever seems to go up.
We can all argue about the size of the public sector, and how much it should be doing. Perhaps the state has to expand to cope with the demands upon it, and to deliver all the services the electorate now demands of it. Or perhaps it should be doing a little less, and doing it more efficiently. We can all take a view on that.
And yet, one point is surely clear. Whatever it does, it should be doing it with as few people as possible, just like any commercial organisation. And it should be making sure that as many workers are left as possible for the private sector, which, let’s keep in mind, actually generates all the wealth that pays for everything.
In truth, the massive expansion of the public sector is the UK’s biggest economic challenge right now. And until that is reversed, and the number of government workers starts to come down again, there is little prospect of a sustained recovery.
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