Summary
The resolution to the problem of the state sector, and Britain's burgeoning public sector debt will not be painless. Whichever party wins the next general election they will need to implement:
- cuts in jobs, public sector salary freezes and an ending of defined benefit pension schemes in the state sector
- tax rises
The outlook for the UK is far from rosy.
Analysis
Since the election of the Labour government in 1997, the UK had (until the credit crunch and ongoing recession) experienced a decline in the levels of employment in the private sector and a massive increase in the levels of employment in the public sector.
Over 40% of those employed in the UK now work in the public sector.
The theory being that jobs lost in the private sector were being replaced by state sector jobs; the latter deemed by many to be worthy, and necessary, for the social well being of the country.
However, notwithstanding the recession and banking bailout of the Royal Bank of Scotland, Lloyds, Northern Rock and Halifax Bank of Scotland (HBOS) etc, the burgeoning state sector gives rise to serious concerns about the future economic prosperity of the UK:
The jobs created in the state sector were not “front line” jobs such as; nurses, doctors or teachers. They were newly invented bureaucratic creations; risk officers, empowerment managers etc. None of these positions actually “adds value” to the quality of life in the UK.
A private sector job adds economic value by directly or indirectly producing a product or service that earns money from abroad (eg burger flippers serve tourists). State sector jobs do not.
The theory being that jobs lost in the private sector were being replaced by state sector jobs; the latter deemed by many to be worthy, and necessary, for the social well being of the country.
However, notwithstanding the recession and banking bailout of the Royal Bank of Scotland, Lloyds, Northern Rock and Halifax Bank of Scotland (HBOS) etc, the burgeoning state sector gives rise to serious concerns about the future economic prosperity of the UK:
The jobs created in the state sector were not “front line” jobs such as; nurses, doctors or teachers. They were newly invented bureaucratic creations; risk officers, empowerment managers etc. None of these positions actually “adds value” to the quality of life in the UK.
A private sector job adds economic value by directly or indirectly producing a product or service that earns money from abroad (eg burger flippers serve tourists). State sector jobs do not.
In essence, with regard to the state sector, we are merely passing money between ourselves, like an ring fenced game of “pass the parcel”.
The quality of the state sector, despite having billions of pounds thrown at it, has not in the opinion of the front end users improved “one jot”. Ask any parent if they feel that the quality of teaching, and the level of resources available at their child’s school has improved.
The state, unlike the private sector which is not shielded from economic reality, is inherently wasteful.
The quality of the state sector, despite having billions of pounds thrown at it, has not in the opinion of the front end users improved “one jot”. Ask any parent if they feel that the quality of teaching, and the level of resources available at their child’s school has improved.
The state, unlike the private sector which is not shielded from economic reality, is inherently wasteful.
The UK state sector wastes £70BN a year, equivalent to over 10p in the rate of income tax.
The cost of the state sector is financed out of tax receipts from the private sector. All very well in boom times. However, as a result of the ongoing recession, tax receipts are drying up.
Public money drives out private money.
The path that the UK has taken, in building up the state at the expense of the private sector, has proven to be the “road to nowhere”.
How long will the UK maintain its AAA credit rating?
There has already been a "straw in the wind" wrt to that rating when, in May 2009, Standard & Poor's (S&P) said that UK measures to stabilise the economy have threatened the rating. S&P changed its outlook to negative from stable.
The resolution to the problem of the state sector, and Britain's burgeoning public sector debt will not be painless. Whichever party wins the next general election they will need to implement:
- cuts in jobs, public sector salary freezes and an ending of defined benefit pension schemes in the state sector
- tax rises
The outlook for the UK is far from rosy.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
