Public sector swells - as Corus axes 2,500 jobs

As more private sector jobs tumble, the CEBR reveals the UK's growing addiction to state spending...

Last Updated: 06 Nov 2012

The Centre for Economics and Business Research has published its latest figures on the ever-increasing scale of the public sector in the UK, and it makes pretty grim reading: based on current forecasts, state spending will account for 49% of the entire UK economy in 2008-9. This proportion rises to 72% in Wales and an extraordinary 78% in Northern Ireland – which is worse than the former Soviet satellite states when they emerged from behind the Iron Curtain. And with steelmaker Corus joining the queue of companies going cap-in-hand to the Government for state subsidies, this trend is only headed in one direction. We’ll all be civil servants soon, at this rate...

The CEBR reached its figures by applying the 6.68% spending increase announced by the Government in the Pre-Budget Report, across all the regions. In some areas, the extent of the state’s influence comes as no surprise: Northern Ireland and Wales have long been heavily reliant on Government money (although it doesn't say much for Rhodri Morgan's 'bonfire of the quangos' a few years back - the Welsh have clearly replaced their Westminster quangos with some home-grown alternatives). But the figures for some of the English regions are a bit alarming: in the North-East, for example, the state’s share of the economy has risen from 54% to 66% during Labour’s time in charge. Even the South-East has seen state spending rise from 33% to 36% in the last four years - and now the City’s in the doldrums, the private sector is hardly in a good position to mount a comeback.

On the plus side, this should mean that that the regions will be shielded from the worst of the downturn in the short term (civil servants have probably got the safest jobs around for the time being). However, the City’s tax revenues have also funded much of this state splurge – now they’re drying up, and the Government finds itself facing a massive bill for its various rescue and stimulus packages, the Treasury will have to start reducing spending at some point. This could have damaging consequences for those regional economies that have become so heavily reliant on it.

And the bill is only going to keep rising. Steelmaker Corus, which delivered another blow to the UK economy today by announcing plans to cut 2,500 jobs (about 10% of its UK workforce), is currently in talks with the government about some kind of state support to fund retraining. The auto industry also wants state help to mitigate its own struggles (highlighted today by news that component maker GKN is set to announce more job cuts). Indeed, a report from recruiter Randstad suggests that almost half of companies are planning to cut jobs in the next six months – which adds up to a lot of state benefits or retraining costs...

In today's bulletin:

Barclays shows us the money
Pfizer seeks boost with £50bn Wyeth deal
Public sector swells - as Corus axes 2,500 jobs
Leadership the Barack Obama way
Marston's soaks up beer costs

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