Business

The sack: Lessons for government

BBC business editor Robert Peston on the Spending Review

If public sector workers facing and fearing redundancy after today's cuts itemisation are expecting sympathy and solidarity from the media, well I fear they may be disappointed.

Because although the outlook is grim - with more than 40,000 defence job losses announced yesterday and perhaps half a million state positions at risk in toto - many journalists would argue that their own personal experience has been grimmer.

Whatever happens in the civil service, the police, the courts and so on, it probably won't be any worse than the recent axe-wielding at many newspapers and commercial television operations, which are only just recovering from the worst collapse in revenues in their history.

Even at the allegedly protected and sheltered BBC, there hasn't been a year since I joined in February 2006 which hasn't seen cuts and job losses (which will almost certainly be magnified in coming months as a result of the new shrunken budgets being imposed on the corporation).

So human nature being what it is, I fear journos will be pretty anaesthetised to the pain awaiting their state confreres.

What is striking about the private sector in general (as I and Stephanie have pointed out myriad times) is that the number of employees which companies threw on to the mercy of the market, during the worst recession since the 1930s, were far fewer than most economists had forecast.

Unemployment seems to have stabilised for now below 2.5m, less than 8% of the work force. That unemployment rate is far less than what most economists had expected from a peak-to-trough contraction of GDP of 6%, that has also left output today a tenth lower than it would have been in the absence of the slump.

What appears to have happened is that private sector workers have protected their jobs by showing great flexibility in the terms and conditions of their employment - taking pay cuts, agreeing to temporarily reduce hours worked, and so on.

A very big question for the public sector is whether both employers and employees can show similar imagination and flexibility, whose rewards were manifested only last week in Tata Motors' decision to save from extinction an important Jaguar Land Rover car plant in the Midlands.

It is also clear, from the record of the giant bank Royal Bank of Scotland, that compulsory redundancies can be kept fairly low, if the will is there. Over the past couple of years, RBS has announced 20,700 job losses in the UK and 26,700 worldwide - of which one in four have been compulsory.

All that said, there is a fundamental difference between the experience of the public and private sectors in the 10 years before the financial crash of 2007 which precipitated the Great Recession.

In that period, much of British industry was forced to become more competitive by the strength of the pound. So when the downturn came, there wasn't a huge amount of fat to remove. Also the workforce was probably inured to the imperative of maintaining competitiveness, and may have been psychologically prepared for cuts and changes in working practices.

By contrast, the public sector enjoyed eight or nine years of budgets expanding significantly faster than the rate of inflation. Which means that public sector staff may not be so prepared in an emotional sense for the shocks that lie ahead.

Arguably, therefore, the agony will be all the greater for state employees when they learn that they face at least five years of working harder with little prospect of greater financial reward.

Update, 1416: How realistic is it that private sector recruitment can make up for jobs lost in the public sector as a result of the cuts?

Well the chancellor confirmed today that he expects public sector job losses to be 490,000 or around 8% of all public-sector employment.

That is a substantial reduction in public sector employment. But it will take place over four years.

Now the private sector employs just over 23m people, almost four times as many people as the public sector.

So private sector employment needs to rise by "just" 2%, to absorb all the jobs lost in the public sector.

Which doesn't look absurd, so long as the economic recovery is sustained.

But there are three important caveats.

First not everyone made redundant by the public sector may be wanted by the private sector.

Second, those made redundant by the public sector will be in competition with those the government wishes to "encourage" off benefits and into work.

Third, in the past year employment of non-UK people has risen by 114,000, whereas employment of UK nationals has fallen by 15,000.

If growth in private-sector employment is to be celebrated by British people, those jobs need to go - presumably - to British people, which can't be guaranteed. ‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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