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date: 13 July 2009

embargo: 00.01hrs Tuesday 14 July 2009

Spending cuts would hit private sector jobs, harm health and education and deepen the recession, says TUC

With much media speculation as to the level of possible public spending cuts, the TUC has warned today (Tuesday) that a ten per cent cut would cost around 200,000 public sector jobs and lead to significant job losses among private sector contractors.

The TUC analysis of official spending figures shows that between 1997-98 and 2007-08 public spending has increased by £174.6 billion in real terms and the total number of public sector jobs has increased by 572,000.

But the increases have been heavily concentrated in health and education, and many parts of the public sector have hardly grown since 1997. Health spending has increased by 80.8 per cent in real terms and the number of jobs has increased by 329,000. Education spending has increased by 59.7 per cent in real terms and the number of jobs has increased by 275,000. There has therefore been a small net loss of jobs in the rest of the public sector.

Since 2005-06, public sector job totals have fallen and spending increases have gone disproportionately to buying goods and services from the private sector. This spending has increased by 13.5 per cent in real terms in the last four years to reach £167 billion - taking it above the £151 billion spent on public sector pay (which only increased by 5.2 per cent in real terms since 2005-6).

By examining the ratio between public spending increases and public sector jobs growth since 1997/98, the TUC has calculated that a ten per cent cut in public spending, equivalent to £58.27 billion, would lead to around 200,000 public sector job losses.

As health and education are two of the highest spending areas and have seen two of the biggest increases since 1997, no significant cuts package could be implemented without hitting these budgets, including private sector procurement, says the TUC.

Health and education have two of the largest procurement budgets in the public sector (£67 billion and £16 billion in 2007-08 respectively) so private sector contractors would also lose out from any departmental cuts, the TUC says.

TUC General Secretary Brendan Barber said: 'A mania has gripped otherwise sensible commentators who are calling for deep cuts in public spending to reduce the budget deficit. They talk as if these cuts would have no effect on the private sector or the wider economy, and that health, education and front-line services would hardly notice. But this is a delusion.

'Cuts in public spending would inevitably hit the private sector. More money is spent on buying goods and services from private companies than on the public sector pay bill. As health and education are such significant parts of the public sector and have been the overwhelmingly beneficiaries of higher spending in the last decade, no deep cuts package could spare them.

'Cuts in public spending now would choke off any recovery. Not only would a ten per cent cut in public spending directly cause public servants to join the dole queue, but it would also hit the private sector hard as both the state and workers who have got the sack stop buying its goods and services.

'And the net result of this would be to plunge the economy into a further downturn that would make the deficit even worse as the tax take further falls and jobless benefit bills increase.

'When companies and individuals stop spending, the only way to avoid a slump is for the state to fill the gap. Cutting spending and services at this stage in the cycle is exactly what made the Great Depression great. The best way to close the deficit is to go for growth and increase the tax take from the super-rich who have done so well from the boom years.'

NOTES TO EDITORS:

- The TUC's public sector job loss projection is based on calculating the ratio of jobs increase from 1997-98 to 2007-08 with the spending increase over the same period. A ten per cent spending cut would be £58.27 billion, and applying the ratio to this figure gives a projected job loss of 190,896.

- The TUC analysis is available at
www.tuc.org.uk/extras/publicspendinganalysis.pdf

Public sector expenditure on services by function as a per cent of GDP, 1997-98 to 2007-08

Source: HMT data, 29 May 2009

Public sector expenditure on services by economic category, 2004-05 to 2007-08, £millions, nominal and real terms

Source: HMT data, 29 May 2009

- Real term figures are the nominal figures adjusted to 2007-08 price levels using GDP deflators, calculated from the latest data from the Office for National Statistics.

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Press release (1,100 words) issued 14 Jul 2009