Cost of the cuts 1: Wales dealt the toughest budget deal in the UK

Darren Williams says the notion that the private sector would plug the gap caused by the public sector’s shortfall has proved to be unrealistic


The widespread trepidation that greeted the accession of a Tory-led government in Westminster two years ago was particularly strong in Wales. Many Welsh communities have yet to recover from the damage done to our economic and social fabric by the Thatcher and Major governments. The increased importance of public services to Wales, following the destruction of so much of our heavy industry, means that the commitment by Cameron’s cabinet to impose the deepest public spending cuts since the Second World War represents a further twist of the knife in the wound first inflicted in the 1980s.

Dealing with the deficit

This is the first of a weeklong series of articles dealing with the fall-out in Wales from the Westminster Government’s efforts to reduce the budget deficit. Tomorrow Ceri Jones, Employment Support Officer with Gingerbread in Wales, describes the frustrations of dealing with the bureaucracy that is reducing support for single-parents

Wales’ vulnerability to the cuts is due to its greater deprivation and higher levels of unemployment and economic inactivity than most other parts of the UK. The consequent importance of state benefits in shielding so many of our citizens from destitution means that the government’s welfare ‘reforms’ will adversely affect a quarter of the Welsh population. This figure is contained in the recent Cuts Watch Cymru report, Wales on the Edge.

Wales is also vulnerable because we have a higher proportion of our workforce employed in the public sector than any other part of the UK, except Northern Ireland. According to the latest ONS figures, 26 per cent of Wales’ economically active population (some 335,000 people) is employed in the public sector compared with 20 per cent across the UK. Government employment is even more heavily concentrated in some areas of Wales. For example, almost four in ten people employed in Swansea are public sector workers. In some towns and villages, the public sector provides the only good-quality, long-term employment available.

It was inevitable, therefore, that the cuts announced in Osborne’s June 2010 ‘emergency’ budget and in the following October’s Comprehensive Spending Review would exact a heavy toll in Wales. The Welsh Government was left with the toughest budget settlement of any of the devolved administrations – a £1.9 billion (12.4 per cent) real-terms funding shortfall by 2014-15. Moreover, this came on top of long-term underfunding, thanks to the Barnett Formula. Comparable cuts imposed on Whitehall departments have also hit Wales, since these departments employ around 80 per cent of Welsh civil servants.

Eighteen months after Osborne’s first budget, Wales had already lost 11,000 public sector jobs. The bulk of these will have been in local government, which accounts for around half of public sector employment, but the NHS and further and higher education have also been hit. The civil service has seen significant job losses as well. Most notoriously, the Passport Office in Newport – a landmark in the city since 1967 – was threatened with closure until a high-profile campaign supported by the whole community, including a 1,000 strong march and rally, forced a rethink. Even then, staffing in the office was halved and the long-term future of what is left remains in doubt. Sixteen Welsh law courts have already been closed and Wales’ busiest coastguard station, in Swansea, is also now to go, jeopardising public safety as well as cutting jobs.

The Tory theory that the private sector would fill the gap has been exposed as unrealistic by the unemployment figures. The latest show the Welsh jobless total was 10,000 higher over the three months to January 2012 than the year before, taking it from 8.5 per cent to 9.1 per cent of the economically active population. Only an incurable optimist would have expected the requisite surge in private sector employment, given the extent to which the Welsh economy was laid low by the 2008-09 recession in which we lost 49,000 jobs, three per cent of the total, almost 40 per cent of them in manufacturing.

Cutting public sector jobs will do nothing to promote economic recovery. Apart from throwing thousands of public servants on the scrapheap, it hits the private sector through the reduced spending power of those made redundant. This may need to be spelt out to government ministers but it’s understood all too well by local businesses. The shopkeepers in Newport city centre eagerly supported the campaign to defend the Passport Office, alarmed by the implications for their own livelihoods if the office were to close.  The same argument applies to the pay freeze and the ‘reform’ of public sector pensions. Both are holding down the living standards of public employees, while simultaneously harming the prospects of economic recovery.

Of course, the latest threat to the Welsh economy is the government’s plan for regional pay. Its introduction in the Courts Service by the last government has resulted in Welsh courts staff being paid less than colleagues in Birmingham, Bristol and Liverpool for doing the same work.

In its defence of the regional pay proposal the Westminster government has cited research by the Institute of Fiscal Studies, suggesting that Welsh public employees enjoy an 18 per cent ‘pay premium’ over comparable private sector workers. This is questionable. As the Welsh Government’s Finance Minister as Jane Hutt has pointed out, it was based solely on the period 2009-2011, when the recession had seen pay fall more rapidly in the private than the public sector. Pre-recession data shows that full-time employees in the public sector with qualifications below degree level were paid no better than their private sector counterparts. Moreover, by now the cumulative impact of the ongoing public sector pay freeze has already reduced the gap with the private sector.

But what if we were to follow to its logical conclusion Osborne’s assertion that the supposed 18 per cent ‘pay premium’ prevents the private sector from competing for staff? To remove that ‘premium’ from the salaries of all 335,000 public employees in Wales would take £1.25 billion out of the Welsh economy, causing further hardship.

Rather than cut further, the government should be investing in job creation to revive the economy. The unions will continue our attempts to convince ministers of that. In the meantime, we will not stand by and allow further attacks on the jobs, pay and conditions of people providing vital services to the public. Our fight is also to protect the well being of everyone in Wales.

Darren Williams is Welsh Campaigns Officer with the Public and Commercial Services Union.