Wales to lose 52,000 jobs

Next week’s announcement on public spending cuts will force a rethink on NHS Wales funding

Wales faces a sharp fall of 52,000 public sector jobs by 2014, according to an assessment published today by the accountancy firm PriceWaterhouseCoopers on the impact of Chancellor George Osborne’s spending cuts. The scale of the cuts and affect on jobs across the Welsh public sector will cause Ministers to assess how hitherto favoured spending areas, especially health service spending which has risen substantially over the past ten year, can take their share of the burden.

Today’s PriceWaterhouseCoopers report, on the fiscal squeeze that will be applied by next Wednesday’s Comprehensive Spending Review, says Wales, Scotland and Northern Ireland will be hardest hit – see table below. It underlines the significance of the joint statement put out last week by the First Ministers from the three devolved territories declaring that the London government’s cuts would be “too fast and too deep” and put economic recovery at risk:

“The devolved administrations believe that the proposed approach to public spending reductions by the UK government runs the risk of delivering significant economic and social harm and urge the UK government to reconsider its proposals.”

Today’s report says Wales, Scotland and Northern Ireland will suffer most because of their relatively heavy dependence on the public sector for employment. It recommends that research should be undertaken to enable the devolved administrations to use fiscal incentives to attract and retain new business investment. It asks:

“…what would be the costs, benefits and wider implications of handing the devolved administrations greater powers to vary their fiscal policies according to local circumstances, for example setting differential corporation tax rates in their countries? Although raising some constitutional and economic difficulties, these are important questions to consider in the light of the relatively high exposure Northern Ireland Scotland and Wales to the public spending cuts.”

Estimated public and private sector employment effects of public spending cuts by 2014-15

Region Job losses (‘000s) % of total jobs in region
Northern Ireland 36 5.2
Wales 52 4.3
Scotland 95 4.1
North East 43 4.1
North West 108 3.7
West Midlands 80 3.6
South West 81 3.5
East 74 3.2
East Midlands 58 3.2
London 122 3.1
South East 112 3.1
UK total 943 3.4

Source: PriceWaterHouseCoopers, Sectoral and regional impact of the fiscal squeeze.

A parallel briefing on the Spending Review, Dealing with the Deficit, also published by Price Waterhouse Coopers, has this to say about the impact on the Welsh Government’s budget:

“The Welsh Audit Office have already sized a £1.5 billion reduction in the £15 billion delegated Assembly budget over four years. This will directly affect local government, health and education amongst the portfolio of services which are delegated to the region. The reduction in budgets for non-delegated areas such as defence will equally affect Wales, as will taxation and benefit changes. This is a major challenge, for example £1.5 billion is around 40 per cent of the Welsh Government funding to local government assuming the full protection of health, education and central Welsh Government. It also represent a massive change in direction from significant spending growth to significant spending decline – a new experience for the region.

“There is reason to believe that Wales will be disproportionately affected by the impact of the Spending Review. Almost a quarter of the region’s workforce is employed in the pubic sector – the second highest in the UK. This means that Welsh public sector spend plays a greater role in viable communities. It also means that the local effect of multiple public sector organisations taking parallel decisions must be carefully managed. The use of private and third sector in supporting a contraction of the pubic sector should be explored. The immediate impact of the squeeze should also not distract attention from the longer term demographic challenge from a 29 per cent increase in the retirement age population by 2033.”

It is noteworthy that this commentary assumes “full protection” for the Welsh health and education budgets. However, this seems impossible. If education, and especially health (which accounts for about 40 per cent of the devolved Welsh budget) were ring-fenced then the impact on other areas – local government, economic development, transport, heritage, agriculture and the rest – would be unacceptable. They would all have to undergo cuts of well over 25 per cent, perhaps near 40 or 50 per cent.

The same applies in Scotland where in July the Crawford Beveridge Review, commissioned by the Scottish Government to survey its spending options, concluded that the entire public sector faces severe retrenchment as a consequence of the planned 25 per cent cuts to the UK budget. In particular, the Beveridge Review recommended that all the parties in Scotland should reconsider their pledge to ring fence health service spending, otherwise all other public services would be doubly hit. The national health service in Scotland takes up 30 per cent of total spending, compared with 15 per cent in England. “Our recommendation is that they think very carefully about that,” Beveridge said.

It was noteworthy, therefore, that at Plaid Cymru’s annual conference at Aberystwyth in September the Deputy First Minister, Ieuan Wyn Jones, announced that his party was not wedded to ring-fencing the Welsh NHS budget, rather the reverse. No such pronouncement has yet been made by Labour’s First Minister, Carwyn Jones, and is unlikely this side of next week’s Comprehensive Spending Review. Nonetheless, the pressure to bring health spending within the purview of the overall cuts in Welsh public sector spending is likely to be intense.

John Osmond is Director of the IWA.

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