Monday, June 24, 2024
HomeNewsTruss’s next task: Slash public sector employment

Truss’s next task: Slash public sector employment


THE Chancellor has certainly shaken up the economy, reducing taxes pretty much across the board in support of the Prime Minister’s drive for growth. As yet no cuts to services have been announced, which means that government borrowing will increase. It also seems clear that the cost of this borrowing will also rise, meaning that we’re on a path for spiralling government debt unless the economy grows.

Given that the 27million private sector workers use their best endeavours to secure growth (no business ever seeks to reduce its profits though all today are compelled by government to pursue alternative and sometimes contradictory goals) their aims coincide with the Government growth objective. So far so good. While tax generally reduces profit, and thus the incentive to take the risks inherent in expansion, the reality is that growth has been falling since 2014. Clearly closing the country for two years of lockdown didn’t help, but there was a problem long before that. Why? Ewen Stewart explained pretty clearly why here. Bad policy choices made over years. 

Growing a business requires more than more customers to buy more stuff. Yes, given a rising population there is an increasing supply of potential customers and the Tories dramatic tax reductions described by the Telegraph as the biggest tax cut of any budget since 1972 will give them a little more spending capacity (albeit that may be eroded by inflation). However, potential new customers alone are not enough: the business has to make more widgets or deliver more services, which means it needs capital to pay for more machines and/or offices. If that capital is too expensive the expansion won’t be profitable. With gilt yields rising, as they are, dangerously, the cost of all capital will inexorably increase. While the costs of capital have been at an all-time low for a decade or more, moving beyond that norm will put profits down or prices up (i.e. more inflation).

Those under the age of 50 won’t have experienced the destruction wreaked by inflation and may not accept that it’s a problem. Older heads have been worrying. It’s poorly understood and feared by most businesses and governments. The only known solution is to increase interest rates, which is already happening. The government has also capped the energy price which should reduce inflation at the cost of a further massive increase in the national debt, as well as keeping businesses solvent. It’s ceased quantitative easing – thought to be a cause of inflation – and can now only sit back and hang on as the bond markets get turbulent. No doubt there are as many opinions on what the government should do as there are economic commentators. But for sure the best answer to all the problems of any economy is growth. What can the government do to enable growth at a time when the cost of capital is already rising? The answer can only be to reduce the costs of growth.

Liz Truss has started on that too, with intended reforms to the planning system and the like. Unfortunately they’ll take a while to enact, and there will be parliamentary battles. Rushed legislation is often far from perfect, and time is the one thing Truss does not have – there must be an election before January 2025. Of necessity she needs to continue her swashbuckling approach. I suspect her next target will be the size of the Civil Service. In the past decade public-sector employment has risen from 2.7million to 3.5 million, a 30 per cent increase. In the same time-frame the population grew by just under 6 per cent. What additional public services are being provided? No idea.

Reducing public-sector employment has several benefits. For a start the payroll costs are reduced, easing public spending. Moreover the ex-public servants are then available for employment in the private sector (which would contribute to growth). Fewer staff need less managing and accountability trails should increase, as should public sector productivity.

What, or whom, to cut? That’s the next challenge for team Truss. To have any measurable effect by the next election she’ll need to be bold – and that is one thing she most definitely is. The next few months are going to be interesting.

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Patrick Benham-Crosswell
Patrick Benham-Crosswell
Patrick Benham-Crosswell is a former Army officer who has spent the last 30 years in commerce. He is the author of Net Zero: The Challenges, Costs and Consequences of the UK's Zero Emission Ambition. He has a substack here. He is the Reform Parliamentary Candidate for Swansea West.

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