There may be trouble ahead
Author: Kieran LarkinDate: 01/09/2009
Publication: Public Servant
An impressive array of high-rise buildings dominates the Sheffield skyline. But this ‘Manhattan style' backdrop is not the silhouette of a bustling financial and commercial district or a cultural Mecca. In fact their addresses will be more familiar to a Whitehall civil servant - the Department of Children, Schools and Families, the Department of Work and Pensions, the Home Office and Sheffield City Council amongst others. Sheffield has seemingly secured its place as a home from home for the public sector.
The public sector, which employs more than one in four people in UK cities, has provided a cushion to the impact of the recession. Between early 2008 and early 2009 nearly half a million jobs were lost in the private sector. Over the same period the public sector gained an additional 55,000 jobs.
But all is not well. As the pressure on Government to tighten public spending continues, cities like Sheffield, Swansea, Newcastle, Barnsley, Ipswich and Hastings, which have benefited from public sector growth, will be increasingly vulnerable to public service job losses.
The recession has delivered a serious blow to the public finances. In 2010 the Government deficit will exceed 13 percent of GDP, according to the IMF. While politicians continue to quarrel over which party is best placed to safeguard public services and restore financial order, Gus O'Donnell, the Cabinet Secretary, has taken the unusual step of warning that sweeping cuts may be required.
Whatever the political colour of the next government, spending cuts will mean a sizable reduction in the number of people employed in the public sector. Centre for Cities research suggests that 240,000 to 290,000 jobs could be lost over the next five years.
Such a reduction would not be unprecedented. Canada's spending crisis resulted in public sector employment falling by 15 percent. Public sector wages were also frozen for three years. Between 1991 and 1998, following the last UK recession, the number of people directly employed by the government (e.g. excluding doctors and those employed in higher education) fell by 11 percent.
So what makes UK cities so vulnerable to a public spending crunch? The answer is that it was the public sector that fuelled the recovery of many urban areas.
Since the late 1990s, public spending has grown at an average annual rate of 4 percent, with even higher growth in education (5 percent) and health (6.4 percent). In fact, 69 percent of the jobs created in UK cities between 1998 and 2007 were in public sector activities. In some cities like Birmingham and Nottingham, the public sector has provided all of the growth, soaking up the impact of private sector decline - the result of continued downsizing in the manufacturing sector.
That said, it is not necessarily the cities with the largest public sector that are most susceptible to the public spending squeeze. It is the type of public sector employment that determines how vulnerable a city is to public sector contraction.
We have identified Swansea as the city most at risk to public sector job losses. The city has a large number employed in regional civil service outposts, which, along with quangos, are likely to be prime targets for spending cuts. 39 percent of employment in the Welsh former industrial port is now in the public sector. In Swansea almost 5,000 people are employed by the DVLA. The Department of Work and Pensions and HM Land Registry are also major employers.
Other cities are vulnerable simply because they have a small private sector. In Barnsley, where 35 percent of employment is in the public sector, the number of businesses is well below the national average. Efforts have been made to reinvent the city as a digital and creative cluster, but employment in the private sector has fallen by 6,000 jobs since 1998, with the public sector making up the shortfall.
One of the reasons that cities like Swansea are vulnerable is that they have been the beneficiaries of civil service relocations. What's not clear is whether relocations have really revitalised these cities' economies. Though only a proportion of the relocated posts are likely to be axed, they are now a point of weakness and could become a city's Achilles Heel.
Relocations have been a distraction for cities. Less than 20,000 civil service jobs have been relocated under the Lyons programme since 2004, yet many cities have dedicated substantial time and resources to attracting these posts. Such efforts may have been better channelled towards improving the conditions for doing business in these cities.
Fixing the deficit will be top of central government's agenda over the year to come. However, cutting public sector employment too soon, could create more problems than it solves. Where possible, the Government should delay public spending cuts that result in large scale job losses before new jobs start being created in the private sector. And in the short term, wage freezes and flexible working could provide a solution for both local and central government seeking to cushion the blow of falling levels of public sector employment.
UK cities have reinvented themselves over the past decade. But unfortunately in many places this reinvention relied too heavily on regular injections of public expenditure. These cities must now develop a new strategy for growth; a strategy less dependent on public sector employment. The cities that can achieve this mix will find themselves better placed to prosper in future.
A version of this article first appeared in Public Servant.
