Now isn't the time to cut the public sector

Nov 16 2009 by Kevin Rowan, The Journal

IT seems that wherever I go at the minute there are discussions about the pressure on public services and how important and 'inevitable' it will be for the public sector to be cut to help manage the current budget deficit.

These discussions expose a clear divergence of views. Those that see the only solution as severely reducing, immediately, the UK’s public sector spend; the alternative view, espoused by the TUC and others, that public services are vital in sustaining local economies and communities both in good times and now, during the worst economic recession in living memory.

Public services ensure essential investment in infrastructure and support for business and can mitigate the worst social and economic consequences of the downturn.

For the UK to emerge from the recession in a strong position, we need to strengthen and sustain our core public services. Recovery is the best way to tackle the public deficit in the long term, and that means planning for a budget deficit in the short and even medium term.

Cuts in public spending would only have an effect on future competitiveness and would impact on the most vulnerable and needy.

As argued by David Blanchflower, former member of the Bank of England’s Monetary Policy Committee: ‘Lesson one in a deep recession is you don’t cut public spending until you are into the boom phase.’

Siren calls for a deflationary package of public spending have no real understanding of the impact on front-line public services or the risks of a ‘double dip’ recession.

Excluding the cost of financial sector intervention, public sector debt stood at £658.1bn, or 46.6% of GDP. The national debt rose from the very low level of 30% of GDP in 2002 to 37% in 2007, mainly due to increased investment in health and education. The sharp rise since 2008 has been caused by the recession in terms of lower tax receipts, higher spending on benefits and the cost of the financial bailout of banks and financial institutions.

But even at the current levels it is below the national debt of Japan (194% of GDP), Italy (100%) and the United States (71%).

Public spending cuts would make things worse, adding redundant public sector workers to the unemployed, imposing additional pressures on benefit budgets and reducing spending power within the economy as a whole.

A key study by the Association for Public Service Excellence shows that for every £1 of public money invested in public services through direct employment and through procurement of supplies and services a further 64p is generated in the local economy. The public sector is in fact a driver of the economy, not a burden on it.

Kevin Rowan is regional secretary of the Northern TUC