The Big Question: Will there be cuts in public spending whichever party is in power?

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Indy Politics

Why are we asking this now?

Several authoritative reports have come out this week, all with a similar theme – that in a few years, public services will be hit by the worst financial crises they have had to face in many years. So far, they have avoided the worst of the recession, but that is not going to last. Even the health service, the one the politicians always try hardest to protect, is going to feel the pinch. A report yesterday from the NHS Confederation warned that a combination of the recession and rising costs will mean that in the five years from 2011, the NHS will have to contend with a £15bn hole in its budget.

Why should the public sector in particular be in trouble?

According to Mike Turley, of the business advisory firm Deloitte, authors of one of the reports published yesterday: "The public sector will be the last sector into the recession and the last one out." So far, it has been government policy to protect public services, and no government is going to introduce cuts or even threaten them with a general election looming. But public spending, as a proportion of the nation's wealth, is higher than it has been for a generation. Next year, it could exceed 50 per cent of GDP. Rather than raise tax sufficiently to cover the higher costs, the government is borrowing eye-watering sums of money, which will eventually have to be repaid. This all bodes very ill for the budgets allocated to public organisations after the election.

Why is the governemnt borrowing so much?

Since the depression of the 1930s, it has been accepted that governments increase their spending in a recession to prevent the economy going into an ever-downward spiral as more people lose their jobs and therefore have less money to spend, shrinking the market on which other jobs depend. There is one famous exception to this rule, when Margaret Thatcher and her Chancellor, Sir Geoffrey Howe, cut public spending during a recession, in 1981. That was because they faced the deadly combination of a shrinking economy and rising prices and decided, rightly or wrongly, that beating inflation was the main task.

What would the Tories do?

Inflation is not now a problem, but the Conservatives are once again questioning whether adding to government debt is the responsible way out of recession. In a speech on Tuesday, the Shadow Chancellor George Osborne warned: "You cannot build lasting prosperity on a mountain of debt ... Given the scale of Britain's public debt crisis, the immediate priority for the next government must be to restore Britain's international credibility." That implies that public sector budgets will be even tighter if the Conservatives win the election.

Has the public sector been feather-bedded?

The idea that public sector workers are having an easy life while the rest of us suffer has to be treated with caution. Earlier this year, Britain's largest public sector union, Unison, hired a respected research organisation, Income Data Services, to survey more than 3,500 of their members on how the recession was affecting them. One question they were asked was whether staffing levels had gone up or down in the past year. The survey found that there had been some increases in recruitment of certain classes of public employees, such as classroom assistants, IT specialists and – surprise, surprise – managers. But others, including social workers, had seen their workloads increase as their numbers fell. The shortage of social workers was one of the factors behind the horrible tragedy of Baby Peter. In other words, there are sections of the public sector that are understaffed, under threat and overworked – just like so much of the private sector – and those staff shortages can have a bad effect on people who need the services they provide.

So why are employers complaining?

It has been a gripe heard from people who run private businesses that they have had to face the full fury of the worst recession for a generation, while public sector organisations, which do not have to scramble for customers or rely on the banks for finance, are sheltered, and the figures show that overall, the public sector has escaped the worst so far. Last year, employment in the private sector fell by about 280,000, while in the public sector it grew by 50,000. While employees at the doomed Cheltenham & Gloucester, and the Black Horse Personal Loan division of Lloyds brace themselves for their redundancy notices, parts of the public sector can afford to argue about how much they are paid, rather than whether they are paid at all.

Unions representing workers in higher education have rejected the pay rise they have been offered. The London Underground transport was closed yesterday because the unions are opposing any redundancies and want two sacked workers reinstated. This does not seem fair to those working under the threat of redundancy.

When will the public services be hit?

Both Deloitte and the NHS Confederation agree that the crunch is going to come in less than two years. There will be a general election in 2010, then the new government will bring in a new budget that will take effect in April 2011. After that, conditions in the public sector are going to get tough.

What has been happening to pay?

Pay in the private sector has gone down 1.2 per cent in the past year. In the public sector it has gone up 3.6 per cent, although the rewards have been unevenly distributed, and the next wage round is looking tight. Local council employees have been told they can have a 0.5 per cent increase, which for thousands of low-paid road sweepers, teaching assistants, nursery nurses, home care workers etc. translates to an extra 3p an hour.

Can catastrophe be avoided?

There seems to be no way that budget cuts can be avoided, so the question is whether they can be brought in without wrecking services that the public needs. The consensus view from the latest clutch of reports is that they can, if those in charge apply their minds to the problem now. They could start by studying a report by the Office of National Statistics, which shows that in the first eight years of the Labour government, productivity fell in the public sector, though it rose in 2006 and 2007. The Deloittes report, "Counting the Cost", offers a series of suggestions for cutting costs without being unnecessarily destructive. Nigel Edwards, author of the NHS Confederation report said: "There are savings in the system, but there will have to be tough decisions made to find them."

Will it make a difference who wins the next general election?

According to what Gordon Brown told MPs at Prime Minister's Questions yesterday the next election will be a "choice between a government prepared to invest in the future and a Tory Party which is going to cut." That statement has to be taken with a pinch of salt. Even a re-elected Labour government could not carry on piling up debt as it has so far. They would either have to cut spending, or raise taxes, or both, just as a newly elected Conservative government will have to do. The only likely difference is in the mix.

Has the public sector had it too easy in this recession?

Yes...

* There are more jobs in the public sector at a time when others face rising unemployment

* Public-sector pay has also gone up when unemployment has driven private sector pay down

* Many public-sector workers can also look forward to a generous inflation proof pension

No...

* Jobs may be more secure in the public sector, but scope for earning big money is generally lower

* While some parts of the public sector recruit, others have staff shortages and bigger workloads

* Though recession has come late, it expected to hit the public sector hard from 2011

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