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Just How Bad Are Britain's Spending Cuts?

June 27, 2011

Tags Global EconomyFiscal TheoryInterventionism

British public-sector unions have called for the largest strike in a generation on June 30 to protest the Liberal-Conservative government's budget cuts. They reject Prime Minister David Cameron's austerity plan, which includes cuts in public-sector jobs, pensions, and spending. But just how bad is it for them?

If you listen to the unions or the Labour Party opposition, you might believe that massive cuts had already taken place. But although the Liberal-Conservative coalition is planning to rein in spending by curtailing the future growth of ballooning government budgets, public expenditure this year has decreased by a meager 0.7 percent. In fact, spending in April and May, the first two months of the new fiscal year, was 4.1 percent higher compared to the same period in 2010. So much for the "reckless cuts" that have supposedly taken place.

As for jobs, the government intends to reduce its workforce by 100,000 in four years — hardly a massive loss when you consider that the British state employs more than 6 million people. The National Health Service alone is the world's third largest employer, outranked only by India's railway monopoly and the Chinese armed forces. The United States has about as many soldiers in service as Britain has nurses and doctors.

Don't Break Britain

Compared to the fortunes of people in the private sector, who have seen considerable layoffs along with pay and benefit reductions, it's difficult to have much sympathy for the protesting public-sector workers, who haven't yet been affected by the recession at all.

Even if the government reforms them, public-sector pensions will remain hugely generous compared to those of private-sector retirees. People who work in the private sector can't expect to get pensions that are linked to inflation and to rising wages as early as age 60, but Britons who work for the government sometimes do.

The gap between public servants' contributions and the pensions paid out to them is projected to double to $6.5 billion in just the next four years. That is why the government is expected to propose that its workers pay an extra 3 percent in contributions and work just as long as everybody else does. According to the unions, that is unfair.

Furthermore, they complain that wages in the public sector are far lower than is the average in the private sector, but that comparison is deliberately misleading. There are more low-grade workers in the public sector, which brings down the average. For comparable work, however, public servants are better paid. Besides, they enjoy more job security and more holidays, and they call in sick more often than people who work in the real economy.

Britain's government workers should man up and accept that the free ride is over. Labour did nothing to alleviate the state's mounting fiscal burden. "Socialist governments traditionally do make a financial mess," said one Conservative. "They always run out of other people's money." That Conservative was Margaret Thatcher, and the year was 1976. She actually did cut spending. It remains to be seen whether David Cameron will too.


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