Emergency Budget - What does it mean for the Public Sector?
Posted: Wednesday 30 June 2010
The ‘axe-and-tax’ Budget saw the axe coming down heavily on the public sector. The cuts are estimated to save £600m with a view of helping to reduce Britain's £156bn deficit.
Government departments, excepting health and international aid, face an average 25% squeeze in their spending budgets over the course of the Parliament. Mr Osborne said this might be lower if further welfare savings could be found. Mr Osborne also said he wanted to protect education and defence from the worst of the cuts, indicating other departments will face significantly greater cuts.
Reductions in English public sector spending directly affect the public sector funding for Scotland as a result of the Barnett Formula, which is the mechanism for deciding the amount of money Scotland receives from the Treasury. Scotland's £30 billion block grant will be slashed by 16% by 2014, representing a cut of £4.75bn in real terms.
For Scotland's 576,700 public sector workers, what do the spending cuts mean?
Pay and Recruitment Freeze
For the public sector workers who earn over £21,000 per annum, they face a two-year pay. For those earning less than £21,000 a year, which constitute 28% of the workforce, they will receive a flat pay-rise of £250 per annum in both years. This is effectively a pay cut because of the effects of rising inflation. Recruitment freeze across the civil service will pose the biggest challenge for the public sector managers "in living memory" to see through the Government's austerity measures, as experts have warned
John Swinney, Finance Secretary of the Scottish Parliament, gave a strong indication that when it came to a public sector pay freeze he was prepared to follow the Chancellor's example. Mr Swinney will have the chance to freeze pay next April when current public-sector wage contracts expire.
Pensions
Public sector pensions are brought under the axe as well. Mr Cameron has described the total bill for public sector pensions as unaffordable, and has suggested that public sector organisations would need to follow the lead of private companies, which have altered their arrangements for both future and existing members, such as closing their final salary schemes.
The cuts are likely to start by limiting the pensions of those on highest salaries whose pensions could be worth £60-£70,000. Entitlements that have already accrued would be maintained, but on the whole, public sector workers can expect less generous pensions in the future, with schemes for existing, as well as new, staff being changed.
Where may the economy go from here?
While Mr Swinney has indicated he would follow the pay freeze, he has also warned that the spending cuts and tax increases went ‘too far, too fast’ and could well send the Scottish economy into ‘a spiral of decline’. Joseph Stiglitz, the Nobel Prize Winner (2001) for Economics told the Independent (27 June) that Osborne’s first Budget has got it wrong, making the classic error of trying to fix the deficits of a nation by austerity measures of household’s economics. Stiglitz was one who had predicted the global crisis in the money market, and his prediction of the Emergency Budget is that the austerity measures ‘will make Britain’s recovery from recession longer, slower and harder than it needs to be’.
For more information please contact Heidi Poon.
