The public sector looks set to shrink this year, what next?

Government pressure on public sector spending sees vacancies drop

At the last count it was estimated there were nearly 5.9m people employed in the public sector, where just as importantly, that number has grown significantly over the last seven years. Indeed when compared to the 2017 low point, we can see that over 500,000 additional jobs have been added in that time.

Similarly, add to that analysis by the National Institute of Economic and Social Research (Niesr) which suggests that around 10.6m people are employed by the state, double the official projection. This disparity is caused by the use of contractors for government work, for example, in jobs such as cleaning or security guards etc. The point being, although these workers would not consider themselves public sector staff, they are funded by the taxpayer, hence working for the state.

Using this calculus, we find that approximately one third of people working, are in effect, doing so the state. At the same time, the public sector continues to generate vacancies at an accelerating rate. Hence, when looking at the aggregate vacancies, those have been increasing every year, with 2023 witnessing a record total.

However, there may be signs the tide is turning, when you consider that the Government has made much noise around how productivity in the public sector is below pre-pandemic levels.

Meanwhile the tax burden is at record levels and despite the latest budget cutting taxes in certain areas, the overall tax burden has now hit record levels. This combined with a drive for efficiency savings, with more policies announced at the budget this week, and it seems there are now moves to shrink the size of the state.

Already arguably this is manifesting, with vacancies in the first few months slowing down. In simple terms, we are on track to have less public sector vacancies in 2024, than in 2023, which would be the first reversal, since we started tracking public sector data in 2021.

Consider the Conservative Government is going to be looking for every point of differentiation between themselves and the Labour party in the run up to the election. The ‘bloating’ of the public sector will be an obvious battle ground. However, the current levels are lower than those seen under the last Labour Government, for context peak levels in 2009 meant 6.6m people were employed by the state directly.

Hence, this will mean that for the remainder of this year, we expect non-critical recruitment in the public sector to be frozen, as mandarins are put under pressure for efficiency drives, where assuming the Labour party then wins, there is then a spurt of recruitment afterwards to compensate. Especially when you consider some of the Labour initiatives, such as Great British Energy, it is inevitable the state will grow once more under them and become more than just an administrator, but start to compete with industry as well.

Nonetheless, the productivity data in the public sector does merit consideration and if over the next six months the Conservatives can draw a spotlight onto it, that will be helpful in ensuring any further scaling of hiring is done in a productive way. We are now entering a febrile time for the job market, as political considerations once again become a factor. Next step therefore is to keep a close eye on the Labour party’s policy initiatives, as it will be those that have the impact to determine which parts of the job market change most significantly come the end of the year.

The data referenced above has been sourced from Vacancy Analytics, a cutting-edge Business Intelligence tool that tracks recruitment industry trends and identifies emerging hotspots. With 17 years of experience, we have a deep understanding of market activities in the UK and globally.

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