Wednesday, March 29, 2023

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UK needs to eliminate 200,000 govt jobs for next few years to prevent debt spiral

New Delhi: The Institute for Fiscal Studies estimates that in order to prevent adding billions to the national debt, the UK must eliminate 200,000 government positions over the next couple of years.

In the public sector, wages are expected to rise by 5% this year, which is greater than planned when expenditure plans were created in 2021 but about half the current rate of inflation.

The government will need to find £5 billion ($5.6 billion) in savings this year alone, the think tank warned on Saturday, just to pay for those awards without boosting borrowing.

The report highlights the difficulty facing Chancellor of the Exchequer Kwasi Kwarteng in maintaining the public finances while not going back on any of his tax-cutting promises. His tax giveaways aren’t the only thing putting pressure on the economy; greater spending has also made any attempt to stabilise debt as a share of GDP more challenging.

The markets plunged last month when Kwarteng suggested a £45 billion tax stimulus amid worries that borrowing would run amok.

On November 23, he intends to release a comprehensive fiscal plan that includes a prediction from the Office for Budget Responsibility that takes into account government initiatives and the effects of changes to the prognosis for the economy. The Treasury may move the deadline up.

According to the IFS, eliminating around 100,000 jobs this year would maintain the pay bill as a whole and prevent budget cuts in other ministries. In 2023, if pay increases in line with inflation, the government would have to eliminate another 100,000 positions in order to balance the budget.

Finding internal “efficiencies” has been mandated for departments, which is frequently seen as code for job layoffs. Given that the public sector’s workforce increased by 250,000 during the pandemic to reach over 5.5 million, there may be an opening.

Plans to eliminate around a quarter of the 500,000-person civil service—those who directly serve the government—are already being pushed through by the government. It claims that the personnel cut might result in annual savings of £3.5 billion.

Kwarteng promised not to roll back previous measures but shelved a tax cut for the wealthiest households that had saved £2 billion of the £45 billion.

He has refused to exclude out a £5 billion drop in benefits, which has sparked discontent among members of the ruling Conservative Party because it would disproportionately affect people who are already struggling to make ends meet.

The Bank of England’s quantitative easing programme may also be changed in the government’s intentions to lower the yearly debt-interest costs by at least £5 billion.

Workers in the public sector, such as nurses and teachers, are threatening to strike over low compensation, which will increase pressure on spending.

There are no “easy options,” according to Bee Boileau, research economist at the IFS.

“Offering higher pay awards without additional funding puts enormous strain on departmental budgets and requires painful cuts elsewhere,” she said “Not offering higher pay awards risks a wave of strikes and ongoing challenges with recruitment and retention.”

The analysis comes from a chapter of the 2022 IFS Green Budget that has already been issued and was created in collaboration with Citi and with funding from the Nuffield Foundation.

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