The state is crushing the economy
One worker in three is now on the government payroll. That bodes ill for productivity and growth
In the 1970s, the last time the UK was in this much of an economic mess, a popular analysis described the country as having “too few producers”. There were simply not enough productive workers to pay the taxes needed to support all the people on the public payroll. We have gone right back to that situation.
Mainstream measures of the numbers of people working in the public sector put the figure at around 5.7 million. But according to new research by the National Institute of Economic and Social Research (NIESR), that underestimates the real total. Instead, if you add up all the people working in health and social care, public administration, defence and security, all of which are paid for by public money, the real total is 10.6 million people. Many might be working for agencies as secretary staff or cleaners, rather than directly for the government, but essentially they are on the state payroll.
The total has risen dramatically since 1997. When New Labour came to power the public sector comprised 25% of the workforce. Now, based on the wider definition the NIESR used for its study, the public sector employs around one third of the workforce. The trouble is, the UK private sector simply can’t support a public sector of that size. In effect, every two private sector workers are supporting one public sector one. That creates three big problems.
Firstly, productivity growth in the public sector is dismal. We can see the evidence of that everywhere. More and more money is poured into the health service but GP appointments are impossible to book, and the waiting list for operations keeps on going up. More and more is spent on welfare and social care but there is very little evidence of better outcomes. Educational standards have hardly risen.
Sure, it is often hard to improve output per person in sectors such as health and education. These are not factories, and there is not much scope for automation. But in the private sector there is lots of incentive to work more efficiently. In the public sector, no matter how many targets are set, there is almost none. Indeed, with the widespread adoption of working from home since the pandemic, there is plenty of evidence that the amount of work done has actually declined. It has become virtually impossible to do even simple things like booking a driving test or process a planning application. Add it up, and when a third of the workforce has, in effect, zero productivity growth, it is virtually impossible for overall output to grow.
Undermining enterprise
Secondly, it drains productive resources from the private sector. When more than ten million people are working for the government it inevitably reduces the number of people who are available to work in the private sector. They are simply not there. In most cases, public sector work is more attractive. The pay is better, the pensions are generous, there are lots of benefits, and plenty of time off for sickness or compassionate leave, and there will be a trade union to look after you if anything goes wrong. Offered the choice, most people will opt for a government job. It is the rational choice. But it makes it hard for private companies to compete.
Finally, it makes any kind of reform impossible. It is all very well for politicians to argue that we need to modernise and improve the delivery of public services. They can make big speeches about reforming and modernising the public sectors. A few very brave leaders might even try to argue that we should try to reduce the size of the state. None of it will make much difference. When a third of the population works for the state, they don’t want to be lectured on how they need to improve their performance. They just want someone who will protect their jobs, keep raising their pay, and not make too much of a fuss about working harder. And someone who will raise the necessary taxes to pay for it all, no matter how much of a burden it imposes on the rest of the economy. In effect, a reforming agenda makes you completely unelectable, so the public sector is impossible to improve. Until we find ways to scale back the size of the public sector, at least to its size in 1997, we will be stuck with zero growth forever.