Almost one year on from Liz Truss’ ill-fated mini-budget, there are murmurings of a possible tax offering to voters ahead of a likely 2024 election. Ministers have described tax cuts as being in the Conservative Party’s DNA and offered reassurance that they will ease the fiscal burden once the economy improves.
A return to growth would be welcome and would give ministers a little more headroom, but it won’t be enough for a sustained reduction in tax. The problem the previous administration faced remains true today: until you decrease the size of the state – or at least limit its growth – the pressure on taxpayers will remain.
While that’s difficult to do without gripping welfare, pensions and healthcare, this is something the Chancellor recognises. Indeed, Jeremy Hunt has written to government departments demanding reductions in Whitehall headcounts to build headroom for tax cuts.
At least one minister has definitely got the memo. Recent reports suggest that Health Secretary Steve Barclay has axed one in six jobs in his department in a ‘war on waste’. That’s certainly a step in the right direction, but unfortunately these figures are just a drop in the Whitehall ocean.
New research from the TaxPayers’ Alliance (TPA) has found that the size of the civil service has ballooned since 2016. Total headcount has gone up by a quarter, from 418,340 to 519,780; the sharpest increase in 50 years. The annual salary bill has gone up by 60%, from £9.7bn to £15.5bn. Median pay has also increased by 26%, despite the narrative that civil servants have faced a crippling pay squeeze. Most of the increase in roles is focused in London, where wages are higher. It’s not all Brexit and Covid either – this has remained true since March 2022.
This is the ‘cost of government crisis’ laid bare. Taxes are rising to pay for deteriorating public services, delivered by an ever more bloated bureaucracy.
Dig a bit deeper and the details become even more alarming. The expansion has been top-heavy, and tilted away from operational roles (i.e. service delivery), which have fallen from 56% to 52%. The number of staff paid over £75,000 a year has tripled, and the number at the bottom of the salary distribution has actually decreased. The civil service is becoming more policy and support-orientated and less focused on actually delivering public services.
It’s not just Whitehall – the problem runs far deeper and wider. From 2018-2022 the overall size of the public sector workforce increased by 426,000. To make matters worse, on top of the generous pay and perks afforded to public servants, the mountain of unfunded public sector pension scheme liabilities continues to grow; inflating the already colossal national debt by trillions of pounds. The public sector pension liability, now at £2.3tn, recently surpassed annual GDP for the first time.
Grant Shapps insists that growth is what will deliver headroom for tax cuts. But with the civil service salary bill surging by double the rate of nominal GDP growth between 2016 to 2023, cutting the size of the state relative to the size of the economy is just as important.
That will mean being honest with taxpayers about what the state can and can’t do, but also what the state should and shouldn’t do. It might mean difficult questions about the state pension age, and reforming the benefits system. It might mean a closer look at whether the student loan system is affordable or in need of reform. It might mean a conversation about whether the uniquely generous levels of annual leave in the public sector need to be brought into line with the private sector. At the moment, rather than succeeding at a few things, the state is failing at many.
But simply bringing down headcount would at least be a start. More work should be done to eradicate duplication and ensure that resources are focused on priority areas. Recruitment could also be limited by leaving some vacancies unfilled and shifting roles around to cover gaps.
Steve Barclay has led the way with his admirable efforts to trim the fat in the Department of Health. Now it’s time for others to step up.
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