Total UK employment projected to rise by over 850,000 by 2018 despite spending squeeze, but public mood remains low

Published at 00:01 AM on 20 June 2013

Spending Review 2013: PwC analyses labour market trends to 2018, fiscal options and the public mood as the UK learns to live with austerity.

Analysis by PwC ahead of the forthcoming Spending Review on 26th June suggests solid total employment growth for the next five years, and a slightly falling unemployment trend. But real wage growth is likely to remain more subdued than in past economic recoveries.

Living with Austerity examines the state of the public finances and the options the Chancellor has for spending in 2015/16, as well as the public’s views on these issues. It also considers how far private sector job gains will continue to outstrip public sector job losses over the period of planned austerity to 2017/18.

As shown in the table below, the OBR is projecting a further fall in public sector employment of just under 900,000 over the five years to 2017/18. PwC considers a number of scenarios for private sector employment based on short and long-term historic trends, but its central scenario is for around 1.7 million net job gains in the private sector over this period. As the table shows, PwC estimates that there will be a net rise in total employment in all regions, with the largest proportional rises in London and the East of England.

John Hawksworth, chief economist, PwC, said:

“The official data we analyse in the report shows the young (16-24)  have been worst hit so far on jobs, while the rise in employment for the over 50s has been a notable plus from the past three years. The latter bodes well for our ability to adjust to an ageing population, but it also points to the need for increased investment in measures to boost youth employment such as apprenticeships.

“Our analysis suggests this broad pattern will remain in place for five years, with solid total employment growth, and a slightly falling unemployment trend despite continued public spending cuts. However, real wage growth is likely to remain more subdued than in past economic recoveries.”
 

UK and regional employment projections in PwC central scenario (change in total employment in ‘000s between 2012-13 and 2017-18)

 

Public

Private*

Total

Total (% change)

London

-112

375

263

6.0%

East of England

-68

170

101

3.8%

East Midlands

-58

133

75

3.6%

South West

-74

147

72

2.8%

West Midlands

-74

135

61

2.5%

Scotland

-85

146

61

2.5%

North East

-40

67

27

2.4%

Yorkshire and the Humber

-78

127

50

2.0%

South East

-103

179

76

1.9%

North West

-101

158

56

1.8%

Northern Ireland

-33

42

9

1.2%

Wales

-50

61

12

0.9%

 

 

 

 

 

UK

-877

1740

864

2.9%

*Source: OBR Economic and Fiscal Outlook March 2013, ONS Labour Force Survey, PwC analysis.

While the overall number of jobs should continue to rise over the period of austerity, the report notes that (as in the past three years), many of the new private sector jobs may involve part-time or temporary work, while public sector job losses are more likely to be better paid, full-time positions. Together with tight constraints on public pay, this will contribute to continued subdued growth in average real earnings growth over the next 3-5 years.

Public finances
Analysis of public finances in the report shows that the focus of the spending cuts is now switching from capital spending, including infrastructure, to current departmental spending. Furthermore the pace of the real departmental cuts is speeding up from only around 1.2% this year to around 2.8% in 2015/16.

Departments not protected by ring-fencing (and which have not yet settled their budgets) now face around £8.5bn in real cuts in 2015-16, equivalent to a 5% cut in real terms from their 2014-15 budgets. In the two years beyond 2015/16, the report estimates that faster cuts are implied to make up for delays in reaching the government’s fiscal targets, with real cuts in departmental spending of 3.5% - 4% per annum.

Paul Cleal, head of government and public sector, PwC, said:

“The fiscal situation remains very challenging, and there is little room for manoeuvre to deliver the latest round of spending cuts without imposing significant additional pain on unprotected departmental areas. Despite an expected gradual recovery in the UK economy, it’s clear there will be significant doses of austerity extending well into the next parliament.

“There is an appetite for new ideas – the Single Local Growth Fund and Local Growth Deals, for example, aim to support regional growth and competitiveness. The Spending Review should set out more detail on these initiatives, which could represent a potentially seismic shift in the decentralisation of economic power and place more responsibility with business (through Local Enterprise Partnerships) and local authorities to deliver growth on the ground.” 

The public’s view
Three years into austerity measures, and despite recent tentative signs of improvement in the UK economy, a specially commissioned poll of the UK public for PwC shows that their view of the economy remains downbeat. 

There is continued support for exemption of the NHS (67%), schools (54%) and pensioner benefits (67%) from further cuts. However, 60% said international aid should not be protected from future cuts by the government’s ring fence. Almost a third believe no departments should be protected from cuts.

Nick C Jones, director, government & public sector, PwC commented:

“With slower than projected growth raising public borrowing projections significantly since June 2010, the government may have boxed itself in from future necessary changes in the big areas of spend. Strong public support for continued protection of health, pensioner benefits and schools will make it much harder for any government to argue the case for removing the ring fence in the immediate future.

“If the public doesn’t understand the reasons behind the deficit, it makes it more difficult to create support for the politically difficult choices that will have to be made. Austerity will continue well into the next parliament, so there’s work to be done on addressing not only the fiscal deficit but also the communications deficit with the public.”

Ends

Download PwC Living with austerity

Notes to editors:
1. Since Q1 2010 around 1.3 million private sector jobs have been created since the spending cuts began in 2010, against 400,000 public sector job losses over the same period (after adjusting for transfers of organisations between public and private sectors). 
2. For details of the scenarios examined, please see page 22 of the full report. 


Spending Review 2013 - Media Contacts
Rowena Mearley
PwC | Media Relations
Direct: +44 (0)20 7 213 4727 | Mobile: +44 (0)7841 563 180
Email: rowena.mearley@uk.pwc.com
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Lucy Bishop
PwC | Media Relations Executive
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Email: lucy.bishop@uk.pwc.com
@pwc_lucybishop

www.ukmediacentre.pwc.com
@pwc_ukgov




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