UK May Have To Cut Upto 2 Lakh Government Jobs To Avoid Adding Billions Of National Debt

It's not been an easy start to the tenure for UK¡¯s new Prime Minister Liz Truss. Amid the deepening economic crisis in the nation, the government is posed with another problem - an approaching debt spiral.

And to avoid this, the UK needs to cut 2,00,000 government jobs over the next couple of years to avoid adding billions to the national debt, according to the Institute for Fiscal Studies (IFS), a UK-based economic research institute.

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Public-sector wages in the UK are on track to increase 5% this year, around half the current rate of inflation but higher than budgeted when spending plans were drawn up in 2021, as per Bloomberg report. Simply to pay for those awards without increasing borrowing, the government will need to find ?5 billion ($5.6 billion) of savings this year alone, the think tank and research institute mentioned last Saturday.

The analysis underscores the challenge Chancellor of the Exchequer Kwasi Kwarteng faces, i.e. to keep the public finances under control without reversing any more of his tax-cutting pledges. Pressure is coming not just from his tax giveaways but also from higher spending, complicating any plan to stabilize debt as a share of GDP.

Last month, Kwarteng reportedly announced a ?45 billion tax stimulus that sent the markets into a tailspin on concerns that borrowing would spiral out of control.

Next month on November 23, 2022, he plans to unveil a full fiscal plan with a forecast from the Office for Budget Responsibility that will incorporate government policies and the impact of changes to the economic outlook. The Treasury may bring the date forward.

The IFS said about 100,000 job cuts this year would ensure the overall wage bill was unchanged and avoid cuts elsewhere in departments. If pay increases with inflation in 2023, the government would need to cut another 1,00,000 jobs to keep the wage bill in check, as per the report, taking the total tally of possible job cuts to 2,00,000.

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Also Read: Bank Of England Warns About UK Falling Into Recession This Year

5.5 Million Public Sector Workforce

Departments have reportedly been told to find internal ¡°efficiencies,¡± which is often seen as code for job cuts. There is a potential opportunity as the UK public-sector workforce grew by 250,000 over the pandemic to around 5.5 million.

The UK government is already pushing through plans to cut around a fifth of the 500,000-strong civil service, those who work directly for the government. It says the headcount reduction could save ?3.5 billion a year.

Kwarteng scrapped a tax cut for the richest households that saved ?2 billion of the ?45 billion but has pledged not to reverse other policies, besides refusing to rule out a ?5 billion reduction in benefits, which has prompted a backlash within the ruling Conservative Party as it would hit those who can least afford it during the cost of living crisis.

Possible Strikes Over Poor Pay

Public-sector workers, including nurses and teachers, are threatening to strike over poor pay, thus putting even more pressure on govt spending. Bee Boileau, the research economist at the IFS, said there are no ¡°easy options¡± for the chancellor, as per the Bloomberg report.

¡°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.¡±

Also Read: Tata Steel May Exit UK If ?1.5 Billion Funding Denied

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