If, as Osborne plans, we sack 600,000 public servants in the coming years that is 600,000 people with no income, on benefits – since few jobs are being created. They will spend less in the economy, which combined with cutting public capital spending, will have a knock-on effect in the private sector. Cutting 600,000 public sector jobs will lead to 700,000 private sector job losses. We know this, because the document telling Osborne this from his own Office for Budget Responsibility was leaked to this newspaper at the end of June.
Fascinating; let's look at this another way:
The percentage difference between the median level of full-time earnings in the public sector (£539 per week) and the private sector (£465 per week) widened over the year to April 2009, following annual increases of 3.1 per cent and 1.0 per cent respectively.
So the cost of firing these people in terms of lost earnings is £33.75Bn. Measured against the average welfare payout (I'll generously say it's £17.5k) in terms of the afforded benefits in kind means the cost in added welfare payouts is £22.75Bn, meaning we make a net saving of £11Bn; a healthy swipe at the structural deficit and one that the markets will certainly take notice of.
Let's make a wilder assumption here: say Osbo takes this 10% drop in the number of public sector plebs and marks it with a resultant drop in the amount of work it dips it's oar in, e.g. winds down every NHS PCT passing funds directly into GPs hands or adopts a full educational voucher system and privatises education provision voiding local education authorities en masse or passes logistic control of the army to generals and reforms the MOD thusly; let's say 10% of government spending based on that's £66.1Bn.
In total we have saved £72Bn just by cutting these numbers and several of those assume that their us no splash effect on the economy; we don't take into account that those unemployed civil servants will not remain unemployed for long or that private education providers will become net contributors to the tax pot than detractors (though this strays dangerously close to Seworta's neo-Keynesian assertion that we should continue to dig holes for others to fill, which is just silly). None of which takes into account how inefficient public funding is processed - if we accept a conservative value of say £1 in 4 is wasted just by churning it through HMRC then we put £90Bn back in the economy instantly.
Numbers are fun yes?