The bailing out of private sector banks and institutions globally, and the resultant financial crisis, has hit the UK’s public finances hard. In the UK, government debt levels jumped three-fold following the crisis, research by Deloitte and Reform shows. The increasing debt levels have seen the UK Government enter into austerity to reduce borrowing and debt levels. This is expected to see state spending reduced from the norm of European neighbours to that close to the US.
The yearly run ‘The State of the State’ report delves into the current state of public finances and considers their improvement against ten indicators. The report is prepared by Deloitte and Reform, and is based on publically available information about state finances as well as an Ipsos MORI run series of interviews involving more than 40 local public sector leaders.
Public sector debt
The UK Government represents 46.8 million electors that support a population of 64.6 million people. The public sector itself employs 5.4 million people in 5,500 organisations across England, Northern Ireland, Scotland and Wales; amounting to 17% of UK employment.
The financial crisis has had a largely negative effect on the UK’s books. Since the crisis, the Government’s debts have risen almost threefold to £1.5 trillion in 2015. As it stands, the UK Government is raising £673 billion through various income channels, while spending £742 billion, resulting in a deficit of £69 billion. This deficit is funded by borrowing. The cumulative effect of that borrowing over time means that the Government’s debts have risen almost threefold since the global financial crisis in 2008 to £1.5 trillion in 2015.
As a response, the Government – since the crisis – has decided to initiate a range of public finance austerity measures to reduce spending, whilst only marginally implementing measures to increase income. The aim of the policies is to eliminate the deficit by 2020, and in the long term, reduce outstanding government debts back to pre-crisis levels.
The UK’s deficit reduction programme is relatively austere. According to the current policy initiatives, the UK will be reducing its public spending by 19.5% as a share of their GDP over this decade, compared to 9.6% as average across G7 countries. Across the world, the changes instituted by current government policy has seen UK Government spending, when measured as a percentage of GDP, drop from 16th place of the 37 most advanced economies in 2010 to 21st today. It is projected to drop a further five places to 26th by 2020, leaving the ranks of European states to come closer to the US.
Public sector spend and employment
The level of public spending per head of population differs across the various countries of the United Kingdom. Public sector spending stands at £8,678 in England, followed by Wales at £9,924 and Scotland at £10,275. Northern Ireland has the highest level of spending per head of population at £10,961. The highest level of public employment is also seen in Northern Ireland, at 26%, followed by Wales at 21.4% and Scotland at 20.5%. England has the lowest level of public sector employment at 16.1%.
Cutting spending and headcount
Since the crisis, public sector spending and headcount have seen different levels of cuts across various regions in the UK. The largest drop in spending occurred in London at -11%, followed by East England which saw a drop of -6%. Wales, Scotland and Northern Ireland each saw a drop of -4% in public spending per head in real terms. In terms of employment reduction within the public sector, the largest drops since 2010 occurred in the South West and North East at -12% and -14% respectively, followed by Wales and North England, at -9% each. Scotland saw a drop of -7% while Northern Ireland has seen a -4% reduction.