The UK will fire about 490,000 public workers as part of an austerity program to cut its deficit. The plans call for $124 billion in budget cuts over four years. The UK deficit is currently 155 billion pounds. Government department expenditures will fall 19% as part of the plans.
While the cuts may be necessary to bring down the UK deficit and begin the process of cutting the national debt, it is hard to imagine what will happen to the 490,000 workers. The UK has the same problems many developed nations do. Because of high deficits and slow growth, it may eventually have trouble raising money in the global capital markets to finance its sovereign debt.
The UK has a population of just over 62 million of which about half are of working age. That means the UK government plans to put the equivalent of 1.4% of its working population on the streets. It will be nearly impossible for the nation’s troubled economy to absorb so many workers. Many will will no longer be taxpayers, which will cut into the tax base the UK so desperately needs. In fact, quite a few of them will need government financial support.
The news gets to the heart of the austerity debate. Most economists look at the attempts to close budget gaps from the standpoint of the increased taxes which usually accompany them. These new taxes are sometimes seen as regressive. The UK, on the other hand, may face layoffs which are equally if not more regressive. The government cannot accurately predict the effect of the loss of so many taxpayers and neither can any other nation that faces the same problems.
The austerity programs put into place by governments in Europe and Japan will not bear fruit for several years–if they bear fruit at all. If they don’t bring down deficits significantly, it will be too late to hire all of those people back. The UK may find that it is better off with high public employee levels which generate revenue to offset deficits. It may regret the path it has taken.
Douglas A. McInty