The following article, by Shimeon Lee for The Taxpayers’ Alliance, might raise a few hackles.
In the UK, growth is said to be the new Labour government’s grand aim but raising taxes,
not least to satisfy public sector pay demands,
seems to be their principal way of achieving it.
It reminds one of Churchill’s quote:
“A nation trying to tax itself into prosperity is like a man
in a bucket trying to lift himself up by the handle”
- In their manifestos, both Labour and the Conservatives relied on economic growth, and the accompanying growth in tax receipts, to deliver on their spending pledges.
- The new Labour government still does
- However, growth in future tax receipts was underpinned by overly optimistic assumptions about productivity growth.
- Indeed, the Resolution Foundation has pointed out that actual productivity growth repeatedly underperforms the OBR’s expectations.
- And the ‘elephant in the room’ is the ever-growing public sector.
- The National Institute of Economic and Social Research (NIESR) suggests that once you include those employed by private sector firms but producing services for the public sector (such as cleaners in the NHS and care home employees), a whopping one in three workers are part of the public sector.
- And two-thirds of the increase in the labour force over the last quarter century has been directed into the public sector and away from more productive parts of the economy.
- This is a problem as productivity growth in the public sector lags significantly behind the private sector.
- Adding insult to injury, public sector wages rose 0.9% per year in real terms during this period. This is before including extremely generous defined benefit pension schemes that 82% of public sector workers are on compared to just 7% of private sector workers.
- Yet instead of demanding higher productivity and reigning in spending in the public sector, politicians have allowed the tax burden to climb to an 80-year high by 2028-29, with much of this additional revenue directed towards day-to-day expenditures such as wages and pensions for civil servants as opposed to capital investment.
- Worryingly, increases in day-to-day spending have not been accompanied by an increase in productivity.
- For example, despite the number of full-time equivalent (FTE) junior doctors and nurses increasing by 16.4% and 10.9% respectively, the number of people being treated in hospitals is only marginally higher than it was pre-pandemic and, on some important metrics, it’s lower. This has not been helped by the 3.9 million working days lost to strikes in 2022/23, 96% of which were from significantly publicly funded industries.
- Overall, public sector productivity (as dubiously measured) remains 6.8% lower than its pre-pandemic level, even lower than it was 25 years ago.
- With council employees receiving record-high remuneration, more than 1,100 non-jobs across the public sector and the unions pushing for (and seemingly about to get) a four-day week, it’s no wonder that this is the case.