Wednesday, 28 January 2009

Lay off State Workers and Save Money

A headline I read somewhere recently, said that public spending would rise this year since the tax take from employment taxes would reduce as layoffs increased and consequentially benefits payments would increase.

In the recession of the early 80’s unemployment rose to at least 3 million. These mostly represented redundancies from the old model state supported industries. These industries were inefficient, overmanned and produced products that no-one wanted to buy, or simply rationed supply to sustain employment, hence suffering endemic producer capture. In other words the jobs occupied by the redundant workers were not wealth creating jobs at all. The workers were already redundant, they just didn’t know it.

The result of this forced (and painful) restructuring was that most of the UK’s manufacturing sector and private business generally became efficient and not over-manned.

This time the same failed quasi socialist policies have created the same approximately (probably at least) 3 million non-jobs in the direct public sector. The client state has been transferred from non-jobs hidden in inefficient uncompetitive industrial organisations to equally, or more probably even more inefficient and overmanned, direct public employment. The workers are still not gainfully employed, and again they just do not yet know this.

This time, laying off these already redundant public sector employees will not increase the visible costs to the state. It could well reduce them.

If we assume that each of the 3 million public employees is paid at the NAE rate of approximately £24,000 per annum and that total on-costs are factored at 3* times pay the total costs to the taxpayer is £216 Bn. Once these workers are laid off we can assume that the total benefits may well equal NAE plus an administration cost of say 25%. This gives a cost of £90 Bn. In other words a saving of £129 Bn. per annum. (I accept that these figures are approximate, but it is the case that the costs of benefits are less than the costs of employment).

Furthermore many non-jobs are sustained on the taxpayers purse through the vehicles of alleged charities and Quangos. More of the same savings are available here.

Every way I look at this current crisis I see two complimentary factors. One massive over-employment in state bureaucracies and their associated tame charities and Quangos funded by confiscatory levels of taxation which deprives private individuals and business of spending power combined with a complete absence of responsible fiscal management resulting in massive increases in money supply, that is inflation.

If these factors cause the problem, the correction of them will by definition cure the problem. That is massive reductions in public expenditure brought about by releasing millions of state employees to find more productive wealth creating jobs in private business resulting in massively lower taxes on private business and individuals.

* I realise that the income tax notionally paid by public employees nets out but I have added back a factor of 30% for pension costs.


Mark Wadsworth said...


£100 billion savings seems a realistic target.

marksany said...

Spot on. There is a monster job creation scheme here, also a wealth destruction scheme; but it isn't going to change, because it is a vote creation scheme first and foremost.

3 million seems very low. When you add in the quangos and fake charities you mention and all the contracted out and faux privatised businesses, it must be more like 7 million.

£100 billion, easy, but any government doing it would never be re-elected.

P.S. I have posted your comment at MW today as my comment of the day, I hope you don't mind.

Bill Quango MP said...

great idea.
But the opposite is happening.
Companies are shedding workers or closing up altogether,while the public sector largely is operating a recruitment slowdown policy.
Those turfed out workers are more likely to end up in the public, pseudo charity sector once the magic 2.5 million unemployment figure looms,and the government panics with various New Deal 2 options.