Our general government employment (GGE) forecast is based on projections of the growth of the total government paybill and paybill per head, which is in turn based on the Government's latest spending plans. In this box we compared our GGE forecast against the outturn data since the start of the 2010 Spending Review period. This allowed some assessment of how public sector employers were progressing with their intended workforce reduction and how much adjustment would still be required.
Our projection of general government employment (GGE) is based on projections of the growth of total government paybill and paybill per head. Since our last forecast we have written to the Government to ask whether it intends to compile and publish specific departmental workforce plans, which would provide a more accurate projection than this top-down approach. The Government has told us that they have no plans to do this and we have therefore maintained our top-down approach. This approach is very sensitive to small adjustments in spending plans, but is the best available in the absence of specific workforce plans.
Also since March, the ONS has begun to publish GGE outturn data for the period covered by the Spending Review. As these data will gradually reveal the time profile of employment reductions, we now use our established methodology to estimate the total decline in GGE over the forecast horizon and then make a stylized assumption that employment falls at a constant rate to that end-point from the latest outturn data.
Our latest projections incorporate updated expenditure projectionsa and new data on public sector average earnings and workforce reductions so far in 2011-12:
- data suggest slightly stronger public sector average earnings growth so far this year than we assumed in March, so we have increased our 2011-12 paybill per head assumption to 2 per cent. Over the rest of the forecast, paybill per head is assumed to grow at an average rate of 2.4 per cent per year;b
- the Government’s decision to pencil in further spending cuts in 2015-16 and 2016-17 implies a reduction in total paybill growth for those years. Combining these with our paybill per head assumption implies a total reduction in GGE of around 710,000 between the first quarter of 2011 and the first of 2017 compared to 400,000 between the first quarter of 2011 and the first of 2016 in our March forecast; and
- tthe latest ONS outturn data suggest that GGE fell by 80,000 in the second quarter of 2011, implying an average decline of around 30,000 per quarter for the remainder of the forecast horizon. Anecdotal evidence suggests that a number of public sector employers are attempting to front-load their intended workforce reductions, so it would not be surprising if GGE continues to fall more rapidly per quarter than this average rate for some time.
It is important to emphasise that there are considerable uncertainties around the total reduction in GGE that is implied by the Government’s spending plans, let alone around the time profile. The overall change will depend on choice between squeezing paybill and non-paybill costs and on the choice between employing smaller numbers of relatively high paid workers and larger numbers of relatively low paid workers.
The Autumn Statement announced that public sector pay awards will be set at an average of 1 per cent for the two years after the current freeze comes to an end. The Government has stated that departmental budgets for these years have been adjusted in line with this policy, with the exception of the NHS and schools budgets, where the money saved will be recycled. For our central forecast we have not assumed any effect on the level of general government employment from this measure. It is unclear what the measure will imply for overall paybill per head growth, which is determined by pay drift as well as the growth of basic pay awards. For example this year most of the public sector has had a basic pay award freeze, but data suggests annual pay growth has averaged over 1½ per cent since March.
In all departments except NHS and schools the measure would not have any effect on employment assuming there is an equal fall in paybill and paybill per head. In the NHS and schools, if paybill per head growth were to fall exactly in line with the reduction in pay awards, and the NHS and schools were to use all the additional resources to finance a proportionate increase in workforce rather than non-paybill expenditure, then this could offset the total forecast reduction in general government employment by around 50,000.
This box was originally published in Economic and fiscal outlook – November 2011
a For the purposes of the forecast we have replaced total RDEL with Public Sector Current Expenditure (PSCE) in RDEL, which is a better proxy for paybill growth, although it has relatively little impact on the projection. Estimated transfer payments related to the Universal Credit have been excluded from RDEL for the purposes of projecting paybill growth, consistent with our economic forecast.