Our projection for general government employment (GGE) is built up from projections of the growth of total government paybill and paybill per head. We use these projections to estimate the total decline in GGE from the start of the spending review period to the end of the forecast and then make a stylised assumption that employment falls at a constant rate from the latest outturn data. We have taken the same approach here as we did in our March EFO, the only difference being that we now take on board spending assumptions for 2017-18.
Our latest projections incorporate updated expenditure projections and new data on average earnings and workforce reductions so far in 2012-13:
- In March we projected a 730,000 fall in general government employment between the start of 2011 and the start of 2017.
- Latest data suggest stronger public sector average earnings growth so far this year than we assumed in March, so we have increased our 2012-13 paybill per head growth assumption to 1.9 per cent, up from 0.8 per cent. For the rest of the forecast we have revised our paybill per head growth assumption down marginally, reflecting a number of offsetting factors. First, we assume that wage drift is higher than previously thought, 1.0 per cent compared to 0.4 per cent, based on analysing data on settlement and average weekly earnings in the public sector. Second, we have a lower forecast for domestic inflation, which results in lower settlement assumptions by the end of the forecast. And third, we have marginally lowered our assumption for the level of pay settlements in 2013-14 and 2014-15 after reassessing the impact of the pay restraint policy.a
- In June this year the ONS made a reclassification change moving English further education corporations and sixth form college corporations to the private sector from the public sector. This resulted in around 196,000 employees in the educational bodies moving from the public to the private sector.
- Our latest forecast suggests there will be similar amount of departmental spending available to government employees at the start of 2017, compared to the level at the start of 2011, as we thought in March. We have rolled forward our forecast one year, incorporating additional spending cuts in 2017-18 that act to lower the forecast profile. Combining these assumptions with our paybill per head growth assumptions implies a total reduction in GGE of around 986,000 between the start of 2011 and the start of 2017. Of this, around 175,000 reflect the reclassification mentioned above (assuming the share of further education corporations and sixth form college corporations of GGE is constant). Around 90,000 reflects the fact that we roll the forecast forward one fiscal year. New spending assumptions and changes to pay bill per head growth have a small impact overall, increasing employment by around 6,000. We project a further fall of GGE of around 114,000 from the start of 2017 to the start of 2018, giving a total decline of 1.1million or 929,000 excluding the reclassification change.
All this implies an average fall in GGE of just under 30,000 per quarter over the reminder of the period, compared to an average fall, in the data, of around 42,000 per quarter from the first quarter of 2011 to the second quarter of 2012 excluding the reclassification change.
Anecdotal evidence suggests that a number of public sector employers attempted to frontload their intended workforce reduction; this is consistent with a sharper fall in GGE in the first half of 2011. Recent data points towards this trend subsiding somewhat. Estimating the extent of frontloading is complicated by the fact that the outturn for growth in paybill per head has been significantly faster than growth in average weekly earnings as measured by the ONS over the past two years.