The Chancellor’s £81bn cuts programme in the recent Comprehensive Spending Review has significant implications for public sector workforce planning and employment according to Ian Tomlinson-Roe. Steve Beet also provides a summary of the main changes affecting state and private pensions.
George Osborne announced a swathe of cuts on 20 October amounting to some £81bn over the period of the spending review.[1] Central government departments will have budgets reduced by 19% while local government funding will be cut by 7.1% each year over five years. The large-scale downsizing programmes required by the outcomes of the spending review present significant problems for public sector employers who have little experience of managing mass redundancy programmes. Any failure to understand or work within the complex framework of contractual obligations, statutory requirements, union agreements and existing custom and practice will almost certainly lead to legal challenge. These challenges could well prevent downsizing programmes being delivered on time and on budget.
Costs of redundancy programmes
The costs of redundancy programmes will be considerable but speed of delivery will make a huge difference to the scale of these. Redundancy terms vary considerably across the public sector so using the civil service as an example, I would estimate that the cost of downsizing 100,000 civil servants over the next four years ranges from £5.3bn to £9.0bn, depending on whether conducted over 12 months or 48 months. Every month lost in implementing the redundancies could cost the government £100m.
Mitigating job losses
While the government recognises that large scale redundancies are an inevitable consequence of the spending review, it will be desperate to avoid a huge tide of unemployment. Any creative ways to mitigate the estimated 490,000 job losses will be seized upon, for instance giving staff the option of a shorter working week, reviewing other terms and conditions to reduce overall costs, or using training budgets to help staff transfer into new areas. Employers are likely to be given considerable flexibility here.
Workforce planning
Public sector employers need to urgently consider the number of people and skills they will need in the future, and also the means by which people are going to leave.
While more cost effective, we’re unlikely to see immediate widespread compulsory redundancies given the potential backlash. Yet with any voluntary programme there’s the risk of losing the most valued staff, so employers will need to think how they can keep their top performers while reducing overall workforce cost.
The faster and more efficient the exit process, the lower the cost, upheaval and uncertainty. In any case, some reduction in productivity should be anticipated while any redundancy programme is underway.
Keeping up motivation
Ensuring the process is managed smoothly, professionally and transparently will help keep disruption to a minimum and prevent remaining employees becoming disaffected.
Employers mustn’t lose sight that there will still be more ‘stayers’ than leavers. The big challenge will be keeping people motivated when ultimately they will be expected to do more with less. Clear and frequent communications will be vital to push the more positive aspects of change, including clearly describing the ‘end state’ for the organisation and painting a picture for the future.
Relationships with unions
Employers need to think carefully how they manage relationships with unions and respond to potential strike action. Despite the bravado, most unions are pretty realistic and are keen to work with employers to jointly develop solutions. Co-operation will prove a more positive route for all.
Prospects for workers
For people leaving roles it’s an opportunity to evaluate what they want from work and make ‘life choices’ on how they wish to spend their future. Most people will be keen to get back to work and it’s crucial they address a common, if unfounded, perception among employers that public sector workers are less productive. They should remember this is not a criticism of the individual but of the sector. What is important is being able to counter this view and demonstrate achievement.
Many individuals will have been with one employer for much of their working life and be unaccustomed to job hunting. They should lap up any advice they can get, be it fine tuning a CV, presentation skills or interview practice, and exploit their personal networks.
More junior workers earning under £40,000 will be more easily deployable. There are always fewer senior roles, and at this level workers are more likely to be pigeonholed. For those lucky enough to find work, reports about possible difficulties adjusting to the private sector have been overstated. Working in the modern public sector can be equally if not more challenging than in the private sector and jobskeers need to be able to demonstrate examples of this.
Private sector employers
The private sector will mop up many of the jobseekers, and will appreciate having a new pool of talent to pick from. But with labour markets sluggish and wave of people looking for work, significant numbers of former public sector workers are likely to be unemployed for some time.
When assessing former private sector workers for employment, private sector employers will look for similar attributes that they would seek from someone who’d been in the private sector, be it the ability to manage a team, think creatively and deliver on target. There is no reason why someone working in any sector could not meet these types of criteria.
Pensions
Public service pensions
The Chancellor welcomed the findings of the interim report from John Hutton’s Public Service Pension Commission and said that public service pensions should continue to provide a form of defined benefit pension. He also said there should be an increase in employee contributions and that this should be staggered and progressive.
Public sector employees should recognise that the announcement that a form of defined benefit scheme will continue could still represent a significant change, particularly those on final salary arrangements. Some pensions could reduce substantially if these are changed to career average schemes or if caps on pensionable rewards are introduced. Public sector pensioners should be reassured that the Chancellor made no attempt to attack accrued benefit.
In the context of a public sector pay freeze, higher employee pension contributions, as early as 2012/13, could place an extra burden on take-home pay. As employers consider changing contribution levels, it is essential that the overall reward package is taken into account to ensure fairness across different parts of the public sector and to protect those on the lowest level of income.
State pension age rises to 66
The Chancellor also announced that the state pension age for men and women will rise to 66 by the year 2020. Such a change was needed given that people are living longer, making retirement unaffordable for the time required. However, the acceleration in this movement announced in the Spending Review came as a surprise, particularly for women who were already being hit with a significant increase in state pension age to bring them into line with men. Some women approaching retirement may now need to review their financial position as their state pensions could be a further six years away.
[1] www.hm-treasury.gov.uk/spend_index.htm