City Comment

09 June 2010

The Treasury’s initial £6bn cost cutting initiatives included a billion from advertising, consultancy and other discretionary government spending; a further £513m by cutting the budgets of, or eliminating, quangos; a symbolic £10m from ceasing first-class travel by civil servants; and £163m from an immediate hiring freeze in Whitehall.

A recent article in the Sunday Times, which presented the conclusions of Freedom of Information requests to various government departments, revealed that strategic health authorities were planning an average headcount reduction of 8.7%, that local authority job cuts could exceed 100,000 and that despite political rhetoric, front line positions would not be spared.

Our own work on the subject will be examined in a future column but a few points are worth highlighing now. Firstly, independent estimates of 500,000 to 730,000 job reductions are consistent with one period in the UK labour market over the past four decades: 1992-1998, during which, adjusting for the reallocation of employees during privatisation, the UK public sector headcount declined by 10%. Unfortunately, given that many staffing agencies started up public sector disciplines during that time, it is difficult to look back at history in an attempt to shed light on the future.

Secondly, although the civil service is often forthright in our minds when considering a perceived unneccessary administrative burden, government statistics suggest that this category accounts for less than 10% of the public sector workforce. If sizeable cuts are to be implemented, education and healthcare, which each employ over 1m people, are unlikely to avoid the pain, irrespective of politicians’ assertions that front line services will be ring-fenced.

However, UK public sector labour market austerity has been a headwind for many staffing agencies for almost 12 months. Hays, for example, has experienced a year-on-year decline in public sector net fee income since the second quarter of 2009. Non-quoted staffing agencies refer to a collapse in central government perm fees at the start of 2010 and local authorities have been planning for budget cuts since the middle of 2009. Some pain has already been felt by the industry but history teaches us that these headwinds are likely to be spread over two-three years.

On a final note, SThree announced last month that Sunil Wickremeratne had decided, at the tender age of 44, to retire and will leave the board at the end of the current financial year. Sunil was closely involved with SThree’s phenomenal growth over the past two decades, its flotation in 2005 and departs with the group poised to expand aggressively overseas. Best wishes in your future endeavours, Sunil.