Britain needs to cut 200,000 government jobs over the next couple of years to avoid adding billions of pounds to the national debt, the Institute for Fiscal Studies has said.
Public sector wages are on track to rise by 5 per cent this year, around half the current rate of inflation, but higher than budgeted when spending plans were drawn up in 2021.
To pay for those awards alone, without increasing borrowing, the Conservative government will need to find £5 billion ($5.6 billion) of savings this year alone, the think tank said on Saturday.
The findings emphasise the challenges Chancellor Kwasi Kwarteng faces, as he has been tasked with steering the country through what is expected to be a difficult few months.
His task is to keep public finances under control without reversing any more of his tax-cutting pledges. After announcing a package comprising £45 billion of tax cuts in his mini-budget on September 23, the pound tanked. This week, he made a humiliating U-turn on a key policy, reversing the 45p tax cut rate for high earners.
The public purse is being squeezed, not just from the chancellor’s tax reliefs, but also from higher spending. The combination of factors complicate any plan to stabilise debt as a share of GDP.
Mr Kwarteng plans to unveil a full fiscal plan on November 23, with a forecast from the Office for Budget Responsibility that will incorporate government policies and the impact of changes to the economic outlook. The Treasury may bring the date forward.
The IFS said about 100,000 job cuts this year would ensure the overall wage bill was unchanged, and avoid cuts elsewhere in departments. If pay increases with inflation in 2023, the government would need to cut another 100,000 jobs to keep the bill in check.
Multiple media reports last week cited Whitehall insiders as saying that departments had been ordered to find savings where possible and operate within existing budgets.
During her campaign for No 10, Prime Minister Liz Truss insisted she was "not planning public spending reductions".
There is a potential opportunity for job cuts in several government departments as the public sector workforce grew by 250,000 over the Covid-19 pandemic to around 5.5 million.
The government is already pushing through plans to cut around a fifth of the 500,000-strong civil service, those who work directly for the government. It says the headcount reduction could save £3.5 billion a year.
Mr Kwarteng scrapped a tax cut for the richest households, that saved £2 billion of the £45 billion, but has pledged not to reverse other policies.
