Tuesday, September 11, 2012

UK Government Cutbacks Will Widen the North-South Divide

News of job losses continues unabated. Not so much for those employed by the house builders or major financial institutions, but further down the economic food chain. Those companies such as fashion house Ethel Austin with 300 stores predominantly in the North of England. They called in the receiver in February 2010 and have since set about closing 120 stores and issuing 1800 redundancy notices. They, like many others shedding labour, held on waiting for an upturn in the economy that never came soon enough to save them. Faced with still hesitant consumer spending, their loses continued and creditors ran out of patience. However, for the North, it is about to get a lot worse.
The UK's fairy tale economy saw a mushrooming of Public Sector jobs over the last 10 years. The broad industrial group 'public administration, education and health' covered 7.16 million jobs in 2007, 26.9 percent of total employment (Source: ABI statistics). Since then the Public Sector has grown whereas the Private Sector has been battered by the recession. In 2007 there were substantially less than one million unemployed, in February 2010 this figure had grown to 2.5 million (Source: office of National Statistics) and almost all of these job losses were in the Private Sector. Post election slashing of Government budgets is unavoidable and contraction of Public Sector jobs is now widely forecast. The only question is where the axe will fall.
The North South divide is about to get a lot wider as the cut backs in pubic expenditure will be felt most acutely in the North. Because of their national pay scales, the wages of Public Sector employees have always gone much further in the North. They offer the opportunity to spend significantly more in the local economy than their colleagues in the South, saddled for years with high mortgage costs and rents. This has benefited the money in circulation in the North and the boom in restaurants, bars and countless other businesses blossomed up and down the land. Just how much this was dependent upon salaries paid out of the public purse is about to become far more apparent.
Things have now changed and 'its grim' is about to return 'up North' because cut backs will be felt disproportionately by the major northern conurbations. Perversely, past efforts of Governments to create jobs in northern Britain are about to make matters worse. The Lyons Review from 2004 had a target to move over 24,000 jobs out of London by this year. However Lyons followed years of relocation of Government functions to the regions that started in the 1970's. As a consequence, by 2009 in the North West 3.4% of total employment was in the Civil Service. This compares to a more typical 1.3% in Eastern England and just 2.1% in London despite being the heart of Government. (Source: ONS, Civil Service Statistics, 2009).
Politicians pledging to preserve front line services in Health and Education will only mean even more pressure is applied elsewhere. Once again it is the North, specifically core cities that are likely to bear the brunt. Local Government statistics show they employ just over 40 people per 1000 residents in cities across the UK as a whole. However, in Manchester this is nearer 45 and in Birmingham, Nottingham, Leeds and Newcastle there are over 55 per capita. Clearly these cities offer greater scope for large scale cut backs than elsewhere in the country.
Whether the Public Sector 'efficiency savings' manifest themselves in redundancies or just a recruitment freeze, the North's disproportionate dependency on the public purse will weigh heavily for several years to come. Money will melt from local economies and it follows that particularly smaller or regional businesses will suffer as a consequence.
State benefits paid when out of work are pitifully inadequate to meet the outgoings of the average household. Therefore, should anyone not have savings to get them and their families through six months to a year of unemployment, they should consider Income Protection Insurance. This can be bought for much less than insuring a car. On-line there are Income Protection Insurance providers offering typical policy benefits of up to £1500 per month. This will pay to up to a year and is enough to meet mortgage and other big bills. Dennis Haggerty of income protection specialist iprotect insurance commented "The most popular benefit level chosen by our customers is £1,000 per month, the average monthly premium for this insurance is under £30."
Income Protection Insurance is only available to people who are in work and have no immediate prospect of being selected for redundancy. So the time is running out for Civil Servants and other people in the Public Sector to secure this cover before the budget cuts for their particular area are announced.
Insurance companies are there to spread the risk of lost earnings. However they will not sell this type of cover to someone who is very likely to be made redundant, just like they decline fire insurance for a house that is already smouldering. With Public Sector jobs looking vulnerable, there has never been a more urgent time for anyone ultimately paid by the taxpayer to consider how they would meet their financial commitments if they were out of work. With a large section of the local workforce suddenly cutting back their spending because they are worried about their jobs, people employed in the Private Sector 'up North' should also be thinking how this could affect them and taking steps to protect themselves and their families.

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