The politics of Osborne's public sector job cull

Why the Tories believe that cutting public sector jobs will help them win.

Few noticed it but buried deep in the Office for Budget Responsibility’s latest set of forecasts was the revelation that another 20,000 government jobs will be cut by 2017, bringing the total to 730,000.

It’s often said that George Osborne’s cuts have barely begun but that doesn’t apply to to public sector employment. Since Osborne entered the Treasury, 350,000 government jobs have been scrapped, with another 460,000 due to go by 2017 [the 730,000 figure refers to cuts from 2011-2017]. The public sector workforce is now at its smallest level since 2003 [see graph]. In the words of the usually restrained Chartered Institute of Personnel and Development we are witnessing “a tectonic shift in the underlying structure of the labour market”.

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By 2017 the number of public sector workers will have declined from a peak of 6.3m in 2009 to 4.9m, the lowest level since comparable records began in 1999. What explains this dramatic cull? Fiscal considerations, naturally, play their part. The deficit is forecast to be £126bn this year [£10bn higher than originally expected] and Osborne wrongly believes that slashing the state is the best way to reduce it. In an inversion of Keynes, he thinks that if you take care of the deficit, unemployment will take care of itself. But Osborne, who is both Chancellor and the Tories’ chief electoral strategist, also has political considerations in mind. The Spectator’s James Forsyth quotes one senior Conservative thus: “You create a bigger private sector, you create more Tories.”

The polls certainly suggest as much. Data from Ipsos MORI shows that while Labour enjoys a 28-point lead among public sector workers, it trails the Tories by six points among their private sector counterparts [see graph].

Logic says that if you reduce the former group and expand the latter [the OBR forecasts an extra 1.7 million private sector workers by 2017] , the Tories will benefit. A smaller public sector means fewer people with a vested interest in high levels of state spending. Even if the private sector fails to pick up the slack, studies show that the unemployed are among the least likely groups to vote. Putting Labour voters on the dole is win-win for the Tories. Osborne may claim that his cuts are born of necessity, rather than ideology, but be in no doubt about the political nature of his project.

George Osborne plans to cut 730,000 public sector jobs between 2011 and 2017. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.