The real cost of the public sector worker

The £6bn cuts recently announced by the coalition will, mean job cuts. Many of these will be in the public sector, and future cuts will no doubt result in more job losses. But what is really achieved in sacking a public sector worker? Let’s think things through (in a way that the Government won’t).

Lets assume a public sector worker on a salary of £25,000 a year. Thats around the median wage, so is probably typical, although its more than I am on. So if we sack this hypothetical worker, we save £25k, right? So if we get rid of 40,000 we can save a billion pounds right off the deficit, right? No – you couldnt be more wrong, and lets have a look why.

First of all, of that £25k that is paid out, £3,700 comes straight back as income tax, and a further £2,100 in National Insurance contributions.  The hypothetical public sector worker takes home just £19,100. Of that £19,100, the worker (lets call him Bernard) will spend money on things like petrol for his car – on average Bernard will spend £2,500 on fuel alone- of which approximately 75% goes to the taxman in fuel duty and VAT, road tax etc, so another £2,000 goes back to No. 11. Bernard probably enjoys a drink or two at the weekend, and probably buys some other non-essentials which attract VAT, so probably another £500 or so goes on tax or duty. Of his remaining £14,000 probably £6,000 or so goes on rent (£500 a month will just about get you a flat in most regions of the UK, but it will cost more in London or the South East). On that flat he will be paying about £1,000 in Council Tax – again probably higher in some parts than in others, but I like nice round numbers, and we pay £979 on our one bedroom flat in a low council tax authority, so I think its probably generous.

If Bernard is made redundant, not only will UK plc loose the £11,000 he pays in tax, he will apply for Job Seekers Allowance. As we’ll assume he is married, he gets £102.75 a week – more if he has any children, but we’ll keep it simple for now. Thats £5,300 a year – probably just enough to live on, at least as far as food is concerned. His rent is cheap enough that it will be covered by Housing benefit, so thats another £6,000 the (local) Government has to find – as well as his Council tax too, another grand. So the costs which the state will incur after sacking the hapless Bernard are at least £12,300, whilst loosing tax revenues of £8,300 – a total of £20,600.And thats before we even look at whether Bernard does anything useful and constructive.

So we havn’t saved £25,000 after all, we’ve only saved £4,400. Oh well, we just have to sack a quarter of a million of workers to save that billion quid. And sod the social consequences.

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