Is the public sector really ‘too big’?

How public spending is spread around the UK is generating great interest, after David Cameron identified areas like Northern Ireland and the North East as having a public sector that is ‘too big’. Is he right? Well, sort of.

Much of the coverage has been based on figures that show the public sector constitutes up to 70 per cent of the economy in some parts of the country. These are quite shocking figures, but they deserve closer inspection.

Treasury figures published last week reveal that spending per head is spread unevenly around the country. Areas like Northern Ireland, Wales, Scotland, the North East and the North West of England receive above average levels of public spending per head, while regions like the South East and East of England receive less than the UK average. Surprisingly for some, these figures also reveal that is it actually London that receives the most public spending per head – 15% above the UK average.

Mostly what this shows us is which parts of the UK have the highest levels of social and economic need, as a large proportion of this spend is made up of ‘social protection’– i.e. benefits and the state pension. This spending is entitlements-based, and responsive to need, so if the number of claimants of Jobseeker’s Allowance in an area increases, so too does social protection spending.

So why didn’t David Cameron flag London’s public sector as too large? The figures he used looked at the sector as a proportion of GDP, rather than public spending per head. The City of London’s economic success (much of it the result of people commuting in from surrounding regions) disguises the size of public sector spending when the figures are viewed in this way.

Cameron did also make the argument that the private sector needs to be larger in the Northern regions, Wales and Northern Ireland, which is the right way to think about the issue. It is not so much that the public sector is 'too big' but that the private sector is 'too small'. You could argue that without public sector employment the situation could be even worse in some parts of the UK.

We all know cuts are coming and they have to be made, but it is vital that economic geography is factored into the thinking as the size of the public sector is reduced. Otherwise, there is a risk that swinging cuts could have a particularly negative effect where social and economic need is already high.

Katie Schmuecker