Originally published in the Herald on Monday, April 19, 2021
By Andrew Morrison, director of MCC Accountants
Statistics slipped out by the Scottish Government last month revealed the very healthy state of public sector employment in Scotland.
The number of those working in places like schools, hospitals and the emergency services had increased to the highest since 2013.
It’s somewhat surprising ministers didn’t make more of the fact that 573,200 people are now in the employ of the public purse, representing 21.8 per cent of Scotland’s workforce.
Make no mistake: these are all valued jobs without which the country could simply not operate.
And for those working in the public sector, job security is often good and so are pension and benefit arrangements (although admittedly not as tasty as they used to be, as many a council old-timer will tell you).
But this increase presents a risk too, and whoever makes up the next Scottish Government must look closely at these ratios to ensure higher numbers are finding work away from the state.
In short: we may need to prioritise the private sector in order to save the public sector.
As we know from many heated debates in the Holyrood chamber, the funding of local authorities in particular has probably been lower than it should have been in recent years.
Annual increases in allocations often haven’t matched inflation, meaning many councils have had to dig into their reserves just to keep the show on the road.
The problem for the next incumbents of St Andrew’s House lies in taxation.
If more people are working in the public sector, it creates less fresh tax for the government to collect and redistribute.
If a hospital consultant earns, for the sake of simplicity, £100,000 a year they will probably pay back around £30,000 in income tax.
So that’s cash that has come from the public sector going straight back in. The government paying itself, if you like.
But if a successful fintech business opens up in Edinburgh, or a new oil and gas venture in the north east, and pays its senior workers £100,000 a year, the £30,000 they give back in tax is new money.
It’s cash our public services previously didn’t have, and all the more valuable for it.
The proportions need to change.
While 78.2 per cent of Scots work in the private sector now, the ratio across other parts of the UK is closer to 81 or 82 per cent, depending on what data you use.
That may seem like a small amount, but it’s the difference of potentially millions in taxation.
Of course these are near-impossible arguments to make for politicians.
No candidate, especially one seeking an electoral mandate from the people in just a few weeks’ time, wants to make out like those working in the public sector are somehow a burden on the country’s finances or, worse, spongers.
But it’s a debate that needs to take place.
Many have said that vital public services on which we all depend cannot keep going indefinitely with the current funding arrangements in place.
Barely a year goes by when nurses, teachers, fire fighters and police officers don’t make very compelling arguments for a pay rise.
That needs addressed, but so too does the need for a more diverse tax base.
Perhaps the Covid-19 pandemic and the economic ruin it’s triggered could present an opportunity for such a turnaround.
Of course it won’t happen quickly, but there are numerous measures both the UK and Scottish Government can do to make Scotland a better and more attractive place to do business.
Clearly, in the midst of an election campaign especially, politicians want to talk up how much they value public services.
But warm words will be far less effective than a deliberate shift to creating more jobs in the private sector.
That should give the public sector space to breathe, and will provide additional financial security allowing them to continue the fantastic services upon which we all rely.