The Midlands lost 24,000 public sector jobs in the 12 months to June 2011, according to a new PwC report published yesterday (Thursday) on the anniversary of the 2010 Spending Review.

That 5.1% fall in Midlands public sector employment brings to almost 300,000 the total number of public sector jobs lost across the UK since December 2009; and PwC says the pace is accelerating.

Between December 2009 and June 2011, public sector employment fell by around 290,000; and, while this was offset by around 600,000 new private sector jobs, PwC says the English regions have suffered most, with the North East and West Midlands (with 16,000 public sector job losses) hardest hit.

The report says that, while the full impact of the spending cuts has yet to impact the devolved regions of Northern Ireland, Scotland and Wales, the pace of public sector job losses is accelerating.

PwC also warns that, as economic growth falters, there is a significant chance of a double dip recession.

PwCs' report, "Spending Review: One year on," concludes that the scale of public sector job cuts are much deeper and have occurred much faster than projected by the Office of Budget Responsibility (OBR).

Commenting on the report, Michael Kitts, partner and public sector leader at PwC in the Midlands, says:

"The public sector job losses have come much faster than anticipated - largely attributable to front end loading of cuts that were expected to be spread equally over 4 years.  After only one quarter of data for this financial year, the job losses in the public sector have already exceeded the OBR forecast for the whole of the 2011-12 financial year."

A year ago, the Coalition's first Spending Review settlement, set out plans for dealing with the deficit and the public sector debt mountain.

After the Chancellor's announcement[1], PwC assessed the impact of the fiscal squeeze on output and jobs in private sector industries and across the UK regions[2]. The PwC forecasts included:

·         Around 435,000 private sector job losses by 2014/15 in addition to the loss of public sector jobs (then estimated by OBR at 490,000 but later revised down to around 400,000 by 2015/16).

·         The hardest hit regions were expected to be Northern Ireland, Scotland, Wales and the North East of England (in terms of job losses as a percentage of total employment in these regions).

·         The key sectors worst affected by the cuts were expected to be construction and business services.

"Spending Review: One year on," looks backs on the first year of the Spending Review and concludes that there is a persistent feeling of uncertainty and an expectation that the worst is still to come.

The report says the good news is that PwC's forecast that private sector job gains would offset public sector losses has been borne out, although the gains have been most evident for part-time jobs.

However, public sector job losses appear to have been more front-end loaded than expected, with early losses particularly severe in local government, whilst the regional impact so far has been more varied than originally expected.

PwC examined the 600,000 new private sector jobs created since December 2009 and concluded that private sector job gains since late 2009 have been more focused towards part-time, rather than full-time jobs, with average hours worked falling in the second quarter of 2011 to the lowest level since the start of data collection in 1995.

However, the report  points to the second quarter of 2011; when the public spending cuts started in earnest; and where public sector job losses of 111,000 significantly outweighed private sector job gains of around 41,000.

The report examines official data which suggests that the biggest gains in jobs over the past year have come in business service related activities (e.g. information and communication industries) and in accommodation and food service activities.

The biggest losses have come from sectors with traditionally high levels of public sector employment and funding (administration, defence, education & construction) with the exception of the health sector which, has seen increases in total jobs according to the ONS Workforce survey (although this is subject to some uncertainty given other ONS survey data showing a net decline in NHS employment).

Around 240,000 fewer people worked in the public sector in the second quarter of 2011 compared to the same quarter in 2010, according to ONS.  Central government, including the NHS, lost 66,000 employees, and public corporations (such as the BBC and the Post Office) around 29,000, but by far the biggest toll was in local government which lost 145,000 employees in the year to June 2011.

Over the whole period since the fourth quarter of 2009, around 290,000 public sector jobs have been lost, whereas OBR forecasts in November 2010 projected central and local government job losses of only around 400,000 over the whole Spending Review period to 2015.

Turning to the regions, PwC says public sector job losses over the past year have not fallen evenly across the UK (see Notes to Editors). The devolved administrations have been relatively protected so far, whilst the South West and North East have experienced the largest job losses in percentage terms. This, the report says, been particularly damaging for the North East, with its relatively high dependency on public sector employment.

The devolved administrations have traditionally received higher public spending per head than the UK average due to the Barnett formula. The report says Barnett funding may still be shielding them to some extent as the spending reductions in block grants to the devolved Assemblies are less severe than the average UK departmental cuts.

However, PwC warns that residual public spending working through the devolved regions simply means that job losses have been delayed. In Scotland, for example, the Parliament voted last year to defer some cuts until the following year (although, in practice, the actual percentage change in public sector employment in Scotland in the year to 2011 Q2 was the same as the UK average). The report concludes that future job losses in these regions are probably inevitable as the cuts continue to bite over the next 3-4 years.

[1] PwC UK Economic Outlook, November 2010.

[2] 'Sectoral and regional impact of the fiscal squeeze', PSRC, 2010.