The North East could be set to suffer from the biggest cut in the public sector workforce for more than half a century, an influential think tank has warned.
The Institute for Fiscal Studies says the public sector outside the NHS and schools could see a 40% cut in its workforce over the next five years if those areas continue to be protected by Government.
Those cuts would disproportionately fall on regions like the North East with high levels of public sector employment, the IFS report says.
The report says the North East is almost “breaking even” with private sector jobs being created to replace lost jobs in the public sector.
But there are fears that further cuts could have a knock-on effect for small businesses.
Luke Sibieta, researcher with the IFS, said the percentage of workforce in the public sector was largest in the North East and smallest in London, the West Midlands and the South East.
The IFS also found private employment rose by more in every region than public employment has fallen since the start of the decade – apart from the North East.
He said: “In every region the private sector is growing more quickly than the public sector but the North East is interesting. In the North East, the private sector just about matched the public sector, whereas in most regions the private sector is by far outstripping the public sector.
“We won’t know exactly what impact this will have until we see what the job losses are.”
The study shows how 26% of people in employment in the North East work for the public sector – a figure 3% higher than the national average and thought to be the reason why the region has the highest unemployment rate in the country.
Ted Salmon, FSB North East Regional Chairman, said: “There’s no doubt that the private sector in the North East is growing and we can’t see any reason why this should diminish over the next few years. Our members across the region are reporting increased confidence and are more optimistic for the future. This should see an increase in business investment and more taking on staff to meet ambitious growth plans.
“The cuts to staffing in the public sector will have an impact on businesses, especially in areas like retail where there will be less discretionary spend. It could also have an impact on small businesses supplying the public sector as relationships built up will be lost and smaller contracts get amalgamated into bigger proposals.”
Ross Smith, head of policy for the NECC, said: “If you look at a whole series of economic projections then it does point to the need for quite significant cuts in public spending and what we need is some real honesty about where they are going to fall so businesses can prepare and plan.
“Businesses here have shown real resilience and we are confident that we can face up to the challenges.
“At the moment we are seeing significant employment growth and that is testament to the strong performance of our businesses because that growth has not come from the public sector.
“The public sector is a big customer of businesses in the North East. It will make a big difference to them if it is a case of turning off the tap overnight but if it is a proper plan then businesses will have a chance to adapt.”