Public sector cuts: An end to the graduate safe haven?

What this means for graduate prospects

Good news travels fast. The recession is over, or soon will be. This will no doubt bring a sense of relief to students who, over the past months, will have been worried by the worsening statistics regarding graduate employment. "48 applicants for every graduate job" was one of the scarier headlines. The depiction of 2009 as "the worst year to graduate since the 1980s" did little to settle nerves.

Yet throughout the crisis there has been a safe haven for graduates: the public sector. While legal and financial firms were firing people faster than a Labour cabinet, state employers have continued to hire graduates, in many cases even increasing their intake. According to a Times Top-100 survey, public sector employers offered 20 per cent more jobs to graduates in 2008 than in the previous year, as Labour continued its policy of large-scale investment in public services. Areas such as the NHS, the civil service and the armed forces remained key destinations for graduate talent, with the latter hiring 12 per cent more university leavers in '08, the result of the escalating Afghanistan campaign. Meanwhile, economics and finance graduates have benefited from recruitment drives by the Financial Services Authority (FSA), the Bank of England and the Treasury.

This could all be about to change. As the private sector's fortunes pick up and banks and legal firms begin eying-up campus talent once more, there are increasing concerns over the state's role as a major employer.

Her Majesty's Government currently employs six million workers across the UK. That equates to around a fifth of the country's total workforce (or roughly the populations of Scotland and Northern Ireland combined). In some areas of the country, such as Liverpool, public sector employees form up to 40 per cent of the workforce.

A more staggering statistic, however, has been the rate of growth of public sector jobs, which increased by 5 per cent between June 2008 and June 2009 with an additional 270,000 positions created. This has been in stark contrast to the private sector, which shed 230,000 jobs between May and June of this year alone.

You might wonder how the government can continue to keep topping up its hefty wage bill at a time of rising unemployment and falling tax receipts, not to mention the considerable cost of bailing out the UK's financial sector? The answer is it can't. Britain's bloated public sector is placing increasing strain on the country's finances. The International Monetary Fund (IMF) expects the UK's public borrowing to reach 13 per cent of GDP in 2013, dwarfing the 8 per cent deficit incurred during the recession of the early 1990s, or the 7 per cent reached during the mid 1970s.

The UK's debt was 41 per cent of GDP at the start of the economic downturn. It is now expected to surpass 60 per cent next year. While this is still lower than the levels in other developed countries, such as Italy and Japan, the rate of increase represents the fastest rise among any major Western economy.

Whichever party wins the next election will have no option but to cut spending in a big way. In the unlikely event that Labour stay in office beyond 2010, Alistair Darling's budget outlines a series of measures to cut spending by about 4 per cent annually from 2011 (once the UK is safely out of recession) all the way to 2018. This would be the largest reduction in public spending since the late 1970s. Should the Tories, long-time critics of the spending excesses of the Blair/ Brown administration, return to power, we can expect an even more drastic series of cuts.

Reduced state expenditure will undoubtedly result in a slimmer public sector workforce. Dr John Philpott, chief economist of the Chartered Institute of Personnel and Development, expects a "bloodbath in public services" and estimates that as many as 350,000 state positions will be shed over the next five years.

What does this mean for graduates?

Though neither party has revealed specific detail as to where the cuts will be made, expect the implications to be felt by the graduate job market. The Gateway looks at some of the possible knock-on effects for graduate employment.

What are the alternatives?

With the number of graduate positions in the public sector set to dwindle, many leavers will be counting on a strong recovery from the private sector. We look at the alternatives to state funded positions over the next few years.

Large Corporates

Yes, the banks, law firms and consultancies are recovering and starting to recruit again, but don't expect the same happy hunting ground for graduates as before the downturn.

Whoever is in office this time next year will be hoping for a strong recovery from the financial services sector to boost GDP growth and help the country out of its current debt. The Conservatives intend to facilitate this by offering incentives to businesses including lowering the rate of corporation tax.

However, as economists are keen to point out, unemployment tends to remain high for some time after a recession. The UK's largest financial institutions and law firms have been hit hard by the recession and may continue to feel the effects, resulting in slimmed-down graduate schemes. Furthermore, a surge of consolidation (mergers and acquisitions) between companies during the downturn will mean a narrower choice of grad schemes to choose from.

Banks which have received large state support, such as The Royal Bank of Scotland and Lloyd's TSB, may well be under pressure to cut costs which may mean fewer graduate positions.

Still, graduate recruitment levels should show a noticeable improvement from the depths reached in 2008 and 2009. Companies which have cut back on recruitment over the past two years may find them self short staffed and keen to bolster depleted departments with fresh talent.

Find advice on getting into banking, law and consultancies on the Gateway website.

Small Businesses/ Entrepreneurship

A Tory government might not be as bad at it sounds, especially for budding businessmen and women. The Conservatives have outlined a series of measures to encourage private sector growth and help small and newer businesses. These include lowering the main rate of corporation tax, offering tax incentives for businesses to hire new staff and, reducing taxes for small firms.

Interest rates are also likely to remain low for some time to encourage lending and business growth. This means that, in theory at least, conditions for starting or maintaining small businesses should be healthy.

This should mean good news for graduates hoping to join small businesses and start-ups or even looking to start a business themselves.

For more information and tips on starting-up check out the entrepreneurship section of The Gateway Online at www.thegatewayonline.com/entrepreneurship

Teaching

Schools are likely to survive the public sector crunch better than many public services. Expect improving standards of education to remain a priority for whichever party takes office in 2010.

Top graduates are likely to continue to be in demand, particularly those with capabilities in quantitative disciplines such as science and maths where good teachers are sorely lacking. For university leavers this presents several options. A one-year funded Postgraduate Certificate in Education (PGCE) which allows you to teach in England, Wales and Northern Ireland is one option with bursaries of between £6,000 and £9,000 offered to those training to become secondary school teachers. Primary school teachers receive bursaries of £4,000.

Meanwhile, the Teach First scheme offers talented grads the chance to try their hand at teaching for two years in under-resourced schools across the country before deciding whether to pursue a career in teaching or join the private sector.

A newly qualified teacher will receive a minimum starting salary of £21,120 per year depending on their chosen subject and the area of the country where they are based.

For more information check out www.tda.gov.uk

Overseas Opportunities

Intrepid university leavers may want to take advantage of the healthier public finances offered from some of the UK's economic rivals. Take Australia, expected to post a budget surplus in 2009 (compared with the UK's 12.5 per cent deficit) and likely to be on the lookout for hot graduate talent both in the public and private sectors. Other well-placed developed regions such as Canada and Scandinavia may present similar opportunities.

Avid followers of the Gateways coverage of emerging market developments will be aware of opportunities in high-growth regions such as China and Brazil, where English speakers are in high demand and increasingly earning attractive salaries. The chance to leave Britain's debt woes behind and start your career exploring another culture whilst learning a new language may be too good to turn down.

Armed Forces/ Defence

The fourth largest recipient of government spending after Welfare, Healthcare and Education. Britain's military is the envy of the world and our military prowess allows us an important standing with other countries, not least the United States. As such, spending on defence has been a key priority for the current administration with two major conflicts to fund, not to mention additional resources to combat the growing threat of terrorism at home.

University graduates continue to be highly sought after by all areas of the armed forces with 12 per cent more graduate positions on offer in 2008 alone. However, the first Conservative government for 13 years may well feel the urge to distance itself from Labour's unpopular foreign policy by making major reductions to military spending. Expect the armed forces and defence services such as MI5 and GCHQ to see budgets slimmed, resulting in reduced graduate intake.

The NHS

National health services have been the largest beneficiaries of Labour's spending since coming to power in 1997, receiving a 6.3 per cent increase in funding each year between 1999 and 2009. Over the current financial year the health sector is forecast to receive £120 billion in funding.

Despite being a considerable drain on public finances, the NHS remains financially stretched and with the post-retirement age population growing ever larger, the service is likely to come under increasing pressure in years to come. Both Labour and the Conservatives will find it hard to cut back on an essential service without facing a strong public backlash. The Conservatives have promised that they will 'ring fence' front line services.

Any cuts are likely to focus on administrative and management positions, into which large numbers of graduates are recruited, rather than frontline medical positions.

Education Services

Currently the third largest recipient of public spending, this is unlikely to change drastically following the coming election. Labour have placed education as the party's priority since 1997 and will be reluctant to cut spending to the sector while the UK's school children still lag behind many developed nations in key skills.

A major recruitment drive has been launched to tempt greater numbers of university leavers in teaching positions, with top graduates attracted to innovative new schemes such as Teach First.

The Conservatives are likely to carry this through into their first term in office. The party are reported to be keen to encourage the creation of up to 500 free schools (schools run by parents and charitable organisations) which may create additional positions for graduates. Overall recruitment levels may in fact rise over the next few years, though support and administrative staff numbers may be reduced.

The Civil service

Possibly the most threatened sector, Britain's civil service has become a noticeably bloated over the past decade. Attempts to slim down the service have been in place for several years with more than 100,000 positions slashed in 2004 at the peak of the economic boom. Despite this, the service's Fast Stream has remained a major graduate employer and a popular destination for university leavers tempted by promises of job security and generous benefit schemes.

With job reduction already an established policy under Labour, David Cameron's party is likely to see further cutbacks to the service as a relatively safe way to cut public expenditure with limited public outcry. This may well mean a negative outcome for those graduates looking to enter the Civil Fast Stream, which recruits graduates into leadership positions across government departments.

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