Downsizing the state

I think that if the economy remains stagnant then 2011 could turn out to be a turbulent year in political terms. Presently we're in a kind of calm before the storm period. VAT hasn't yet gone up to 20%, which will inflate the cost of nearly everything, and the public sector employee layoffs havn't yet begun.

So how many people are going to become unemployed within the next year or so? It's difficult to come up with a precise quantity, but it's possible to do a back-of-an-envelope type of calculation. If the state is downsized by 25%, as indicated in this BBC article, and if it currently has around six million employees according to the Office of National Statistics, then if the number of jobs lost is in a similar proportion this works out at about 1.5 million. This is close to the current official claimant count for the unemployed for August 2010 (1.47 million), which means that potentially over the course of 2011 unemployment could double if the economic outlook doesn't improve.

1.5 million is only a very rough figure, but it gives some idea of the order of magnitude of the problem. Conservatively assuming that only a million of these newly unemployed claim state benefits, and that they're only able to get a miserly £50 per week to live on that adds £2600,000,000 per year of additional borrowing to the government's deficit. Will they be able to afford it, or will they resort to printing money again, instigating an extra round of "quantitative easing" or currency devaluation?

And apart from the numbers there's also the human element. I expect that many of those about to join the dole queue will be quite well educated middle class professionals who constitute the bulk of civil society. People like teachers, managers, administrators, councillors, social services staff, police officers and maybe some medical professionals (although it was claimed at the last election that NHS spending would be "ring fenced" to protect it from cuts). These people have a long way to fall in terms of living standards, and may not choose to slide quietly into poverty. They're also well connected in the classic social networking sense, and may be somewhat politically active.

So all the above looks like a recipe for a decidedly dicey situation. I wouldn't rule out the possibility of social unrest or rioting, similar to the poll tax riots of the late 1980s. In the best possible scenario the economy continues to recover and there is no particular problem in absorbing the consequences of a reduced public sector, with growing private sector business picking up the slack. Whether that will happen remains to be seen, but based on my own job searching the employment situation still looks extremely bleak with no obvious signs of improvement in the immediate future.