The UK public sector has swelled to its largest size in over a decade, even as the wider economy struggles with a hiring slowdown. Figures from the Office for National Statistics (ONS) show almost 6.2 million people now work in the public sector – the highest since 2011 and up 75,000 in the past year.
The total includes a record two million NHS staff and the biggest civil service headcount since 2006. By contrast, private employers have pulled back on recruitment following increases in employment taxes and the National Living Wage earlier this year.
The expansion in the state workforce comes at a difficult moment for Chancellor Rachel Reeves, who is preparing her autumn Budget on 26 November. She is expected to raise as much as £30bn in new taxes to close fiscal gaps created by weaker growth forecasts and pressure from the Office for Budget Responsibility (OBR).
Economists warn that the combination of a growing public payroll and persistently low productivity leaves Reeves with little choice but to tighten the tax burden, already heading towards a post-war high.
Despite employing nearly 600,000 more people since the pandemic, the public sector is delivering less. The ONS estimates productivity was 4.2% lower last year than before Covid-19, meaning taxpayers are effectively paying more for reduced efficiency.
Professor Jagjit Chadha, an economist at Cambridge University, said the government must present a credible plan to slim down: “A lot of state employment is incredibly valuable – NHS, police, schools – but it’s become a little bloated over the last few years. If you could reduce the number of people employed by the state and improve productivity, you wouldn’t need to raise taxes as much.”
The wider backdrop is sobering. UK debt is approaching the size of the £2.8 trillion economy, while the yield on 30-year gilts has climbed to a 27-year high, reflecting investor demands for greater fiscal discipline.
Economists at Oxford Economics and the Institute for Fiscal Studies (IFS) warn that Reeves’s plan to deliver 1% annual efficiency gains until 2029 is “ambitious” given the public sector’s historic productivity growth of just 0.2% a year. Failure to deliver even modest improvements could leave the Chancellor facing a funding shortfall of up to £18bn.
Andrew Goodwin, chief UK economist at Oxford Economics, said: “If we’re thinking about how the public finances are put back on an even keel, it is imperative the government improves public sector productivity. We can’t just keep raising taxes.”
Prime Minister Sir Keir Starmer has pinned his hopes on AI and digital technology to reduce administrative workloads and boost frontline efficiency. But without a clear plan to curb the size of the state or improve its productivity, analysts warn Reeves may be forced into another round of painful tax increases – with businesses and households once again footing the bill.
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Bloated public sector growth leaves tax rises all but inevitable