Most of us will have friends – even family – working for the government in some way, so we are not against civil servants and local authority employees per se. However, news that half of new jobs created since 1997 were directly or indirectly created by the state (in the West Midlands the state accounted for the entire rise in employment) gives rise to considerable concern.

Why worry if jobs created are government ones?
There are two issues with this, one is slightly esoteric so we will address that second, but the other hits each one of us directly. According to the Centre for Economic and Business Research, if the public sector pay bill had risen in line with that in the private sector over the past two years, then taxes would have been £11 billion lower. Put another way, the entire income tax and national insurance increases for 2010 and 2011 would have been unnecessary.

What is more, the state might have had to borrowed less to pay for its expansion, making it easier for it to pull in more money to help pay for the cost of bailing out the banks.

Is it as simple as that?
Well, of course, there are always two sides to the coin. Had the new jobs not been created, there would have been greater unemployment, which is itself a cost to the economy. However, while one could argue that unemployment benefit would still be cheaper than paying salaries and associated employment costs, there are wider implications (and not just the political ones to the incumbent administration) in having soaring numbers on the dole queue.

Not least of these is that the social cost of rising unemployment is far greater than just the cost of state handouts. It tends to sap not just the individuals involved but entire communities, leading to local – if not regional – depression. This could have sapped confidence just as we were entering and then passing through, a recession.

On balance then, it is a good thing that jobs were created.

Wider economic implications of state job creation
The broader issue of state job creation is, however, to do with the balance between the state and private sectors within the economy itself. However good a job individual civil servants may perform – and there are undoubtedly many who perform exceptionally – what they do is frequently administrative rather than productive. What I mean by this is that a benefits clerk will be helping people by assessing needs and paying out social security benefits to those in need and that is good for the individuals and society. It does not, however, actually create anything.

On the other hand, those working within the private sector are either directly manufacturing something that creates added value to the economy, or working in some other capacity that generates wealth. Whatever we may think about the way banks have behaved in the past, even they - like insurance companies, fund managers and financial advisers - are wealth creators for themselves and others; they too make a positive contribution towards the economy.

This is actually part of a wider debate and it will be interesting to read what others have to say on the subject.

Getting advice
As ever, when it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.