Tynwald has rejected a call to reduce the government headcount.

An Economic Policy Review Committee report on the structural deficit argued size of the public sector should not threaten or be competition to the private sector, and the recruitment control framework should be updated.

It claimed: ‘We have a bloated public sector while local businesses have been placed under ever-increasing strain.’

The report also called for the ‘normalised’ use of reserves to close the gap in operational public expenditure to be dramatically reduced in order to restore the sustainability of public finances.

Committee chairman Jason Moorhouse said despite repeated assurances that the structural deficit would be significantly reduced, it had remained at around £100m.

He said: ‘This is our ticking timebomb that will see a wealthy jurisdiction use assets carefully accumulated over many years to find day to day spending with no consideration about the impact on the next government and the island’s future population.

‘It could be argued that the management of the public finances is clearly no longer sustainable and its mindset must put our remaining reserves at risk.’

He said public expenditure exceeds what public revenue can support. And he said the very high public sector headcount - 7,837 FTE according to the latest figures - came at a time when many businesses were continuing to experience labour shortages.

But Paul Craine MLC said: ‘I do not see a rush to austerity as any sort of political solution for us.’

Douglas South MHK Joney Faragher said there was no evidence for the committee report’s assertion that the public sector was threatening or competing with the private sector.

She told Tynwald: ‘The public sector should not be defined in terms of its opposition to the private sector. both play different roles.

‘Policies should ensure they function effectively rather than artificially constraining one to benefit the other.

‘While it is important that the public sector doesn’t distort the labour market, it’s primary purpose is to deliver essential services.’

She said if it was simply the case of dramatically reducing the use of reserves it would have been done already.

And although she agreed the need to balance the books better, she worried that Treasury dramatically reducing the use of reserves would ‘give the green light to public service reduction on a large scale’.

Former Treasury Minister Alex Allinson likened the report to ‘receiving an inappropriate present from a distance uncle you would rather return but didn’t have the receipt’.

Ministers had rowed back on claims that cutting the government headcount would likely lead to increased spending on unemployment benefit.

This had been the warning from the Council of Ministers in its response to the damning Tynwald scrutiny committee report..

But this warning was subsequently removed from its response document.

The recommendation on updating controls on the size of the government headcount was rejected on a division between the branches, with the House of Keys voting 17 to seven in favour but the Legislative Council voting one to seven against.

All other recommendations, some amended, were approved.