How Private Sector Business can counter the cuts to UK plc

The 20th October saw the Chancellor, George Osborne, deliver the Comprehensive Spending Review Statement which was billed as the defining moment of the Coalition Government. After five months of discussion and brinkmanship between Whitehall departments and the Treasury, the Chancellor announced that public spending will be cut by £83bn over a five year period in order to tackle the huge budget deficit.Immediately, the markets picked up as their belief was that if cuts were slower, or not as far reaching, it would mean more borrowing and that would put market confidence and the UK’s triple-A credit rating at risk. This could have potentially resulted in UK plc going the same way as Greece and Ireland.

However, it was also predicted that some 490,000 jobs in the public sector would have to go. Predictably, the trade unions and the Labour Party claimed that George Osborne’s plans would send the UK economy into a double dip recession. But is this the most likely outcome for UK plc?

Public sector job losses and cuts will not necessarily lead to little or no growth, or even a double-dip recession. Indeed an Institute of Directors blog recently observed that between 1991 and 1997 public sector employment fell by around the same amount as we are likely to see following the CSR, but that this did not prevent a sustained upturn in economic growth.

Any recovery will, quite clearly, have to be Private Sector led, with spending cuts the only credible option. The alternative, higher taxes, would stunt growth and damage the Private Sector at just the time the country needs it to fire on all cylinders. Thus, the government’s plans should provide a stable economic platform from which to build a recovery. Furthermore, data suggests that between 250,000 and 300,000 Private Sector jobs have been created in the previous quarter, so business is more than capable of making up for job losses in the Public Sector.

Every cloud has a silver lining, so the saying goes, and the current situation should be looked upon as an opportunity for Private Sector businesses and not a threat. As the government looks to shrink the Public Sector, many opportunities may present themselves for the outsourcing service providers across the UK. The point is, services won’t necessarily be reduced but transferred from Public to Private Sector providers (along with the associated risk and reward).

Furthermore, in the CSR, the Chancellor retained a lot of the infrastructure projects across the country and this too must be seen as a boon to business (along with the Public Sector pension reforms which appear to be fair and equitable when compared to pensions in the Private Sector).

Recent “first cut” figures showed that the UK economy had grown by 0.8 per cent in the last quarter, which was double the 0.4 per cent growth predicted. Although this was a drop from the 1.2 per cent in the previous quarter, one has to remember that the previous quarters figures were totally unexpected and were the result of many non-normal economic factors. In summary then, the 0.8 per cent growth was a pretty strong performance given the current circumstances. It’s a given that growth will almost certainly be relatively subdued for some time, and one question doing the rounds is whether the Bank of England may have to inject more money into the economy soon. To counter this, it is also fair to say that inflationary pressures have also been with us for some time (with the Bank of England Governor, Mervyn King, writing regular letters to the Chancellor for some months now) and this may ultimately head off further quantitative easing.

Overall then, from a business perspective, the Comprehensive Spending Review has probably given the country the best chance of a sustainable, private sector-led, period of growth. It’s now up to the business sector to get out there and make it happen. Let’s get to it!!!