Progressive or regressive? Equitable or efficient? Stimulus or austerity?
The Budget Spending Review to be published and announced on Wednesday will potentially be a defining day for the British coalition. How departments will have their funding cut will be announced and will certainly shape the economy of Britain over the coming term.
It has been announced that certain departments have been ‘protected’ for example health and international development whilst others have had their cuts reduced – defence, schools. A mass cull of quangos has also been announced further putting public sector funded jobs at risk.
Let’s be clear; there is a distinct need to cut-back on government spending. Efficiency gains need to be exploited, productivity needs to increase and we need to maintain the global credit rating in order to attract long-term investment. If the finances are not dealt with now, the argument goes, then business will lack confidence in the long run due to the potential of higher taxes and rising interest rates and so will not invest now – all leading to a lack of competitiveness.
With large public sector (funded) jobs being lost the obvious tactic by the government is to incentivise the private sector to pick up the slack. The drive towards localism has opened up the opportunity for enterprises of all sizes to increase their staff levels. But can the private sector genuinely be able to provide this number of jobs? Let’s not forget that a recent report by PwC has suggested that around half a million private sector jobs are at risk from public sector cuts as contracts will cease – the affect mostly felt by small businesses.
Moreover, will these cuts improve the confidence levels of consumers facilitating an increase in spending? Or will people lose or lack job security, move into long term unemployment and save rather than spend?
The cuts in human skills and development will surely hurt the economy. There are severe cuts to university education, scientific research and technology. Not only does this highlight the issue of regressive university policy (i.e. university places are decided by income and not ability) but it also throws up the question of how the current government views where economic growth will come from. Maintained investment in science, for example, will have a multiplier effect on other sectors of society – subsidising the very expensive research will lead to breakthroughs, technology advancement, manufacturing and production, job creation, consultancy opportunities to export abroad etc.
Do there need to be cutbacks? Yes. Is this the only policy to pursue? Certainly not. The cutbacks need to happen over time to allow adjustments from public to private. There also needs to be clarity and transparency in future policies – with a lot of the economy relying on confidence, be it business or consumer, future policies on taxation, goals for interest rates and welfare reform all need to be stated. This will allow security and confidence to flow back into businesses, investors and consumers – currently everyone is playing it safe.
A clear theme for the current government is to ensure the markets feel safe. This rhetoric is not necessarily flawed (unless it is the only theme) but will investors plough money into the UK if the cutbacks (which is what the markets want to see) are not accompanied by future policy? Watching the markets’ reaction on Wednesday will be fascinating.
The Budget Spending Review will indicate where the opposition Labour sit; it will shape the economic and political infrastructure of the UK for the next 5-10 years and; it will highlight which areas the coalition government have picked to ensure economic growth and job creation.
Wednesday 20th October is a crucial day for the UK.