George Osborne, the chancellor, announced – via the Comprehensive Spending Review –that £81 billion needs to be cut from public services spend over the next four years – which some sections of the media have described as ‘eye-watering’ – all in order to tackle the UK’s fiscal deficit. In fact, some economists argue that a £81 billion retrenchment in public services does not go far enough to address the UK’s shortfall. They point to the alarming cumulative acceleration of that deficit into the future, resembling a high-interest rate credit card. Other economists argue that growth is as much a key part of the recovery solution as are cuts.
Although I’m no economist I know basic Keynesian economic principles suggest that emergence from recession is dependent on growth – cuts alone are not sufficient. My concern with the current UK economic situation is the stuttering state of growth – with yoyo-like fluctuations over recent quarters in GDP – although acknowledging the latest quarter statistics released by the Office for National Statistics show improved growth. However, add into the mix the prospect of consumer confidence affected by an increase in VAT to 20% in the New Year, the fall of the euro (meaning that sterling is relatively expensive in comparison) the corollary of which is UK exports to the EU take a nose-dive just when we need stronger trade with Europe, our major export market.
Therefore, my point is that the UK desperately needs the public sector to deliver the cuts but also heavily depends on the private sector for sustained growth. With the private sector contributing significantly to the public sector ‘supply chain’, heavy cuts to the public sector will adversely affect private-sector suppliers. To support my argument, evidence from the Construction Products Association warns that capital spending across all sectors will fall from £69 billion this year to £45 billion in 2013, and cites cessation of programmes such as building schools for the future as largely responsible. Recent news headlines have followed the plummeting share values of social housing maintenance group Connaught after the company warned that public-sector budget reductions would hit profits as councils postpone capital expenditure plans. All of this evidence points to parts of the private sector being hit hard, just as the sector seeks sustained recovery. The cuts affect all sectors – not just the public sector – and could contribute to a double-dip recession.
So what is the solution? I believe the concept of the local investment cycle would help at a local level to stimulate the necessary recovery in small and medium enterprises (SMEs) – fulfilling the UK tradition of being a nation of small shopkeepers – according to Napoleon that is. The local investment cycle requires financial support (from Government) to kick-start growth in local businesses. They in turn employ local people who are otherwise unemployed, which in turn has the ‘benefit ‘ of reducing welfare state support, and with added contribution from newly employed workers through taxation to the Exchequer providing further investment to be ploughed back into the local economy. This creates a virtuous circle that, if joined up across the country, could see a beneficial cumulative impact. This approach would support Northern communities where currently the public sector is the major employer (in some cases up to 70% of the local working population) who could otherwise see swathes of people condemned to years of worklessness.
A further solution is for public-sector HR practitioners to team up with economic regeneration professionals to take a co-ordinated approach to stimulate new jobs, apprenticeship opportunities, as well as wider skills development in local workforces across public, private and third sectors. Such unity of approach will ensure strategic partnerships are placed to support employment between public and private sectors – representing a real opportunity to enable workforces to make the transition between sectors – which the Coalition Government has indicated will be essential to dealing with the 600,000 public-sector job losses, as forecast by the Office for Budget responsibility.
It’s clearly time for that united effort.
Dean Shoesmith is executive head of human resources, London Boroughs of Sutton and Merton, and PPMA president