This summer has seemed to some extent to be a quiet hiatus before the storm breaks in earnest. With Gordon Brown reportedly off doing community work in his constituency, the press has been dominated with stories generated by Peter Mandelson and Harriet Harman staking their claims for the future leadership of the Labour party. Such posturing is set to continue up to and beyond the election, as the party seeks to reinvent itself for the post-Brown era.
Meanwhile in the City, optimism appears to be returning. Predictions of 0.5% growth this quarter will bring to an end five consecutive quarters of falling output. Coupled with signs of increasing demand in the housing market, and post-Ashes euphoria, this has caused some analysts to state the recession is over.
However, such a rose-tinted perspective seems a little premature to say the least. There may be worse to come as the financial crisis has yet to impact properly on public-sector spending. While the political parties jostle for position around whether spending cuts need to be imposed sooner rather than later, the actual impact will begin to be felt in departmental and local government spending as early as next year.
Current departmental allocations and local authority grants are broadly set up to 2011, but with significant reductions expected in the next spending round, whoever wins the election, publicly-funded organisations are already anticipating budget cuts and are trying to build up reserves in advance. Added to this is the threat of even the 2010 allocation being clawed back if the Conservatives win next May.
Local government is already bearing the brunt of the recession and, according to a report from the Audit Commission, councils are facing the 'second wave' of the downturn as the effects of business failure, bankruptcy and unemployment result in high demand for housing, school places and benefit payments – not to mention debt and mental health advice. Local authorities are therefore being torn between the need to prepare for budget cuts in the future while meeting rising demand for services now.
Some councils - notably Conservative-led authorities - are attracting attention for radically rethinking how they can provide local services more efficiently. Commentators are increasingly seeing such trends as an indication of how local services might be reformed under a Conservative government. Undoubtedly, competitive outsourcing will play a major role. Hammersmith & Fulham for example, competitively tendered £90 million of its cost base, outsourcing contracts for street cleaning and park maintenance, and cut staff by 18%, equivalent to 950 full-time jobs, reducing spending by £7 million per year.
Barnet Council plans to make savings of up to £15 million a year by outsourcing provision of local services and cutting back its 3,500 employees. Private and voluntary sector organisations are being brought in to deliver street maintenance and parking enforcement, planning and environmental services, residential care, housing, refuse and recycling. Libraries have suffered cutbacks and are being modernised to include Jobcentre Plus and benefits agency offices; parks are being downgraded and children's pay equipment will not be replaced.
To many these cut backs and efficiency programmes are seen as the necessary retraction of a bloated and inefficient state bureaucracy, and it is certainly the case that the public sector expanded massively under the Labour government (by 63% over the past decade, according to the right wing think tank Policy Exchange), but the impact on jobs – and the wider economy – must not be forgotten.
A report from the CIPD recently claimed that a third of public sector organisations are now planning redundancies and one in eight is preparing for cuts of at lease 10% of their workforce. With unemployment already at 2.44 million – the highest since 1995 – more job losses will further undermine consumer spending, and risk snuffing out the recovery before it’s even begun.
Marc Woolfson is an account director at Westminster Advisers
