George Osborne wanted the Comprehensive Spending Review to reflect fairness, reform and growth. But however honourable his intention was, the truth is that the cuts are going to hurt.
There is no doubt that the public sector cuts are necessary. As George Osborne told the House of Commons, without change, Britain is on the highway to economic ruin. The country is paying £120m of debt interest per day. That’s a massive £43bn per year.
What effect will the Comprehensive Spending Review have on British business? How will entrepreneurs and growing businesses be impacted?
Those businesses that are providing services to government departments are certain to feel the pinch, and contracts are certain to be reviewed. With average budget cuts of 19 per cent across unprotected departments, there will also be significant knock-on effects.
To start, George Osborne estimates that around 490,000 jobs will have to go over the next four years. Some of these will be civil servants reaching retirement age, but many more will be redundancies.
There has been a lot of talk about whether the private sector will be able to replace these jobs. So far, the consensus is that it will happen – certainly that’s how the chief executives of some of largest businesses feel.
One of George Osborne’s self-declared main principles was growth, and promoting a private sector recovery.
“By restoring macroeconomic stability we have brought certainty to businesses,” he said. “By cutting business taxes we are giving business the freedom to compete. Today’s review builds on these steps – because even when money is short, we should prioritise those areas of public spending which are most likely to support economic growth.”
Local government work
Another key message to emerge from George Osborne’s speech was a devolution of power from central to local government, with more local services provided by the private sector.
George Osborne was clear about this point: “We should understand that all the services paid for by government do not have to be delivered by government.”
In particular, he highlighted that the government would encourage new providers in adult social care, early years and road management.
Although the “Train to Gain” programme is being abolished, there was good news about apprenticeships.
George Osborne announced an increase of over 50 per cent in government money for adult apprenticeships which, he says, will help 75,000 new apprentices a year.
Green investment bank
With regards to the green investment bank, as expected, George Osborne didn’t give too much detail. He did confirm that he would be setting £1bn aside for the bank, but added: “I hope much more will be raised from the private sector and the proceeds of future government asset sales.”
As previously reported, the green bank has been the subject of quite strong disagreements between government ministers, and it still isn’t clear just what its remit will be.
Although the Foreign and Commonwealth Office budget will be cut by 24 per cent, George Osborne says the department will continue to focus on “helping British companies win exports and secure jobs at home”. He added that the UKTI would play an important part in this, and in attracting “significant overseas investment to our shores”.
State pension age
The state pension age for men and women will reach 66 years old by 2020, four years earlier than expected. This will involve a gradual increase from 65 to 66 starting in 2018.
Regional growth fund
As announced in the emergency Budget, George Osborne confirmed that the regional growth fund will go ahead. The regional growth fund aims to help areas particularly badly hit by public sector spending cuts.
He announced that £1bn is being allocated to the fund over the next two years, and then another £0.5bn in the third year.
Also positive is the news that each government department will publish a business plan setting out its reform plans for the next four years.
This sort of transparency is just what the government must encourage, as it gives the country better visibility over where things are going – not to mention that having a business plan is always best practice for any sort of enterprise, whether private or public.
What do other entrepreneurs think? Find out here.
We’ll be bringing you more analysis of the Comprehensive Spending Review over the next couple of days – don’t forget to check back on Real Business.
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