Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) comments as follows on the £6.24 billion package of public spending cuts for 2010-11 announced earlier today by the Chancellor of the Exchequer and the Chief Secretary to the Treasury:
“The Chancellor and Chief Secretary have made sensible decisions on where and by how much to cut public spending. Quangos, IT, consultancy, advertising and property have long been ripe for cuts. It also makes sense to reduce less effective forms of spending by Regional Development Agencies and spending on those training and employment measures found to offer a poor return to the taxpayer. Freezing civil service recruitment is likewise the least painful way to start to reduce public sector employment. Yet while the scalpel has been applied with considerable skill, one must nonetheless question whether now is the right time to begin major surgery on the UK’s fiscal deficit.
“Although the Treasury document makes no explicit reference to the impact of today’s package of cuts on public sector employment, the combination of a civil service recruitment freeze and reduced spending in other areas is likely to reduce total public sector employment by around 50,000 in the current financial year. In addition there will be knock-on effects into the private sector on businesses that undertake contract work for the central and local government and other public bodies, plus the wider impact on demand for labour in the economy as a whole resulting from lower net public spending of around £6 billion. Given the current weak state of the labour market this is likely to have a detrimental impact on unemployment.
“Ministers clearly consider the risk of failing to take immediate steps to cut the fiscal deficit outweighs that of starting to cut too soon, citing the sovereign debt crisis in the eurozone in support of their view. Whether they are overstating their case is a moot point – given the importance of the eurozone for UK exports, economic weakness across the channel should arguably make policy makers in this country more rather than less cautious about curbing demand. But either way, Messrs Osborne and Laws could be taking a risk with UK unemployment. Though they no longer dare say it, higher unemployment may be once again considered a price worth paying.”
