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Business gives cautious welcome to Spending Review

London, UK (20/10/2010)

LONDON (Management Today) Business may be largely signed up to the cuts agenda - but today's extra funding for transport, skills and green energy was welcome.

Although today’s Comprehensive Spending Review didn't have too many direct implications for UK plc - at least in the sense of big tax or regulatory changes – its consequences are bound to have a huge impact across the board. Chancellor George Osborne stressed today that one of his key priorities was growth, and protecting the private sector recovery - and he needs to, because without it, his sums won't add up. The general business reaction seems to be that he's done pretty well, particularly with the extra money allocated to infrastructure spending. Though the devil will be in the detail, of course...

The Chancellor said an extra £2bn had been allocated for capital spending - and that spending would focus on areas that promote growth, particularly infrastructure: some £30bn will be spent on transport projects, including a definite go-ahead for Crossrail. The Coalition will put more flesh on these bones next week. But given the close relationship between this sort of investment and national output in the longer term, business will be hugely relieved that the Government has not taken the relatively easy option of cutting back (although Stephanie Flanders suggests Osborne may just be putting back in £2bn that he’s previously taken out).

Thankfully, the Coalition also seems to be taking a relatively sensible approach to the City. Although the Chancellor tub-thumped about public anger towards the banks, he also recognised that their failure was in part a regulatory issue (OK, we know this was an excuse to have a pop at the last lot - but the point still holds). That's a slight toning down of rhetoric. Osborne plans to make the bank levy permanent, which won't go down well, but he also stressed the importance of not charging so much that the banks decamp overseas, given the number of people they employ. Although getting that balance right won't be easy.

Some firms may even benefit, despite all the talk about thousands of private sector suppliers going to the wall in the public sector squeeze. Osborne talked about the Government not necessarily having to provide all the services it pays for - which sounds like it's planning to outsource more of its operations. Local governments will have less money, but more flexibility in how they spend it - which could be good for smaller suppliers. And then there are those firms operating in the green technology space; the new green investment bank, backed by £1bn of Government money (plus, hopefully, some private sector funds) should get a few more projects off the ground.

There were also other welcome measures today. The freezing of the science budget will hopefully prevent an exodus of Britain’s top innovators (now we just have to get better at commercialising their discoveries). And the Forum of Private Business, a small business group, welcomed the plan to force HMRC to find savings of 15% - since it should hopefully, in the longer term, reduce the tax administration burden on small firms.

However, all sorts of other measures taken today could have a negative impact. Some employers won’t like the extension of the state pension age, which will now rise to 66 by 2020 (Towers Watson points out that women born on 6 April 1954 suddenly have to work an extra two years - ouch), on the grounds that it's another step towards reducing the flexibility they currently have over retirement. And although the moves to take £7bn out of the welfare budget might please the right-wing press, it will inevitably mean taking demand for goods and services out of the economy. Ask Argos.

As with most of these measures, it’ll be a while before we know for sure. And pretty much the only certainty is that they’ll have all sorts of consequences – both for the public and private sector – that we haven’t even thought of yet. But in general, we’re inclined to agree with the CBI’s Richard Lambert: the overall sweep of the strategy does seem to make sense.

For more infromation, please visit: http://www.managementtoday.co.uk/bulletin/mtdailybulletin/article/1036238/business-gives-cautious-welcome-spending-review/



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