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June’s budget was widely billed – not least by the Conservative Party while they were in opposition – as an emergency budget. Coming a mere three months after Alistair Darling delivered the last budget of the previous government, it perhaps aimed to trigger a sense of urgency about the UK’s financial position.
In keeping with this theme, George Osborne’s debut budget marked a sharp contrast with the last electoral change of political leadership in 1997. Back then the incoming Labour government committed to retaining the previous government’s spending plans. No such commitment was given here as the new chancellor set about a fundamental restructuring of the UK’s public finances.
Attacking the deficit
The coalition has committed to significantly accelerating efforts to reduce the deficit with a pledge to reduce spending by £6 billion in their first year. This was the overriding theme of the chancellor’s report; deficit reduction was seen as central to creating the conditions for sustainable economic growth.
More for less?
The budget report set out the intention to achieve spending reductions of £32 billion by 2014-15. £30 billion is expected to come from current spending reductions, with no further capital spending cuts other than those already committed to by the previous government.
However, with the desire to achieve most of the deficit reduction through spending cuts as opposed to tax rises, there will inevitably be pressure on all forms of public sector spending. Indeed, the government’s focus on spending cuts leaves room in its plans to offer a phased reduction in corporation tax over the course of four years. There was also an increase in national insurance contribution thresholds and income tax personal allowances.
The loss of tax revenues will be partially offset by a rise in VAT though downward pressure on departmental budgets will most likely continue.
The missing piece of the puzzle
To have a full grasp of the new government’s spending plans it is important to remember that the Budget report is only one part of the process. More detailed plans of relevance to business will be in the Comprehensive Spending Review (CSR). The chancellor’s report set a date of 20 October for the CSR announcement.
Preparations are underway; departments have submitted their evidence to the Treasury and assessments are being made of where spending can and will be cut.
ACE has emphasised to the government, in response to the budget and in submissions ahead of the CSR, that focusing on those areas of the economy that drive growth is key.
While addressing the deficit is an essential step, the UK must also look to the future and ensure that core infrastructure is invested in. This is important to drive economic growth and social opportunity.
Though the final announcement is still months away, industry is already beginning to feel the effects. Philip Hammond, Transport Secretary, announced in June that decisions on all major local authority transport programmes will be suspended until after the CSR. In July, Michael Gove, Education Secretary. announced changes to the Building Schools for the Future programmes, leaving questions over funding for school projects.
Most departments are expected to achieve spending reductions of around 25 per cent; this will, almost inevitably, impact upon the consultancy and engineering sector’s programmes of work.
Perhaps at greatest risk are those areas of the country with the largest reliance on public sector activity, including Scotland and the north east of England. In Northern Ireland the devolved administration has already begun to recognise the need to rebalance the economy and induce more private sector growth.
In the short-term, at least, uncertainty over departmental budgets will likely mean uncertain times for industry. In balancing the budget it seems that we really are all in it together.
 Impact article to print
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