The impact of the public sector cuts announced in the Comprehensive Spending Review (CSR) last week is likely to be felt locally rather than nationally and businesses will need to take this in to account when assessing risk in their supply chain.
Many of the job cuts announced by the Coalition government are unlikely to come into to effect until mid way through 2011. So while their impact will be delayed this will undoubtedly have far reaching consequences on company failure rates, which businesses will need to be alert to.
Around 490,000 public sector jobs are expected to be lost as part of the public spending cuts. Local authorities are being asked to find savings of over seven per cent and a £1.5 billion growth fund has been put in place to encourage private sector investment in the regions most affected by public sector job losses over the next three years.
Towns with a high proportion of public sector workers are likely to be hit very hard by the cuts and it’s unlikely that the £1.5 billion set aside for private investment spread over the next three years will have a significant impact. High levels of unemployment and cuts to public sector contracts could have a devastating effect on some areas with a knock-on effect on local businesses like retailers.
A reduction in the defence budget and the loss of 25,000 Ministry of Defence employees will also have a disproportionate impact on areas where the armed forces are based such as towns like Colchester and Catterick.
Businesses will need to think carefully about where the axe is going to fall hardest in order to assess the likely impact on their customers, their suppliers and themselves. Even businesses that are not directly linked to public sector clients, such as retailers could be affected if the area in which they are based is hit by higher rates of unemployment and insolvency.
Firms that rely on the export market could also be affected. The Foreign Office has agreed to budget cuts of 24 per cent but as one of its objectives is to promote UK businesses overseas this could have a considerable impact on the country’s ability to stage an export led recovery.
Firms need to consider carefully how the cuts will affect them both directly and indirectly and collaborate more closely with their credit and risk managers to assess the extent to which their business is reliant on the public sector.
Public spending cuts of this extent have not been seen since the last Liberal Democrat/Conservative coalition government in 1922 when the Government cut spending by 25 per cent. Whatever the outcome there is still a great deal of pain to be felt by both individuals and businesses.