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Cath Everett

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Government budget cuts will have negative effect on private sector

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The government's proposed £6bn in budget cuts, which includes a civil service recruitment freeze, will have negative knock-on effects on the private sector, leading to rising levels of unemployment, a leading HR body has warned.
 
The Chartered Institute of Personnel and Development (CIPD) believes that the recruitment freeze, which is expected to save £170m, combined with reduced spending in other areas is likely to see public sector employment plummet by 50,000 this financial year.
 
The cuts will, in turn, impact private sector contractors that work for public sector clients, hitting demand for labour in the economy as a whole. As a result, while pruning areas that have "long been ripe for cuts" such as IT and consultancy and reducing spending on training and employment measures that have generated a poor return for taxpayers may appear sensible, the action is coming at the wrong time.
 
John Philpott, the CIPD's chief economic advisor, said: "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."
 
While ministers clearly considered that the risk of failing to take immediate action to cut the deficit outweighed the risk of starting to cut costs too soon, "economic weakness across the channel should arguably make policy makers in this country more rather than less cautious about curbing demand", he added.
 
"But either way, Messrs Osborne [chancellor of the exchequer] and Laws [chief secretary to the treasury] 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," Philpott said.
 
Brendan Barber, general secretary of the TUC, meanwhile, warned that the suggested cuts could hit frontline services and cause a new recession.
 
"The UK economy is still extremely fragile and global uncertainty makes early recovery even harder. Taking any money out of the economy at the moment is dangerous as there is a real risk of a double-dip recession, which will only damage the stat of the public finances further," he said.
 
Moreover, frontline services cannot function effectively without adequate back office support, which meant that the former were bound to be negatively affected, Barber added.
 
The government's proposals come ahead of the Queen's Speech today and an Emergency Budget on 22 June.

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