Severe Spending Cuts Confirmed as Chancellor Gambles on Private Sector Resurgence for Growth

In Wednesday’s long awaited Comprehensive Spending Review, the Chancellor, George Osborne, announced the sharpest cuts in public spending for decades, in measures which he hoped would take the country ‘back from the brink of bankruptcy’. Detail of the announcements are still being digested, but the headline figures are clear. Public sector capital spending on construction over the period of the Review will now fall by just over 30%, and although these cuts will be £3.5bn less than previously announced, investment in construction over the next four years will be more than £20bn less than in the last four years, and that will have significant consequences for the industry.’ The 60% reduction in the social housing budget is also likely to have an impact, with the government appearing to rely heavily on the assumption that enabling social landlords to charge higher rents (up to 80% of local market rents) will generate more funds which they can use for their own building programmes. BWF chief executive Richard Lambert said, ‘Reining back on social housing now misses a trick because it’s a way of targeting investment in a much-needed asset that would also provide jobs and activity in the construction industry at a time when it’s essential. It could be very shortsighted’. The government has committed to building 155,000 social houses over the next four years, but this compares with the estimated 250,000 dwellings per year needed across the whole housebuilding sector to meet anticipated demand. Non-housing public sector work, such as schools and hospitals, had provided many joinery manufacturers with work during the recession. Some of this budget is still protected, but most of the infrastructure projects announced as part of the Comprehensive Spending Review had already been in the pipeline. The announcement that councils will have their budgets cut (by more than a quarter over four years) may have a severe impact the number of new local infrastructure projects being built. The Chancellor’s strategy appears to be based the on assumption that the economy will grow over the next few years and the private sector will drive forward to create jobs and growth. This may prove to be valid, but, with the Office of Budget Responsibility anticipating that 500,000 civil service jobs will be lost and the Federation of Small Businesses stating that one in 10 smaller companies expects to lay-off people, one of the key questions is how the Spending Review, and the resulting public sector job losses, will affect public confidence. One of the foreseeable consequences for the woodworking and joinery industry could be a contraction in the RMI market as people will have less money to spend on their properties. Green initiatives were also under scrutiny in Wednesday’s announcements with The Carbon Trust and the Energy Saving Trust under review and the money raised from the Climate Reduction Commitment now going straight to the Treasury. The commitment to the Green Investment Bank has been confirmed, but the £1bn allocated is much less than was anticipated, and the onus will be on the private sector to provide the rest. One of the more welcome measures in the Spending Review was the expansion of adult apprenticeships, which Mr Osborne said would help an extra 75,000 people by the end of the spending review period. BWF Training Manager Dave Campbell commented that, ‘Addressing the skills gap is vital if the government is relying on industry to drive the recovery. Increased opportunities and effective investment in vocational training are imperative for a strong and responsive private sector’. There is also cautious optimism that confidence in the private sector will recover now the uncertainty surrounding the Spending Review has been lifted, however, this may amount to little unless the government and private sector can work together on a clear strategy for growth which will give companies, especially small and medium-sized enterprises, the confidence to invest.