The last set of figures for the UK’s Gross Domestic Product were trumpeted as positive news in many quarters, showing as they did a 0.8% increase for the quarter. While we certainly need some good news it would be hugely naïve to just swallow these figures without some consideration of other factors such as:
- The fact that the figures are preliminary and may change
- VAT will increase by 2.5% in January 2011 with a consequent impact on economic activity
- Much of the recent economic growth is probably due to re-stocking after the recession and it is difficult to see signs of much investment-led growth
- The world financial system is still in a mess and is very unstable
- Countries are already (and may continue) to adopt protectionist policies.
However, a big issue for the future of the UK economy is job uncertainty among public sector workers. We all know that the impact of the Comprehensive Spending Review could be the loss of 500,000 jobs over the next four years. However, there are some six million public sector workers in the UK and we are now in a situation where, because of the way the cuts in spending are being handled, a large proportion of them (and their families) are facing considerable uncertainty over their future employment prospects and may continue to face this uncertainty for many years.
Back in September, the deputy governor of the Bank of England, Charles Bean, encouraged Britons to go and spend more to invigorate the economy. With a large proportion of public sector employees, and their families, I would suggest there is a fat chance of that happening. I would expect them to be more likely to:
- Reduce spending at Christmas
- Defer booking next year’s holiday
- Forget about buying a new car
- Cancel subscriptions to leisure clubs
- Reduce spending on a whole range of goods and services etc
While the loss of 500,000 public sector jobs might only have had a relatively small impact on UK economic activity, the impact of several millions of public sector workers and their families reining in their discretionary spending could be huge especially when you also take account of the VAT increase. Furthermore, the impact on the local economies in those areas very reliant on public sector employment (eg Wales, the North East) could be even worse.
Why did the government choose an approach to cutting public spending that will take so long to implement and leave millions in considerable uncertainty for a long period? Probably because they wanted to try and avoid the blame for decisions about specific cuts in public services and so passed the buck to local authorities and other local agencies. Somebody once said that governments centralise in a time of growth but delegate in a time of cutbacks. How right they were.
Malcolm Prowle is Professor of Business Performance at Nottingham Business School and a visiting professor at the Open University Business School. He can be contacted via his web page www.malcolmprowle.com
