Public sector spending cut to hit industry
THE PUBLIC sector will be the first target for government spending cuts, but the private sector will be hit by knock-on effects, the CEBR will warn in a key report published today.
Public spending cuts are a certainty, the business body’s chief executive Douglas McWilliams will say, whatever the results of an election. “Our estimate is that if Labour wins, there will be £60bn of spending cuts, and £40bn of tax increases,” McWilliams says. “If the Conservatives win, the same total will be comprised of £80bn spending cuts and £20bn tax increases.”
He countered arguments that there is no need for fiscal retrenchment because the economy is operating below full capacity, saying the attitude of the foreign exchange market was important for recovery. The growth to inflation trade off will be worse if the financial markets have no confidence in sterling, which could be caused by high government borrowing and wasteful public spending, he says.
Public administration, health and social work are the private industries most reliant on public sector demand, the CEBR will say in its note.
But public sector cuts will not hit those sectors proportionately, with health likely to be protected.
Fifty-nine per cent of education services, 45 per cent of sewerage and sanitary services and 36 per cent of pharmaceuticals are provided to the public sector, the data will show. Railway transport and shipbuilding also have a high reliance on the public sector. It adds that the CEBR is looking at how the private sector can help the public sector save money without reducing services – so public sector cuts would be a private sector “opportunity”.