Business leaders fear Chancellor has ‘blown it’ over chance to boost economy

June 26, 2013

Chancellor George Osborne this afternoon announced proposals to slash a further £11.5bn from Government spending in 2015-16.

The cuts in his highly-anticipated Spending Review mean budget reductions of 8% to 10% for the majority of Whitehall departments – the worst hit were Local Government and Justice, with Business doing better than expected at a 6% cut.

However, initial reaction from business organisations was positive in the Spending Review’s support for some major infrastructure projects – but disappointment over a lack of investment in business growth projects.

Phil Smith, managing director of Business West, which runs Bath Chamber of Commerce, said: “This was the Chancellor’s last chance to make a real difference to the health of the UK economy, this side of the next general election, and he may well have blown it!”

He added: “Whilst we all knew the level of cuts proposed and understood that this would have a big impact, I think seeing it formalised and spelt out in such stark terms makes it abundantly clear just how fragile the UK economy is and how difficult the next 4-5 years are actually going to be.

“The impact of the Spending Review locally on the economy, growth and business is not easy to assess, particularly when so much of the detail is yet to be provided. But generally many businesses may well be encouraged by what they have heard, with important investment announced in key areas like education, science, transport and housing.

“What we didn’t quite see was the real shift in expenditure needed to truly support an enterprise friendly environment. We need to see more on infrastructure, exports and access to finance; these have to be top priorities for decades to come. We also need to see delivery not just promises. Too many of the major infrastructure schemes announced and promoted by government are yet to be delivered on the ground.

“We were looking for some real commitment from government to creating a Single Pot fund that will make a significant difference at a local level, giving LEPs and local councils greater control over spending on local economic priorities. However, the scale of the ‘pot’ announced is disappointing and once allocated across 39 LEP areas will struggle to make enough of an impact on local priorities and concerns. This is a lost opportunity for the government to enable these local business focused partnerships to actually deliver any real change. Yet we are not entirely surprised.  Wrestling funds away from Whitehall is a tough task and true local control over funding is a long way off.

“We welcome the Chancellor’s extension of trade and investment funding for an additional year. This will help many small and medium-sized companies who want to sell into new markets. However, as a country, we need to do far more to support our global traders in the years to come. Spending just 0.05% of our GDP to support British businesses overseas – compared to 0.7% on overseas aid – just isn’t good enough in a globalised world.”

“Businesses across the UK were crying out for more support to help them drive growth, boost trade overseas and create jobs and wealth but will be left feeling slightly disappointed and let down.”

The CBI welcomed most parts of the Spending Review, saying the Chancellor had carefully walked a tightrope of protecting growth, while making sizeable savings to pay down the debt.

Director-general John Cridland said: “Infrastructure is rightly singled out as the most effective engine for growth, as we urged. While the Government talks a good game on infrastructure we’ve seen too little delivery on the ground so far.

“It is critical we see a real pipeline of projects announced tomorrow, so investors know what schemes are going ahead, where and when.

“Other pro-growth areas including science, innovation, skills and exports have also been shielded from cuts.”  He said the £185m boost for the Swindon-based Technology Strategy Board – described by the CBI as a crucial anchor for innovation – was particularly welcome.

John Golding, South West managing partner at Grant Thornton, said: "What the Chancellor's actions today imply – through the further hard cuts and austerity measures aimed at local government budgets – is that local government leaders are more capable of meeting the national challenge than other departments.
"Over the past three years, local government members and senior officers have tightened their belts and taken a far more innovative and dynamic approach to managing their services and delivering their budgets. The Government is now relying on their continued resourcefulness to continue in order to help meet the fiscal shortfalls facing the broader public sector.
"In academia, you only ask your best students to sit the hardest exams, and the same holds true for public sector budgeting. By tasking local government with finding additional efficiencies, the Chancellor is asking the public sector's star pupil to rise to the challenge in the knowledge that it alone among the public services has the focus, innovation and the wherewithal to succeed.
"Councils will undoubtedly feel the pressure of the announced cuts, but many will be capable of weathering the storm based on prudent survival and, indeed, growth techniques introduced over the past few years. Having said that, for some, the jury is still out on whether they'll be able to keep their heads above water for much longer. "

Health and schools in England and the overseas aid budget were ring-fenced for the second annual spending review.


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