We very much welcome the Government’s determination to stick to its overall plan of reducing public spending by £83bn over the next 5 years. The key to getting the private sector recovery underway is macro-economic stability. This will only be achieved with sustainable public finances. Opponents of today’s spending reductions need to wake up to that fact.

Between 1991 and 1997 public sector employment fell by 600,000 – roughly on a par with the falls projected as a result of the Spending Review – but this did not prevent a sustained upturn in economic growth. Similarly, in the late 1990s the sharp fiscal squeeze introduced by Gordon Brown over the 1997-99 period went hand in hand with strong economic growth. Whilst growth prospects are not as good now, they are not as bad as the gloom merchants would have us believe.

Following the June Budget we stated that the only area of public spending that should be ring-fenced was that for key infrastructure. Consequently we welcome the fact that although transport investment faces an 11 per cent reduction over the next 4 years, it could have been far worse. The spending settlement for transport, energy and ITC investment is better than we had feared.
Commenting, Miles Templeman, Director-General of the IoD, said

“We strongly support the Government’s determination to stick to its overall plan of reducing public spending quickly. The only way we get a private sector recovery underway is through macro-economic stability, and this will only be achieved with sustainable public finances. Opponents of today’s spending reductions need to wake up to that fact. The alternative is a tax hike which would damage the economy in both the short and long term.

He added:

“If today’s spending review is to succeed the Government will have to deliver fundamental root and branch reform which transforms the productivity of the public sector. We need to remember that if the public sector had matched the private sector’s productivity growth over the last decade, the deficit would now be £60bn less than it is. Less can be more.”

Some specific points:

Welfare Reform
Additional welfare reform measures are welcome as initial steps to reduce the overall welfare budget and get people back into work.

Public Sector Pensions
The proposed savings on unfunded public sector pensions are a welcome first step in tackling this economic and political time bomb.

Schools and colleges
Improving education performance is central to improving the long-term supply of skills into the workforce. But whilst the Chancellor announced a generous overall settlement for schools, ultimately it is radical reform, not additional funding, that is the key to raising standards. We welcome the promise of additional autonomy for schools over the spending of their budgets, and on freeing further education colleges from unnecessary bureaucracy.

The Spending Review announces that, from the 2012-13 academic year, universities will be able to increase graduate contributions. For the long-term competitiveness of the higher education sector, it is vital that Lord Browne’s recent report into university funding and student finance is treated as a blueprint, not a pick-and-mix.

Skills and Apprenticeships
Shortages of STEM skills are a particular problem and the prioritisation of science spending will be welcomed by many businesses. The demise of the Train to Gain programme, conversely, will not be widely mourned. However, the decision to increase funding by £250 million a year by 2014-15 on new adult apprenticeships is questionable. The Government should be wary of introducing too much bias in the way it favours, funds and promotes Apprenticeships: they are not a universal training solution and are not suitable for all types and sizes of organisation.