Ahead of Wednesday’s Comprehensive Spending Review announcement, deputy head of business Graeme Brown looks at the expectations of the region’s business community.
The region is counting the days to the start of the age of austerity – but it appears the age of fear has well and truly begun.
With the Government preparing to announce the long-awaited results of its spending review, the announcement has been playing on the minds of company bosses and business groups – and few are expecting to like what they hear.
Press releases detailing concerns over the cuts are emerging with increasing regularity. And whether it is the loss of 80,000 jobs, 10 per cent of firms heading into insolvency or a huge hit to the income of charities, you can’t say we haven’t been warned.
Professional services firm PwC came up with the stark figure of 80,000 – which represents about 3.6 per cent of total jobs in the region, slightly higher than the national average of 3.4 per cent.
Mark Smith, Midlands chairman at PwC, said: “Predicted levels of public and private sector job losses will be a drag on the pace of the economic recovery, but should not derail it altogether. While private sector employment may be affected as much as the public sector, this could be mitigated by increased labour market flexibility on wages and hours worked, as in the 2008-09 recession.”
But it wasn’t all doom and gloom for entrepreneurs in the West Midlands, as a survey by RSM Tenon revealed that one-in-10 expected an improvement in their company’s financial position as a result of the cuts.
“While some businesses dealing directly with the Government will inevitably be hit by the cutbacks, there are clear opportunities for entrepreneurs to take advantage and fill the gaps resulting from reductions in government resources,” regional managing director Alan Webb said.
But the good news stopped there, as RSM Tenon’s researchers also found that 45 per cent of business owners in the region expect a negative impact on their firm.
Elsewhere, a survey by the Coventry and Warwickshire Chamber of Commerce revealed that 70 per cent of companies across the patch are either certain that the cuts will have an affect on them or have the potential to.
And the service sector fears cuts more than manufacturing, with 45 per cent of companies expecting a direct impact, according to the poll of 160 companies.
With a national debt expected to reach £900 billion – or 70 per cent of GDP – in a few years, the Government is hell-bent on finding savings.
Tax increases will be introduced, but they account for less than a quarter of the £86 billion target, and 77 per cent of that figure is expected to be raised through spending cuts.
Despite that, the Birmingham Chamber Group has chosen to remain upbeat, detailing a list of hopes which it wants to hear from Mr Osborne, including:
n A focus on growth which will enable companies to deliver a higher turnover, create a significant number of jobs, enter new international markets and increase productivity.
n Better access to finance by extending the scope of the Enterprise Finance Guarantee Scheme.
n Simpler tax regime, coupled with a lower headline rate of corporation tax.
n Committing funding to transport projects that will unlock regional business investment and enable projects such as High Speed Rail 2 to progress.
Manufacturing group EEF said the looming cuts meant the public sector will be reduced and the role of industry in generating wealth by greater investment will become greater.
EEF Midlands region director Martin Wassel, said: “The Chancellor must set out a clear, stable strategy that couples deficit reduction with Government priorities for growth and investment, and then stick to it.”
But according to research by insolvency trade body R3, almost 10 per cent of small businesses fear they could be pushed into insolvency if they lose their public sector contracts.
The R3 research findings also indicate that just under a quarter – 24 per cent – of all small businesses would see their profit reduced if their public sector contracts were pulled, while 16 per cent – or 253,000 businesses – would be unable to fund expansion.
And more than 50,000 companies are at risk from Government spending cuts, according to the latest quarterly Red Flag Alert issued by business recovery firm Begbies Traynor. And with the underlying weakness of the West Midlands economy John Kelly, managing partner at the firm’s Birmingham office, said the region faced a major threat of job losses.
Charities are also facing hard times according to Helen Drew, a partner at accountancy firm Crowe Clark Whitehill’s Midlands office.
She said: “There is a danger that vulnerable groups could see vital facilities axed. I do not see how the voluntary and charity sector will fill all the gaps.”
So when George Osborne stands up and reveals the outcome of the spending review he stands to get a brief glimpse of what it is like to be an England footballer – holding the interests of an entire nation who expect to be disappointed.
The region is waiting with bated breath – but more in expectation than hope.
* £155 billion is the UK budget deficit for 2009-10.
* 80,000 jobs are under threat in the West Midlands.
* 45 per cent of businesses in the region expect a negative impact.
* 10 per cent of businesses fear insolvency as a result.
* 10 per cent of companies in the region are expecting a positive impact from the review.
* £66 billion is expected to be saved through spending cuts in the next six years.
* £20 billion is expected to be identified through taxation increases.