Nearly half a million public sector workers will lose their jobs over the next four years as part of the Coalition Government’s Spending Review.
Chancellor George Osborne confirmed that 490,000 jobs will be axed by 2014-15 in the Review which was read in the House of Commons today.
Rising unemployment is seen as a key factor impacting retail businesses, affecting consumer confidence and dampening discretionary spend.
“To back down now and abandon our plans would be the road to economic ruin.”
Chancellor George Osborne
The confirmation raised the prospect of a widening north/south divide in the country, as the North is more reliant on public sector employment.
Jonathan De Mello, head of UK retail consultancy at property agent CB Richard Ellis said: “Though clearly necessary to remove the significant amount of debt in the economy, the programme will certainly have an impact on retail sales, particularly affecting areas where GDP is driven by public sector employment and expenditure.
“These regions face the risk of negative consumer spending due to rising unemployment and reduced government expenditure.”
The Chancellor said today that “much” of the headcount reduction would be achieved through natural staff turnover.
But he added that “yes, there will be some redundancies, but that is unavoidable when the country has run out of money”.
Osborne said: “To back down now and abandon our plans would be the road to economic ruin.”
Private sector investment
Osborne said the Government would make the “largest ever financial investment” in adult apprenticeships, with a 50% increase in funding benefitting an extra 75,000 people in the next four years.
He confirmed that the building of Crossrail - the new London and South East transport link - would continue.
He added: “We have put the national interest first. We have taken our country back from the brink of bankruptcy.”
BRC: ‘Testing times ahead’
The British Retail Consortium (BRC) said it supported the urgent action taken by the Government to reduce the budget deficit and its commitment to provide certainty quickly over which jobs and services would be axed in a detailed departmental business plan due next month.
The BRC said uncertainty over where and how the cuts are to be applied had contributed significantly to sluggish growth in non-food retailing.
“The Government should avoid any further steps which might cause nervous consumers to take flight or deter businesses from taking on new staff.”
BRC director general Stephen Robertson
The BRC also welcomed the Government’s commitment to invest in infrastructure which will support private sector growth. It has called for consistency in government policy to allow retailers to make investment decisions and contribute to the private sector-led recovery.
Stephen Robertson, BRC director general, said: “These are serious plans to tackle the Budget deficit and will remove some of the uncertainty which was driving down consumer confidence. Beginning to deal with the deficit now is right. Delays would just store up more pain for later, risking increased borrowing costs, higher taxes and more job losses.
“But individual households and communities will continue to be cautious until the impact on their future prospects is clear.”
He added that the Government had “achieved the right balance between public spending cuts and tax increases”.
He said: “The situation needs to be monitored carefully. There are testing times ahead. January’s VAT increase will have an impact on sales and we’re expecting a tough trading environment in the first quarter of 2011. The Government should avoid any further steps which might cause nervous consumers to take flight or deter businesses from taking on new staff.”
A raft of senior retailers backed the coalition’s public spending cuts this week saying that a watered down plan would result in £100bn of additional debt, a rise in interest rates and further tax rises.