State sector cuts will hurt private companies
Published 30/08/2011 | 08:00
Cuts in public expenditure in Northern Ireland will ultimately harm the private sector while protecting public-sector employment, an economist has warned.
Ulster Bank chief economist Richard Ramsey said public expenditure cuts should be targeted at reducing headcount and wages in the civil service rather than cutting spending which hits the private sector.
He spoke as figures showed an intensifying squeeze on the UK services sector after an unexpected drop in spending on accountancy, legal and marketing work.
Mr Ramsey said the Northern Ireland services sector, which includes advertising and professional services, would lose out all the more because of the drive in the Comprehensive Spending Review to cut £4bn from public spending over the next four years.
"Given that the approach to delivering the cuts so far has largely avoided targeting the headcount or salaries associated with public-sector employment, the focus appears to be on cutting private-sector procurement such as capital investment, advertising and consultancy.
"Clearly, this will prolong the downturn in the business and finance sector and will have a knock-on impact on consumer sensitive sectors such as retail."
He said many facets of the services sector, particularly property-intensive professions such as quantity surveying and estate agents, were "a shadow of their pre-recession selves".
Cuts to advertising by government departments here would damage an already fragile industry, he said, while construction was also faces further problems.
"The construction sector will also bear the brunt of further capital expenditure cuts. It is already suffering hardest and further cuts will only delay recovery all the more."
And he said consultants should not automatically be targeted. "Consultancy is not all bad. There is much consultancy which goes on in the private sector which complements the in-house activity. But rather than cut out the outside consultancy, it would be better to get rid of the in-house function."
The Confederation of British Industry (CBI) today reported the UK services sector's fastest decline in business volumes since November 2009 and said pressure on household budgets had resulted in more poor trading in consumer-focused areas such as bars and restaurants.
"What is new, and was not expected this quarter, is that spending on business and professional services also fell, something not seen since November 2009," the CBI's head of fiscal policy Richard Woolhouse said.
In business and professional services, firms reported the first fall in volumes and the fastest fall in value of business in nearly two years, countering previous expectations that the quarter would show growth.
Firms in the sector are hopeful of seeing a slower rate of decline in the coming three months but expectations for both volumes and profitability heading into the autumn season are still the weakest since the first half of 2009.
In consumer services, which also covers the travel and leisure industry, the ongoing decline in trading conditions intensified, with the balance of those firms recording lower-than-expected volumes at a near two-year high.