The Comprehensive Spending Review: Good Week, Bad Week

Peninsula Team

November 05 2010

Now that a week has passed since the Comprehensive Spending Review was launched to an expectant audience, I thought it would worthwhile to consider what impact it might have on the lives of our clients here at Peninsula.

The dust may have settled but the amount of conflicting information and indicators is meaning that few experts agree on anything. It’s a case of Good Week, Bad Week:

• GDP goes up – good week, consequently interest rates will need to go up sooner – bad week.
• The markets react positively to the CSR with the FTSE and Sterling both strengthening – good week, so exports become more expensive making the recovery more uncertain – bad week.
• The BA cabin crew dispute ends as soon as their cheap holidays are reinstated – good week; then the fire fighters strike over pension contributions – bad week.
• House prices fall making homes more affordable for first-time buyers – good week, but existing homeowners feel less well-off and less likely to spend – bad week.
• Retail sales figures hold up well – good week, only for rubber prices to rocket making tyres and condoms more expensive – very bad week indeed!

I firmly believe that the CSR just has to be successful – no matter what. Failure is not an option. But for it to work, the Government has to start identifying the next layer of savings now. They will not succeed in making the £81bn of cuts by 2014 that they are planning and will need further ideas and plans to get there in the end. They will be forced in compromises at every turn – unless they become more resolute than they have demonstrated to date. So far it is all just talk.

Remember when they announced binning free school milk straight after the election. It would have saved £50m a year. But they were afraid of the negative reaction they received and withdrew it soon after. Then they announced cuts to Child Benefits for higher rate taxpayers during Party Conference Season. But they are already making changes to their plan to try and lessen the negative reaction.

They will have to demonstrate a much stronger backbone than this if they are to have any chance of making the CSR stick.

Here at Peninsula, we believe our client-base is well set both for the challenges that face us, from collateral damage to the private sector, from the public sector cuts laid out in the CSR – and for the recovery that will inevitably follow.

But when will this recovery take place?

The Chief Economist at one of the nationalised banks recently gave his view on the year ahead. They are basing their lending to SME’s on the weighted conclusion that there is a 40% probability of 2011 being a year of “sluggish improvement”, and a 35% probability of a double-dip recession. Not good odds on which a business should make investment decisions. It indicates a continuation of very selective lending by the banks and another year where we will all need to keep a tight control of expenditure. Hardly an environment that will enable the private sector to mop up 490,000 people made redundant from the public sector.

As the information, however conflicting, keeps coming in, the picture will hopefully become clearer. The appointment of Lord Young as Enterprise Tsar is good news. His recent report on Health and Safety “Common Sense, Common Safety” is one of the most well thought through and well received reports in many years, If he can bring this same focus and determination to the subject of Red Tape and other legislation strangling SME’s, the medicine prescribed by the CSR just might have a chance of working.

As a pre-eminent adviser to SME’s, Peninsula will be contacting Lord Young with ideas to help him streamline the legislation. If you have ideas as to the 2 or 3 things you think would help your business succeed and grow in the future, email us at by Friday 12th November. We will collate your responses and send them to Lord Young. Together we can make a difference.

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