Emergency budget and what it means

The Chancellor’s emergency budget has sent shock waves through the country, especially those in the public sector and there is more to come this autumn. Most agree that any consumer led recovery will be fragile – but what impact will it have on the workforce?

The Chartered Institute of Personnel Development has its views on the implications of the Budget for jobs, public sector pay, pensions and the default retirement age.  Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development says.

“The Chancellor has introduced what must surely rank as the most astonishing UK budget statement in modern times. Mr Osborne’s combination of £32 billion additional spending cuts by 2014-15 and an £8 billion net tax hike amounts to an unprecedented fiscal squeeze, including an extremely severe clampdown on the welfare bill. Yet both he and the independent Office for Budget Responsibility (OBR) reckon there is a greater than evens chance that the government will meet what the Chancellor calls its ‘fiscal mandate’ with barely any serious short-term impact on economic growth and employment.

“Although the OBR has downgraded its pre-Budget economic growth forecasts in the light of Mr Osborne’s austerity measures, and become a bit more pessimistic about jobs, the suggested outlook for the economy is nonetheless remarkably rosy, with investment and net exports more than making up for weak household spending and a big drop in public spending. The Chancellor could hardly have asked for more had he and his Treasury team stuck with tradition and come up with the forecast themselves.

“One suspects, however, that the forecast outlook will prove too good to be true. The fiscal squeeze both at home and across the eurozone will curb the demand for the goods and services that ultimately drives business investment and exports. Economic growth will slow by far more than today’s budget suggests and, rather than peaking at 8% this year, unemployment will continue to rise toward 3 million (10%) by the time Mr Osborne’s measures take full effect. This will add to public borrowing and debt, not reduce it. The 2010 Emergency Budget is not the beginning of the end of the UK’s post-recession economic difficulty but the start of a period of painfully slow growth, falling living standards, and prolonged high unemployment.”            

He adds  “Significant job cuts were inevitable whoever won the election.  However, there is little evidence that any of the parties gave serious thought to the enormous management challenges associated with delivering their manifesto commitments through a workforce demoralised by redundancies, pay restraint and pensions reform.

“We’ve warned consistently that the public sector may be numerically overmanaged, it is qualitatively undermanaged.  To get the best from a workforce cowed by the harsh winds of fiscal restraint will require a step change in management capability in the public sector.   Those who lose their jobs are only part of the story – how the ‘survivors’ are managed will determine if the story has a happy ending for the UK’s public services.”

 Charles Cotton, CIPD reward adviser, also comments on the two-year public sector pay freeze, plans to raise the state retirement age and to consult on the default retirement age, and the newly-formed Hutton Commission into public sector pensions: “In the short term, while a pay freeze will stop the public deficit getting any worse, it will do little to help the deficit get any better. For that to happen we need to review what public sector services we need, what delivery structures are most appropriate, what skills, behaviours, attitudes and performance we need from public sector workers and how we should reward and recognise these. At the moment, however, serious joined-up thinking about how to reform pay and benefits to get the best from public sector workers is being drowned out by the incessant, monotone noise of the deficit reduction vuvuzelas.