Monday, 24 May 2010

Silly Article From Peston About Business Cuts

From The BBC:-
Business leaders have been arguing passionately that the public sector needs to become more efficient. You'll recall that the equivalent of a plane-load of them publicly backed the Tories' general election campaign to make additional savings in public expenditure this year - in order to avoid that national-insurance rise they hate.
Well, it'll be interesting to see how they respond, now that their dreams have been made a reality.
Because a good proportion of the savings announced today will hit them directly.
So, for example, the Treasury has announced £1.15bn of cuts in discretionary spending by Whitehall on items like consultancy and travel.
Who receives the bulk of such largesse? Well, it's private-sector consultants and travel companies.
There'll also be £95m of IT savings - again a squeeze on monies handed over to private-sector contractors.
A further £1.7bn will be saved from delays and cancellations to contracts and projects - which is probably £1.7bn of revenue that won't be received by companies.
On top of all that, there are the reductions in funding for regional development agencies, which could have an effect on financial support received by many thousands of businesses.
In other words, the harsh reality of making government more efficient may not be quite so appealing as the theory to the many business leaders who sell goods and services to the public sector.
Is Peston an idiot, or just spinning a leftist line here about spending? We'll assume he's not doing that, seeing as how the BBC are so unbiased.

The businesses that signed that letter were the likes of Sainsburys, Diageo, Marks and Spencers, Easyjet and HMV. Their sales to the public sector are almost non-existent and is certainly outweighed by tax cuts and the resulting money being put into people's pockets.

Some other businesses are entirely agnostic about the state or the private sector. A friend of mine runs a software recruitment agency to both private and public sector. A cut in public sector means more spending in the private sector.

Then there are businesses that supply to the state that are entirely necessary. If you're in the heavy arms business, you aren't likely to see much difference as that government spending isn't going to be cut.

The types of businesses that will be affected are those who have attached themselves to the state. Either they supply something that government doesn't need and the private sector won't buy either (like contemporary art) or they are so wedded to government that they can't restructure quickly enough.

But "business" is neither in favour of less or more government. It's not about business, and being "pro business" is not better than being "pro state". It's markets that matter.

1 comment:

  1. Yup.

    I don't really like this catch-all phrase 'business'. I think we should always be clear about whether we mean 'people who want to enter into voluntary exchanges of goods and services for mutual benefit' and 'everybody else'.