5 months on and we have not even reached the starting line

Back in May I wrote a blog entry on the future issues we face as a result of the spending review (savings). I thought it worth revisiting to see where we have got to.

I said

1) That it would be hard to get rid of enough staff to make a difference to the savings in the timescales and that the costs would outweigh the benefits. I mean for the in year savings.

Sure enough, nothing other than natural wastage has been applied.

2) "Well its going to be the private sector. Yep, government savings will be made at the expense of the private sector. Projects will have to be stopped, consultants fired, pencil orders cancelled."

Projects have all but been stopped. The majority of the consultants fired. Spend is tightly controlled over 20k.

3) That binning all the contractors will leave the civil service without the ability to change.

They are currently struggling to even specify the savings with any degree of accuracy let alone go on to deliver the projects required to make the savings.

4) Contracts will have to be broken

Well they have not reached that stage yet but it is still coming. What we have seen is diabolical behavior and treatment of some suppliers. A number of smaller consultancies are now very close to going bust. We are talking months.

5) The flow I said would be:

Government puts too many people into the public sector
Banks take too much risk and put economy into a spin
Government bails out banks to prevent economy meltdown
Failing economy lowers tax revenues gov debt gets out of control
Banks stop lending (take lower risk)
Gov starts to fail (go bust) so stops spending violently
Big gov suppliers take the hit but shed employees
Small go suppliers go bust
Both lead to higher unemployment, higher welfare bills, lower tax revenues
Private sector still suffering from recession cannot absorb Gov fallout
Spending in retail slows and retail suffers
Recession kicks in.

I think we are at the point in red. The housing market is slowing. The lack of confidence may means it starts to fail quicker as we go into next year.

6) Finally I talk about the middle getting poorer and the poor getting very poor.

This is clearly starting to be seen. Benefits will be cut. The jobs that are available are already at significantly lower rates than they were as businesses take advantage of the change in labour market. The wealthy however, are not being hit proportionately and will largely ride out the storm.

The gap, between rich and poor will grow.

While the opinion seems to be that the markets like the brutal approach to debt reduction I am just not sure whether this is going to work. While massive operations to save the life of the patient may be needed, the long term recovery of the patient may be hampered by the brutality of the surgery itself. The scars may never heal.

The next phase of savings will accelerate this problem.