Public sector cuts: where will the axe fall?

(By Tola Sargeant, 6.00pm Tuesday 15th Sept. 09) Prime Minister Gordon Brown’s admission in his speech to the TUC this afternoon that there will have to be cuts in public sector spending should not have come as a surprise to anyone. All three major UK political parties are now clear that cuts in public spending are inevitable in the face of a budget deficit approaching £175bn. But the parties differ in their views on when those cuts should come, and where the axe should fall.

Gordon Brown has vowed to protect frontline public services – notably in health, education and policing. But he admitted there would be ‘hard choices’. If Labour wins the general election, which is due by June next year, we can expect ‘lower priority budgets’ to be cut and a continued emphasis on efficiency improvements with tougher targets for public sector organisations. The Prime Minister also promised to cut ‘unnecessary programmes’ – although he gave no indication of what these might be – and to sell unproductive assets. We’ll be looking for more detail in Chancellor Alistair Darling’s pre-Budget statement in November. (Interestingly, one area which is still set to see increases in investment under Labour is social housing: Brown today earmarked an additional £1.5bn to build more affordable homes, including new council houses.)

In contrast to Gordon Brown’s vague promises, Liberal Democrat Shadow Chancellor Vince Cable has been relatively clear about where he would make cuts. In a pamphlet, ‘Tackling the Fiscal Crisis: A recovery plan for the UK’, he today spelt out nine specific areas of potential savings totalling £14bn. As expected, these include several major IT systems including ‘the ID card scheme’ (which he estimates will save £5bn over 10 years), the children’s database Contactpoint (with an estimated saving of £200m over five years), ‘the NHS IT scheme’ (for which he puts savings at £250m over the next five years) and the proposed ‘super database’ (£6bn). We know the Conservatives also see scrapping these major IT programmes as an easy win.

The Conservatives and the Liberal Democrats are calling for cuts now, whilst a Labour government has promised not to risk the recovery and would likely delay cuts until 2011.

Although there is still very little detail about where Labour and the Conservatives would wield the axe, it is clear that whichever party is in power after the next election, there will be significant cuts to public sector spending and IT budgets will not be immune. Indeed, IT will inevitably suffer as scarce resources are diverted to protect frontline services. However, as we’ve said before, it’s not all bad news for public sector SITS suppliers. In the drive to cut costs, and improve efficiency in the back office, there will be opportunities for IT and business process outsourcers in particular.