Spending Review one year on

Our report analyses public sector progress to date and explores the outstanding challenges for government.

A year ago, the markets were eagerly anticipating the announcement of the Coalition’s first Spending Review settlement, setting out plans for dealing with the deficit and the public sector debt mountain. 

In this short video, John Hawksworth, PwC Chief Economist, discusses the key findings from the research, including the key policy options the Coalition should consider to keep the fiscal plans on track, and kick-start growth.

View video transcript

One year on, we take a look back and assess what has happened, including:

• Major economic developments to date, including the growth prospects for the global and UK economies, the key tax and spend changes in the last year and the fiscal outlook.
• The impact of public spending cuts on the labour market for both public and private sector employment (by sector and region as well as in particular age groups).
• The fiscal policy options that the Chancellor may consider as he prepares his Autumn Statement on 29 November 2011.
• The views of the public on how the principles underpinning the Spending Review - of Reform, Growth and Fairness - are being achieved, and the challenges that lie ahead for growth and public service reform.

Our findings

The public’s view

The mood of the general public is anxious and uncertain about the future, with an expectation that the worst is still to come, particularly as public sector recession hampers the recovery of the labour market and with continuing global volatility.

Spending cuts and the labour market

In the eighteen months to June 2011, private sector job gains had more than offset public sector losses.  But a significant share of the gains were part-time positions and in the second quarter of 2011, when the public spending cuts started in earnest, this pattern was reversed with public sector job losses overtaking private sector job gains. 

In the private sector, the construction sector has been hit hard, but growth in business services suggests opportunities in outsourcing may have outweighed the impact of the cuts in the private sector

In the public sector, job losses appear to have been more front-end loaded than expected, with particularly severe losses early on in local government.  The regional impact has been more varied than we originally expected.

The policy options

The Chancellor has little scope to change direction on his plans to cut the deficit.  But there are ways to fine tune his fiscal strategy, although these are not easy or costless.  We believe the best option is to bring forward capital spending, to boost infrastructure.