Looking ahead to next week’s budget, Alan Downey, Head of Public Sector at KPMG in the UK, said:
“The Chancellor has vowed to stick to his plans for tackling the deficit, rejecting arguments that he is cutting too fast and stifling economic growth. However, the speed and scale of the cuts is not the only issue. Capital investment programmes bore the brunt of the early spending reductions, because they are quick and easy to cut. Unfortunately they also take much longer to revive, because large capital investments typically have a long lead time. So even if the Chancellor had the money to spend on new capital programmes, he would be hard pressed to see a tangible result much before the next general election.
“However, it is not just a question of time. If the government wants to give capital spending a major boost, it has to find the money from somewhere. There are only three options: borrow more, raise taxes, or cut more deeply elsewhere. The first two would be seen as an admission of defeat, so in practice the only option is to squeeze current spending. In doing that, the Chancellor’s room for manoeuvre is greatly restricted by the government’s commitment to protect spending in specific areas, including the NHS.
“So we can expect the Budget to lead to a substantial increase in financial stress in the areas that are not protected. It is not too fanciful to expect some public bodies to feel the pinch to such an extent that they become unsustainable and have to be shut down or taken over.”
Mike Petrook, KPMG Press Office
020 7311 5271 (t), 07917 384 576 (m) or firstname.lastname@example.org
Notes to Editors:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.