Spending cuts hailed by business leaders but condemned by unions

George Osborne’s package of more than £6bn in immediate spending cuts received a mixed reaction today as trade unions condemned the decision to wield the axe now, while the business sector encouraged the government to go deeper in identifying public sector cuts to reduce the £156bn deficit.

The union umbrella body the TUC described the cuts outlined in today’s announcement as “deeply worrying” as the Tory chancellor and his Liberal Democrat deputy, David Laws, outlined measures that will hit 15 Whitehall department budgets, freeze civil service jobs and squeeze more than £1bn of savings from town halls.

The business sector was more positive, describing the government’s first round of cuts as “encouraging”.

Brendan Barber, the TUC general secretary, said now was not the “right time” to cut back.

“With the UK economy and the economies of our trading partners in Europe so fragile, this is not the right time to be cutting back. If the UK starts drifting back into recession as a result of cuts, the deficit will only widen and the money markets will become even more panicked.

“Reducing investment in employment programmes for young people and regional development is particularly short-sighted at a time when the economy needs all the support it can get. Cuts in local government budgets will particularly affect the most vulnerable who rely on social care and other important services.”

Barber’s comments on the timing reflect the Liberal Democrats’ own stance on in-year cuts prior to joining the coalition government.

Today Osborne and Laws, the chief secretary to the Treasury, were united in hailing “the most collegiate spending review in recent history”, which will allow the planned rise in national insurance contributions due to come in force next year to be shelved.

The deficit reduction measures outlined today include a civil service recruitment freeze across government departments, and a £1.7bn saving from delaying and stopping contracts and projects with the 70 major suppliers to the government.

The Treasury also issued a list of cuts to the budgets of 15 Whitehall departments plus the devolved administrations in Scotland, Wales and Northern Ireland. The biggest casualty is the Department for Business, which faces cuts of £836m, though the net figure is £636m because it will receive £200m in reinvestment.

A further saving of £1.165bn will be achieved by reducing grants to local authorities, though the government says it will give councils greater flexibility over their budgets by removing restrictions on £1.7bn of grants in 2010-11.

The ministers softened the blow by expanding the list of areas protected from cuts to include schools, Sure Start centres for young children, and education spending on 16 to 19-year-olds. And £500m of that will be reinvested in apprenticeships, further education and social housing.

But Dave Prentis, the general secretary of the Unison union, warned that the planned reductions ignored the human impact of the cuts.

“Despite high levels of unemployment, the government is happy to add tens of thousands more workers to the dole queue, putting the recovery at risk. Public spending cuts will hit small businesses, devastate families, and the most vulnerable in our society will suffer. There is no logic in cutting public sector jobs and money for development, only to pile on pressure to the private sector to create jobs.”

The union for rank and file civil servants, the Public and Commercial Services Union, challenged the claim that the cuts would not affect frontline services; Mark Serwotka, the general secretary of the PCS, said freezing civil service recruitment and slashing hundreds of millions of pounds from Whitehall departments was “bound” to do so.

“We do not accept that huge spending cuts are necessary or desirable, and we do not believe it is credible for the government to say it can protect public sector jobs and services while taking the axe to departments in this way,” he said.

“These cuts will damage the economy, will undoubtedly lead to people losing their jobs, and will put the delivery of vital public services at serious risk at a time when they are most needed.

“A recruitment freeze now, when tens of thousands of civil service posts have been cut in the last few years, will further add to workloads and put at risk the services our members provide to the public. We would welcome the opportunity for a full and honest debate about the public sector and its role in the economy, but the government appears intent on short-circuiting that by cutting first and asking questions later.”

Richard Lambert, the director general of the CBI, said he believed more savings could be found by “re-engineering public service delivery”.

“We have been calling for a strong focus on deficit reduction to underpin the UK’s fiscal credibility and position us for a strong private-sector-led recovery.

“It is encouraging that the Treasury has managed to find slightly bigger savings than first expected. The measures announced by the chancellor, including departmental spending cuts and a civil service recruitment freeze, are painful but necessary steps to demonstrate the UK’s seriousness about tackling the deficit.

“Just as private sector firms had to take strong action to cut costs during the recession, so too must the public sector. We believe there is still considerable scope to make even greater savings by re-engineering public service delivery.”

The British Retail Consortium welcomed the swift and “substantial cut”. Stephen Robertson, the group’s director general, said: “The deficit needs to be tackled but moves to do that must prioritise spending cuts over tax rises. It’ll be growth that gets the country out of the hole it’s in. Private sector businesses are the engine that will drive growth. Tax increases would have a deep and damaging impact on jobs, customer demand and GDP.”

The government was accused by the University and Colleges Union of “dashing the hopes of thousands of people” as it cut the number of extra university places available this year.

The higher education sector must make £200m of savings this year, which means that only 10,000 extra places will be available for this autumn – half the number announced in the previous government’s last budget.

Sally Hunt, the general secretary of the UCU, said: “The government should stop pretending that ‘we’re all in this together’. Students and their families must wonder what they have done to be treated so badly by this coalition government.

“First the Lib Dems renege on their flagship policy to fight against fees and now the opportunity of a university education is being restricted. Our competitor countries are increasing the number of graduates to compete in a high-skill knowledge economy. We are denying thousands a place at university and increasing the burden on our benefits system.”

The Local Government Information Unit said town halls would contribute 20% of the spending cuts this year. Andy Sawford, the LGIU’s chief executive, said local government was “carrying the can for wasteful spending in Whitehall”.