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Politicians to unveil unpopular plans; SHARE WATCH.


THIS autumn is likely to give us an insight into the changes to come as politicians outline their policies to cut public spending and drive Britain firmly out of recession.

Following a near-collapse in the UK banking system, Britain has experienced a vicious recession and escalating unemployment levels.

Individuals and companies have been forced to make drastic changes.

Cost-cutting and reigning in spending to reduce the heavy debts accumulated throughout the boom years has been a main priority.

The Government has taken unprecedented steps to prop up the flagging economy by flooding it with liquidity under the Quantitative Easing (QE) programme to try and entice the banks to resume normal lending practices once more.

The results of the QE programme so far have been mixed but do show a fragile recovery is underway, and, having posted the strongest quarterly rise in more than 25 years to the end of September, the stockmarket also appears to have confidence in the recovery prospects.

However, the cost of recovery will be felt by the nation and carried mostly by taxpayers in the form of tax rises and savage cuts in public spending. With a General Election due within a year, the Government will be forced to make difficult choices as to where to wield the axe.

We have already seen an increase in fuel duty and a pledge to return to the previous VAT rate of 17.5% after December 31, 2009.

Public sector pay freezes may also be a possibility.

Unfortunately, tax rises generally prove unpopular with the public so other measures could be taken to curb spending.

Around half of the Government's budget is used to pay for social benefits and the National Health Service, so some adjustments could be made here.

Education and defence projects may also come under the spotlight.

Just as prudent shoppers scour the high streets for cheaper alternatives, the Government may also have to look for companies which can provide a similar service at less cost to ease the burden on the public purse.

The support services sector may benefit from Government spending cuts. A number of companies provide a wide range of outsourcing solutions.

These include services used by the defence and criminal justice system, transportation and Civil Service administration as well as hospital and school catering and cleaning.

One of the benefits of outsourcing projects is that once the initial capital investment is made there is only a marginal cost to bolting on new business or customers.

Contracts can be agreed for a long fixed period and some attract high up-front payments.

Earnings are usually reliable from the start of the contract and are not generally economically sensitive. However, security of earnings does come at a price as the sector mostly trades at a premium to the market.

There is a compelling argument for having some exposure to the support services sector, especially in a challenging or recessionary environment. Private companies tend to outsource more services because of the need to focus on their core activities, while the public sector requires more outsourcing to improve efficiencies as it leads to less waste which is a major priority when funding is so tight.
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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Oct 12, 2009
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