50,000 firms and 1m jobs: the true cost of UK spending cuts

The latest unemployment figures, out today, show another fall in the overall jobless count. But sadly, with the spending review looming, it almost certainly won't last. Pwc reckons the imminent Government cuts could result in almost 1m job losses - half of which would be in the private sector. And Begbies Traynor’s latest ‘red flag’ alert, which looks for signs of companies running into trouble, suggests that more than 50,000 companies could be at risk from Government spending cuts, with another 123,361 businesses experiencing ‘significant or critical’ financial distress. The next few months are going to be a very bumpy ride...

According to Begbies (home of MT’s Traveller’s Tales blogger Nick Hood), the number of companies going out of business has fallen by 18% - but that’s a slower rate of recovery than during the same time last year, when insolvencies fell by 20%. And the amount businesses owe has gone up: the total debt for those with critical financial problems has now hit £57.5bn – up from £55bn back in March. Ouch. It doesn’t exactly help, either, that in an effort to shore up its tax revenues, HMRC is adopting an increasingly hard line when it comes to chasing up taxes.

We won't know which sectors will be hit hardest until after the spending review, of course. But according to Begbies, the sectors that rely most on the public sector are already showing signs of distress. Construction and IT are both already struggling, while business services have also suffered, with more than 25,000 firms in serious bother.

The retail sector is also bracing itself for a difficult few months. The British Retail Consortium said yesterday that retail sales growth has slowed down for the sixth month in a row - while Nationwide reports today that consumer confidence has plummeted to its lowest level in more than a year, with shoppers cutting back on big-ticket items. And no prizes for guessing what they think is the reason for this - that's right, it's those pesky spending cuts.

What this means in practice is job losses - lots of job losses. In fact, a new report from PwC suggests that around 943,000 could go after the spending cuts kick in, including 500,000 private sector jobs (it also reckons the output of private firms could fall by £46bn a year). So although today's ONS figures revealed that unemployment has fallen to 2,45m, down 20,000 (and reducing the jobless rate to 7.77%), this looks very much like the calm before the storm...