Business department hammered as Osborne swings the axe

The Chancellor announces £6.25bn of cuts - and Vince Cable's BIS takes the biggest hit. Should we care?

Last Updated: 07 Jan 2011

The Ministry formerly known as the DTI is taking a big share of the pain in the first round of the new coalition's £6bn+ spending cuts: the Department for Business, Innovation and Skills will see its budget slashed by £836m this year, making it the hardest-hit department in Whitehall. RDAs and quangos are likely to be first on the chopping block, as the new Government looks to withdraw some of its direct support for business. Still, new supremo Vince Cable can hardly complain - he's been more hawkish than most about cuts. And since this only amount to around 3% of the (unnecessarily large) BIS budget, we doubt the private sector will be that sympathetic...

The first round of cuts to ‘wasteful’ spending were announced this morning by Chancellor George Osborne and his (extremely competent-sounding) Treasury Secretary David Laws. And it’s true that Business is seeing the biggest budget cut, in real terms (although Cable is getting £200m allocated back to him to spend on apprenticeships and colleges). That means RDAs are likely to be scaled back or even closed, particularly in the areas where the private sector is stronger, while we’ll see less of the French-style industrial financial support favoured by Lord Mandelson lately (whose recent hand-outs are also under close scrutiny).

Still, as the ‘deficit hawk’s pin-up’, as Laws calls him, Cable can’t really object to this kind of austerity. And although these cuts are largely about financial pragmatism, the coalition partners also have a philosophical justification for them. BIS has an annual budget of £22bn. Surely there’s an argument for putting (at least some of) this money back into the pockets of businesses, rather than funding Government’s occasionally ham-fisted efforts to help them? Besides, this only amounts to about 3% of its total spend – which most private sector organisations will see as fairly modest, in light of their own recent cuts.

Elsewhere, one of Osborne's biggest money-savers will be a recruitment freeze, which will save £700m. Now generally speaking, we think recruitment freezes are a very bad idea – they’re unstrategic, and may leave you with holes in all the wrong places (as our own Alistair Dryburgh explains eloquently in the June issue of MT). But since public sector hiring continued to rise even last year, we suppose there's an argument for drawing a line in the sand, as a short-term move.

Indeed, the new administration actually made a similar argument for a major crack-down on expenses, plus consultancy, IT and advertising spend; Laws said sending a short-term 'shockwave' through Whitehall was the only way of achieving the kind of 'step change' required. Perhaps BIS will also benefit from this kind of short, sharp shock?

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Business department hammered as Osborne swings the axe
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