News and Press releases

This shivering by the sea of cuts will leave us all wet

14/07/2010

There’s the individual who, arms clamped firmly around his chest, enters the sea at a snail’s pace, and whose every step into deeper water is accompanied by sharp intakes of breath. Then there is the bather who will make a mad dash from the beach and plunge in.
The Scottish Government is the first type. While Westminster has already taken the plunge in tackling public debt, Holyrood has decided to paddle at the water’s edge of decision making for another 12 months. How I wish that Scots politicians would show the boldness for which the nation is historically famous and get their heads under the water as quickly as possible because the quicker the discomfort the less likely it is to last.
While sympathising with any publicly-employed worker whose job may be in danger, concern needs also to be focussed on what delay in making spending decisions will do to the private sector. In the south-east of England the private sector is big enough to at least cushion some of the effects of reductions in public spending. In Edinburgh that ‘cushioning’ used to be provided by the financial services sector but for reasons that are plainly obvious this can no longer be relied upon. Meanwhile the inadvisability of building a city’s economy on shopping centres will become apparent in Glasgow when the core market – i.e. the natives living within a 20-mile radius of Buchanan Street – no longer have money to spend or, if they do, are reluctant to part with it because of perceived job insecurity.
In Scotland the growth in national and local government has been such that there is now a ‘quasi public sector’ – i.e. private firms whose balance sheets are largely, and sometimes wholly, dependent on state and council contracts. In my capacity as owner of a residential letting business I frequently come across examples of private sector employees being relocated to Edinburgh and Glasgow whose work is related either directly or indirectly to public sector procurement.
Scotland is in greater danger than England from a double-dip recession because of the delay in taking unpalatable decisions on public spending, leading to hesitancy on the part of private firms because the future has become even more uncertain.
One consequence of the decision by the Scottish Government to ring fence spending for a year will be to kill stone dead any revival in the property market this year. And neither should one count on a seasonal revival taking place alongside the first snowdrops of next spring either – how can that be when public sector job losses may only just start to bite, with private employers still in the dark about how cuts will filter down to them?
Banks and building societies will, in all probability, have already ‘factored in’ the Scottish government’s 12-month delay on spending cuts with regard to mortgage lending north of the Border. Indeed, only this week The Scotsman reported the Royal Institution of Chartered Surveyors as saying that the number of new house buyer inquiries in Scotland was at a 22-month low. In these circumstances it could be at least 2015 before property prices return to their 2007 level.
All that is keeping many Scottish businesses – and indeed families – afloat just now is historically low interest rates. These rates are politically motivated, cannot be sustained and are something over which a Scottish government (even if it were nominally independent) will have little or no control. Therefore, our ruling politicians are not doing this nation – and in particular its business community – any favours in the long term by delaying the pain of spending cuts, especially when there is no viable alternative to reducing public sector debt.

David Alexander is proprietor of the Edinburgh- and Glasgow-based letting and estate agency, D J Alexander.

THE SCOTSMAN, 14 July 2010

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