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Memo to government: cut spending

Allister Heath
CUT spending as soon as the election is over: that is the resounding message from the City A.M./PHI panel, our unique gauge of opinion among London’s City, financial and business community. The news is good for the Tories – unlike the results of our last survey, which found that our panel favoured Ken Clarke against George Osborne to be the next Chancellor. It mirrors their general approach, which is that they would announce a programme of cuts after an emergency budget within a few weeks of the general election. It is less helpful for the government, which doesn’t want to cut spending too soon.

The results make fascinating reading. No fewer than 59 per cent are very worried about the deficit, with 32 fairly worried; just eight per cent are not especially worried and one per cent not worried at all. An overwhelming 77 per cent want to start to cut spending “shortly after” the general election, against 18 per cent who want the cuts to start next year. Just four per cent say they should wait until 2012 or later. Needless to say, these findings are radically different to what one would get among the general public, who are far more complacent about the scale of the UK’s fiscal crisis.

There had long been a view that City folk may actually be quite nervous about spending cuts given the fragile state of the recovery – and that they secretly quite like the present extreme levels of government spending because they think it is propping up demand. Our panel – the best gauge anybody has ever come up with of opinion in London’s financial and business sectors – shows that this is simply not the case. Any residual Keynesianism has long since been blown away by the size of the deficit.

Yesterday’s job market figures are a further illustration of the need for a rebalancing of the economy towards the private sector. The number of people in employment fell by 54,000 in the final quarter of last year to reach 28.86m. Crucially, the private sector workforce fell by 61,000 while the public sector workforce actually rose by 7,000. Average total pay in the private sector was £426 per week in January 2010 – zero growth on a year ago. However, total pay in the public sector rose by 3.8 per cent on a year earlier to £461. Even excluding the nationalised banks total public sector pay rose by 2.6 per cent on a year earlier to £455, much higher still than in the private sector. There is plenty of scope for the public sector to make economies in the years ahead.

We promised that we would give London’s business and financial community a voice and we have certainly delivered. Our previous findings were extraordinarily influential and featured in numerous newspapers, TV shows and radio programmes. Around 43 per cent of our panelists earn £100,000 a year or more, with many in very senior positions; the panel is drawn from the full spectrum of “City-style” private sector professions, with a large bias towards banking and fund management and much representation in insurance, law, accountancy, commercial property and other financial services; there is also a good representation among other business services, including IT, consulting and marketing. Our panelists work all over London but with a very strong bias towards the Square Mile, followed by Canary Wharf and other business areas. Do apply to join at www.cityam.com/panel – as the election approaches, it is vital your voice be heard. allister.heath@cityam.com