How Will Public Sector Cuts Affect Your Business?

As the Government continues to implement some of the most deep and far-reaching cuts to public service since the creation of social security, how will private sector businesses potentially be affected?


Though public sector cuts will obviously impact those employed in public sector ventures and services, such as medical professionals, police officers, education and military personnel, how will it affect those in the private sector? Here we take a look at the main ways in which public sector cuts will affect business and what the future will hold if such cuts continue.


Dependency On State Contracts

A large number of companies in the UK rely upon contracts and orders from the public sector to make their profit. To suddenly remove this by slashing public sector funding will shock a great number of businesses into potential insolvency and ensure there are tough times ahead for many more. Industries like construction, which is very dependent on public contracts, and the care sector benefit from funding from the state; these industries will be the worst hit, but the effects of public spending cuts will be far reaching.


Reduced Services

The public sector provides a number of services to businesses and individuals that will be drastically scaled back or become more expensive as the spending cuts are implemented. A good example of this is education, where drastic fee increases have made the cost of university education an insurmountable obstacle for many young students around the country and paves the way for the privatisation of education in the UK. As less of the population is able to afford higher education, the private sector suffers from a lack of high-quality employees entering the jobs market and has to look elsewhere for graduates able to display the right level of expertise.


Lower Consumer Spending Power

Public sector cuts and austerity measures cause the public’s confidence in their own financial future to decrease drastically. This is largely due to the fact most people’s employment prospects appear unsure and open to change at any moment. Consequently, consumers are far less willing to spend or take on new debt, which has a large impact on private companies that require this spending to prosper. Until consumers regain this confidence and begin spending on products and services provided by small private businesses, there will be no recovery and such companies will continue to struggle.



As we have seen over the past few years, cuts to the public sector cause a drastic rise in unemployment. This has two main effects. The first is that the employment market is flooded with the out of work, which can cause wages to drop. This may mean that SMEs can begin to accumulate a cheaper workforce, but it is also likely to cause problems within an existing workforce, too, as concern grows about their own earnings future. Secondly, higher unemployment means that less people have disposable income, which, once again, affects consumer spending power. Higher unemployment will mean fewer people spending money with your business.


Gender Inequalities

Finally, public sector cuts will also negatively affect the number of women in employment, exacerbating gender inequalities already embedded in many businesses. This is largely due to the way in which government spending cuts have targeted services that have allowed women to enter work, primarily childcare funding. Figures show that female unemployment has grown over the last few years and, unless changes are made, businesses will soon find themselves subject to a particularly gender-biased workforce. A lack of high quality services, such as free or subsidised childcare, will continue to keep women out of work, removing qualified and well-trained workers out of the labour pool and reducing the amount of tax contributions being paid to the state.


While many people believe that public sector cuts are the way to kick start economic recovery and reverse the UK’s financial fortunes, the effect on the private sector is often underappreciated. Many private sector businesses will suffer from a lack of state spending, while even more will be hit by the lack of consumer confidence and the consequent reduction in spending.


Though economic recovery has been promised, it is yet largely to materialise and the long term effects of austerity on the private sector is not yet known.


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