Affect of Government Spending Review on SME IT businesses

The Spending Review has delivered the expected across-the-board cuts to public sector spending – with Government departments set to endure budget cuts of 19% on average. So, how will small IT businesses be affected by the cuts?

Although the impact on public sector employees and service provision is bound to be severe, small IT businesses will inevitably be affected – most obviously in that Government departments will be spending significantly less on products and services provided by the nation’s smaller companies.

Many of the UK’s leading organisations have commented on George Osborne’s plans. Some aspects such as the increase in the number of adult apprentices, and the clampdown on tax evasion have been widely applauded.

However, some organisations suggest that small businesses have been largely overlooked, despite the massive contribution the sector makes to the economy.

What about a Small Business Programme for Growth?

Following the Chancellor’s statement, the Federation of Small Businesses (FSB) has urged the Coalition to now put in place the missing link, namely a Small Business Programme for Growth.

FSB research has shown that three quarters of small businesses thought the Coalition Government should cut spending to tackle the public deficit and six in 10 said they were more willing to accept cuts in public spending because of the size of the public sector deficit.

The FSB welcomed measures to increase the number of adult apprenticeships by 50 per cent to 75,000 new apprentices a year. Also welcomed were the measures in moving towards a low carbon economy and the commitment to improve the infrastructure of the country. The £530 million directed from the Government and the BBC to put in place superfast broadband pilots is something small businesses were calling for.

However, the FSB says that the missing link in the Government’s deficit programme is the need to create growth – increasing the tax base, creating more businesses and incentivising small firms to grow and innovate.

Small businesses set to lose 27p for every £1 of procurement cuts

Manos Schizas, SME Policy Adviser at ACCA (the Association of Chartered Certified Accountants) said that the Spending Review could have a marked impact on small IT businesses:

“Cuts to local government expenditure will have a knock-on effect for SMEs. The central Government procurement market represents about £26.6bn of business for UK SMEs. The Local Government procurement market represents another £34.2bn.

“At the local government level, SMEs get about 59% of the procurement spend, while at central government level this falls to 16%. This means that, for every £1 of procurement cuts overall, SMEs will lose about 27p. But for every £1 of spending that is centralised, the SME sector could lose even more. Despite the rhetoric, spending cuts inevitably mean centralisation – it’s almost impossible to avoid this – so you can see why I’m worried. If George Osborne can find a way to get more procurement power to the local level, while achieving efficiencies and cost-savings, I’ll be very impressed. But that’s not how things generally work.

“Cutting or centralising procurement budgets, especially in local government, could put many billions worth of procurement money out of reach of SMEs. This money came with almost no credit risk and was usually paid very quickly, thus improving cashflow conditions from the ground up. No amount of pill-sweeteners can make up for that.”

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