Spending Cuts

David Cameron says the government has a "credible plan" for restoring economic confidence – let’s hope so!

The government's spending cuts are necessary and not driven by ideological zeal, Prime Minister David Cameron has insisted in his new year message. He said the economy was now out of the danger zone, but warned of much "heavy lifting" ahead in 2011. In his message, Mr Cameron said: "We have a credible plan for restoring confidence in our economy, but we have to see it through. A lot of the heavy lifting will happen in 2011.

The cuts we have all witnessed recently have been tough and I think we will continue to see the harsh reality of them over the coming months. In addition, the affect of the VAT rise yesterday from 17.7% to 20% will hit all of our pockets.

As a small VAT-registered business, I certainly understand the implications this rate rise will have on the financial security of my business. Small businesses have been hit particularly hard during the downturn and many have struggled to keep on an even keel. Like households, it is the hidden costs that will hit the small businesses the most – the increased VAT on our utilities i.e. telephone costs and supplies of electricity and heating. It is also inevitable that some businesses will be forced to increase costs due to the recent rise in fuel costs which have been hit not only by the VAT rise but also the added duty tax – as many of our goods rely on the transportation system, the operating costs of many companies continue to rise whilst the take-up of services and goods continue to plateau or in some cases decrease.

Whilst I do accept that the cuts and VAT rise is necessary as part of the Government’s plans to tackle the deficit, I, like many other small business owners, realise that hard-hitting challenges are ahead for this year and the first quarter of the year may well determine just how tough things are going to be.

Out of recession - I don't think so.............

January saw us mark the end of the recession – the longest economic downturn on record.

Whilst our Government will surely be patting itself on the back and thanking their lucky stars that we stayed out of depression, I and many others will have little faith in this news. We would be wise to remember that during this recession we have seen the economy reduced by over 6 percent and unemployment rise to 7.8 percent.

I do believe that this may be a temporary step forward. We have to remember that the figures used are for the last financial quarter which includes increased employment of temporary Christmas staff, increased purchases of luxury goods before the VAT rise took effect, the car scrapage scheme coming to an end and people spending slightly more in order to enjoy the festive season.

In April we may well see a step backwards as we see taxes rise as income tax and national insurance rise. As inflation rears its ugly head we may also see an increase in interest rates.

As I write I can see little is being done to stimulate the economy for growth and I do not see a sustainable economic strategy. We are unprepared to take full advantage of the small GDP figures and should not confuse the end of a recession with a start of growth.

We are a long way from seeing real evidence of our recovery and ordinary folk will see little evidence of the end of the recession in their everyday lives.