ROOF Blog

Councils are considering plans to reduce their spending including by cutting up to 170,000 public sector jobs in anticipation of a dramatic downturn in their budgets. Dame Margaret Eaton, chair of the Local Government Association, said that local authorities were being hit by a ‘perfect storm’ in the recession with increased pressure on their services and a squeeze on their budgets. Privately, councils are looking at how to slash their budgets by 15% over the next three years, using projections on the cuts necessary to reduce the £178m public deficit drawn-up by the respected Institute for Fiscal Studies.

In the build-up to the pre-Budget report this Wednesday, Pricewaterhouse Coopers (PWC) says the typical British family already faces a decline of 2.4 per cent, or £300 a year, in its discretionary spending power, after tax, mortgages, food and other essentials.

The best-off will see their spending power cut by as much as nine per cent, almost £5,000 a year, the most vicious assault on their living standards in three decades.

The impact of swingeing income tax and national insurance hikes, VAT increases, expected moves back to more normal mortgage rates and higher petrol and transport costs, thanks to the latest boom in world oil prices, will all conspire to devastate the household budgets of the better-off.

Government spending cuts on construction risk deepening the recession and making it harder for the economy to recover in future, the CBI employers’ organisation have warned.

Every £1 spent on construction generates a £2.84 increase in national income according to a report by the CBI’s UK Contractors’ Group, and cuts would diminish gross domestic product (GDP) to the same extent.

John McDonough, chief executive of Carillion and chairman of the CBI’s construction council, said the sector was likely to be in the line of fire when the government attempts to narrow its yawning budget deficit:

‘The public purse can’t afford what it has afforded in the past, but we need to be prepared for what’s going to happen in the next 12 months,’ he said.

‘Construction makes up around 8 per cent of UK GDP and a similar proportion of employment, but it has been hit hard by the recession.

‘Its rate of redundancy, at 28 per 1,000 employees is the highest of any sector, and the short-term nature of much construction work means that the true decline in employment is likely to be greater.’

Borrowers have been warned of soaring mortgage fees after the Financial Services Authority (FSA) called for lenders to assess income and spending in greater detail before approving loans.

Lenders are already under fire for introducing application charges of up to £1,000, which you lose if you back out or the loan offer is withdrawn – a problem not uncommon in today’s mortgage market.

Brokers say that plans by the Financial Services Authority (FSA) to make all borrowers pass an ‘affordability test’ that scrutinises their spending habits mean that fees could go even higher.

Savills Private Finance broker Melanie Bien said: ‘Any step-up in regulation means more cost, and higher costs tend to be passed on to consumers.

‘Lenders are likely to favour higher charges over the alternative option of increasing interest rates as it is a less visible way of raising costs.

‘This will be unhelpful, especially for first-time buyers, for whom every penny counts.’