Member Article

Over-reliance on Public Sector damaging economy

For many years the Public Sector has played a major part in the North East economy, employing over a third of the workforce. However, the recent downturn has resulted in the cancellation of contracts, the closure of key services and the loss of thousands of jobs.

In the second part of our series focusing on the issues arising from the Bdaily ‘State of the Region’ debate, we asked our panelists and members of the North East business community to consider the problems which have occurred as a result of over-reliance on the Public Sector.

While there was little agreement as to the best course of action, what is certain from their responses is that a solution must be found quickly, or we must face up to the risk of more damage being done to the regions ailing economy.

As chief executive of the North East Chamber of Commerce (NECC), James Ramsbotham works closely from a range of businesses from across the region, and has witnessed the far-reaching effects of the cuts on all areas of the local economy.

“The region has been over-reliant on the public sector in the past and the current lack of or cancellation of public sector contracts has impacted upon a large number of SMEs.”

Severe reductions in council grants to local authorities are set to inhibit attempts to encourage enterprise and growth, while the postponement or cancellation of major investment projects which would have previously been outsourced to the private sector have had damaging effects.

Dave Anderson Labour MP for Blaydon went even further, calling the Governments cuts to services a “determination to squeeze the life out of the public sector, which is reflected in harm to all sectors.”

While Mr Anderson was quick to criticise his political counterparts, he and Martin Callanan, North East Conservative MEP were in agreement that something must be done about the public-private balance in the region.

“Approximately 60 per cent of the region’s GDP is generated in the public sector,” said Martin.

“Over reliance on any sector is not a sustainable model and the real problem the North East has, is a private sector which is too small.”

The Government is now looking closely at efforts to reduce corporation tax and scrapping the increase in national insurance, both of which would adversely affect high numbers of small businesses. Nonetheless, the effects of the much-hyped Local Enterprise Partnerships have yet to be seen, both in the North East and the rest of the UK.

While we wait to witness the full effects of the cuts, and subsequent changes to the UK economy, it is important to look at the flourishing new industries in the region. The Lear Corporation announced it is to create 300-400 jobs in Houghton, SSI recruitment at the former Teesside Cast Products site is well underway with the workforce up to 800, Tata Steel has invested £2m in wind turbine manufacturing at Hartlepool and Nissan currently employs more people than it ever has during its time on Wearside, having taken on over 1,200 extra employees during the last two years.

Nonetheless, it is clear that there is much still be done to encourage growth and the Government must now try to understand how small businesses can be encouraged to expand to replace the gap left by the Public Sector.

This was posted in Bdaily's Members' News section by Ruth Mitchell .