Is Austerity Good For Business?

A recent look at some of the statements being made by business leaders appears to indicate support for the Government's ongoing austerity measures. I don't think that decreasing the public's spending power by keeping their wages down is a good idea in a consumer economy, but surely to goodness reducing tax revenues is downright harmful to a business involved in the PFI sector. Let's take a closer look.

PFI means "publicly funded"

Schools, hospitals, and police stations are funded by taxes. If tax revenues drop there's less money in the public purse to spend on these services, so they make cuts to save money, which means they cut back on quoted works projects because they have less money to spend. If FM companies make less of a profit as a result of their clients spending less on facilities, they end up having to let staff go.

Before [last] May’s General Election a cloud of ambiguity hung over private industry and the fate of the public sector, when a Labour coloured government seemed like a real possibility. But that never materialised and the Conservatives were voted in to continue much of the work they had begun in the previous Lib-Con coalition, cutting and outsourcing public services wherever possible. Good news for FM service providers, then, it would seem. - Measuring confidence in FM, by Simon Iatrou for iFM.net

"It would seem." But the trouble with all the cutting is there's less money to pay us to carry out work. Businesses face cuts, too. I don't know if it is due to the neoliberal consensus in business circles but few business leaders and thinkers seem to be willing to acknowledge this.

Private enterprise is obliged to compensate for cuts to public services

The Public Services (Social Value) Act came into force on 31 January 2013. It requires people who commission public services to think about how they can also secure wider social, economic and environmental benefits.

Before they start the procurement process, commissioners should think about whether the services they are going to buy, or the way they are going to buy them, could secure these benefits for their area or stakeholders. - Social Value Act: information and resources

Although the law is vaguely worded, in the competitive world of facilities management it's the difference between securing the contract or not.

Amey’s strategy communications manager Ray Bains suggests that social engagement has become a much more important aspect in one of the company’s key FM accounts. ...“Government and local authorities are asking for social value – FMs now have to come with a social value element,” he says.

On a corporate level, it sounds very worthwhile and certainly beyond the ordinary traditional scope of FM professional activity. But it is hard not to see this as a sticking plaster following the extensive government austerity programme. This has driven local authorities to cut thousands of jobs across the country as part of an outsourcing policy. As Bains says, part of his company’s task is to help the unemployed find jobs. - The social contract, By Elisabeth Jeffries for FM World

My own employer is very active in the community, encouraging employees to get involved in fundraising, etc. That's all well and good but I can't help thinking that the government is actually creating or exacerbating these situations, then asking us to go in there and patch it up. The problems are systemic; we didn't cause them so why is it our job to fix them?

Can we afford to continue with austerity?

Chancellor George Osborne's spending review speech in November 2015 outlined the continuation of austerity policies, whatever the cost:

“We should understand that all the services paid for by government do not have to be delivered by government.” In the “Big Society” the private sector, communities and charities will be expected to take on more responsibility for public service delivery.

There will, of course, be challenges for the FM sector in a tough public procurement climate with pressure to renegotiate existing contracts...

...At the same time, average budget cuts of 19 per cent across Government departments, massive cutbacks in capital spending and a raft of punitive tax and welfare initiatives will create significant problems for property and facilities management businesses. - Property & FM Winners and Losers in the Public Sector Spending Review, by Martin Pickard for FM Guru

The trouble with this philosophy is that in a demand-constrained economy, our society isn't big enough to take on the responsibilities the government is abdicating. There's just not enough money in the public purse — or in ours — to pay for it.

How austerity affects our clients

I help to manage several major contracts including PFI ones. One is a telco, the other is a major travel agent with offices nationwide. How is austerity affecting them? They deal directly with consumers. If they don't make a profit, they've got less money to spend on projects and maintenance. Three years ago, the government said:

"Raising the personal allowance to £10,000 we will have lifted 2.7m people out of income tax since 2010. Our welfare reforms ... will help people back into work – which will benefit the economy more than simply abandoning them to claim benefits year after year." - Austerity audit, by Chris Giles and Sarah Neville for the Financial Times

The report cited above found that while the intention was to get people off of benefits and back into work, it mostly served to impoverish those people in economically depressed areas. The problem is, the government sees everyone who is on benefits as lazy toerags who simply don't want to work, but merely kicking people off the dole doesn't create employment opportunities. Those opportunities need to exist in the first place and the wage needs to be enough to live on. When they don't, all Austerity does is make a bad situation worse. For our clients, this is problematic.

The telco

While the market for telcos is actually doing quite well and the company I help to manage is certainly profitable, they've been closing down some of their data centres and letting staff go. Now much of this is natural wastage on the FM side, I'm not sure about the rest. They're also pretty loathe to take on new projects unless they are essential.

The travel firm

The travel company has been closing down offices in the North West and letting staff go. Two of our site engineers are no longer with us. There are massive projects to be carried out; their head office's air conditioning system is ancient and needs replacing, as do the boilers in one of the buildings here in Greater Manchester. Neither of these seem likely to happen. We're forever being told that the money isn't there.

The bottom line

Healthy-looking profits can be very distracting; if people can't afford to pay for goods and services, they'll either get them on credit and pay the costs later, or they won't spend as much to keep their costs down and stay out of trouble. In the long run it's just not sustainable. You can't save your way to prosperity; money is like blood, it needs to circulate. That means it shouldn't be allowed to concentrate at the top.

The verdict is in: austerity is NOT good for business, and it's certainly not good for our industry.