Weavee - Discover your career

Spending cuts: what do they mean for me?

Oliver Grant outlines the consequences of the UK government's budget cuts for universities, graduates and the City
Commercial awareness
Politics and economics

The spending cuts unveiled last week by George Osborne, Chancellor of the Exchequer, represent the largest reduction of public spending in the UK since the Second World War. Over the course of this Parliament, the Treasury estimates that public spending will fall from just over 47 per cent of GDP to a smidgen short of 40 per cent. This feat will be achieved by government departments cutting their spending on average by 20 per cent over the next four years, with departments such as Defence, Local Government and Business, Innovation and Skills being particularly hard hit. The Chancellor's severe cuts to public spending are aimed at reducing Britain's budget deficit, which the Office for Budget Responsibility predicts will run to £149 billion this year.

Of particular interest to students are Osborne's plans to reduce the teaching budget for higher education by nearly 40 per cent from £7.1 billion to £4.2 billion. Dr Wendy Platt, Russell Group Director, told The Gateway: "I am concerned that the cuts will mean it will be tough to maintain high quality teaching, learning and research."

The cuts also increase the likelihood that the government will implement the proposals of the controversial Browne report. The report, published in early October, recommended that the cap on tuition fees be lifted and estimated that the average student would graduate with £30,000 of debt compared to the current £17,000. With the coalition government endorsing the Browne report, and dissenting backbenchers being too few to cause an upset, it seems probable that students will be forced to take on more debt to plug the gap that the Spending Review has left on the balance sheets of universities. Dr. Platt commented that the cuts to the HE budget "suggest that there is no conceivable 'Plan B'", and that "without a system of higher graduate contributions, we would be relegated from the premiership of higher education to the third division".

At eye level

The spending cuts have been met with hostility in many quarters of the student population. Aaron Porter, President of the NUS, responded to the cuts by denouncing them as: "a devastating blow to higher and further education", and the spending review as: "looking an entire generation in the eye and saying 'you're on your own'". However, on campus, the mood does not seem to be universally bleak. Alex Brownlee, a UCL student, said: "I don't agree with the government reducing its contribution to higher education, but I don't think that the cuts will change things a great deal, as the amount paid upfront will not be increased." Claims that the cuts will have a disproportionate effect on humanities and arts also seem overblown. While arts and humanities degrees are likely to become solely financed by students, it should be remembered that they are far cheaper than science and medicine degrees to run in any case.

Doom and gloom

Another area of concern for students is the impact the Chancellor's cuts will have on the graduate job market. There is a widespread fear that the fledgling recovery graduate recruitment has enjoyed since the darkest days of 2008-2009 will be reversed. Higher Education Careers Service (HECSU) last week painted a grim picture, claiming that if even one fifth of the 39,000 graduates that enter the public sector for the next five years lost their jobs, graduate unemployment would double. Charlie Ball, deputy researcher at HECSU, admitted: "It would not take much of a shock to the graduate jobs market to make the next few years some of the toughest ever experienced."

On the fence

However, to some extent, the negative effect of the cuts on graduates has been overstated. The education and NHS budgets have been ring-fenced, and they are the two most significant single public sector graduate employers. Moreover, the impact on City careers could well be negligible. While the banking crisis of 2008-09 increased demand for public sector jobs, it seems unlikely that a reversal will now occur. Students who would have gone into the Armed Services and local government are unlikely to try their luck with banking, law or consultancy, and so, in the short term at least, it seems that recruitment in the City is unlikely to be adversely affected by the cuts.

If the spending cuts are a concern to the City, it is more in terms of their mid to long-term effects on the economy. The cuts will inevitably have some knock-on effect on the private sector, as the public sector spends so much money there. PriceWaterhouseCoopers warned, in a report published last week, that fiscal austerity measures "will be a drag on the pace of the economic recovery", but should not not "derail it altogether". At the moment it is difficult to see through partisan prejudice: with the government claiming that the cuts are necessary for a sustainable and organic recovery while Labour denounce them as too much, too soon, and as likely to destabilise the economy.

There are some rumblings of discontent in the banking sector over introduction of the permanent banking levy which will generate £2.5 billion a year from 2012-2013. However, the levy has generally been seen as less draconian than feared. David Buik, a partner at BGC Partners commented: "The devil is in the detail. We really need to know how the double-tax issue will be handled because other territories are also imposing levies." Other indicators show that the City is remaining upbeat: the FTSE has risen from 4806 from last July, to 5700, and welcomed the news of the spending cuts. And last week the FT reported that confidence that the cuts will bring the deficit under control has led to the costs to the UK government of borrowing funds dropping to the lowest they've been in decades, even falling below those of Germany, Europe's largest and strongest economy. Indicators suggest that the banking and legal sectors will continue to recover well, and consultancy may even find rich pickings in lucrative advisory work for the government.

Horrible histories

Much has been made by political commentators of the size of the cuts. However, it should be remembered that the cuts come after a decade of steadily increasing public sector spending. To a large degree, the seeming severity of Osborne's measures is explained by the high base level from which he has had to start. Indeed, the Chancellor's proposals actually return public spending to the levels of the mid-2000s and in cash terms at least, public spending will actually increase over the course of the Parliament. In this context, the bloated size of the public sector in the last few years is more of a historical anomaly than where Osborne proposes it should finish.

While the UK's spending cuts are undeniably significant, it should be realised that most European governments are facing similarly tough decisions. The UK and Ireland both aim to eliminate their budget deficits over the next four years, but the Irish budget deficit stands at a staggering 32 per cent compared to the UK's 13 per cent. This means that the Irish government will have to implement cuts far more eye-watering than the UK's. Even the buoyant German economy is not immune, with Angela Merkel announcing €80 billion of cuts over the next four years.

There is a long, hard road ahead for Britain, but from an international perspective, it's not quite the punishing mountain climb that some of our European neighbours face. And if you're reading this article, you're most likely one the of the lucky ones who'll avoid most of the slashing and burning. Just be grateful you weren't born a few years later, or you'd be selling your Xbox for the price of a lecture.

Continue learning below