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A Nation of Discontent – A Perspective for CFOs

July 4, 2012

This what we wrote in early 2011 – how does it stack up now?

 

The waiting is now over, but the visible impacts of the Comprehensive Spending Review (CSR) on the UK economy are still someway in the future. 2010 may be seen as a somewhat gentle planning prelude to a 2011 economic and business cacophony. Businesses need to plan ahead for potential deep social discontent as austerity measures begin to get hold of the economy. The coalition government, having garnered post election public consensus and support for deep cuts, has now to undertake these immense austerity measures. The challenge won’t necessarily be in implementing the cuts, but in the public’s reaction to them. These are some of the events which CFOs and Financial Directors will need to plan for:-

 

  • Business continuity scenario planning will become critically important as nationwide stoppages may disrupt businesses as employees will be unable to get to work. Public sector employees carrying out critical jobs which impact the efficient running of business such as Royal Mail, Customs and Excise, the Home Office may impede a range of business- critical functions. CFO’s could face unexpected costs of having to fill in the gaps left by striking public works and have to work with their business insurers to mitigate the increased risk of business continuity interruptions.

 

  • The Unions may garner collective member support to stop the cuts, widening their dispute with the government, combining Public and Private sector employees such as Oil workers, the Utilities and Communication workers. Businesses likely to be impacted must be prepared for critical shortages of staff or unofficial disputes affecting their own business or critical customers, and CFOs should start modelling possible scenarios and associated increases in countermeasure spending.

 

  • Shopping centres across the country could stand half empty as shoppers stay away because of falling consumer confidence, or if town and city centres become place of unrest due to industrial action or breakdown in civil obedience. The combination of disruption to transport networks, law and order, and consumer conservatism may significantly impact revenues of both traditional bricks and mortar and clicks and mortar online retailers. Even retail industry CFOs who believe a double-dip recession unlikely must still plan for a serious downturn in revenues if either supply or demand falters.

 

  • Reduction in housing benefit could see 80 000 people displaced. If estimates of 500,000 civil servant redundancies materialise, the number of people out of work and homeless will mean up to three million people coming out on the streets to protest at these measures. Business based on large towns and cities could face material impacts to either staff availability or continual disruption to delivering services.

 

  • The wealthy (bankers) and those in power will be increasingly physically attacked and will have to seek police protection as they will be blamed for having caused the economic troubles. Tabloids will increasingly vent public anger on the rich, and financial services companies and banks may be forced to spend significantly on improved security or large scale flexible working programmes to ensure security of facilities or staff.

 

  • Changes in payment terms for University student costs will cause a rise in demand for employee benefits to help pay for these. An increase in private schooling may have a similar effect: how should CROs respond?
  • Theoretically, the NHS is ring-fenced against deep cuts, but there will be knock-on effects on its resources from cuts in other areas, especially social services. The re-organisation of the health service will also be high risk; waiting times for referrals and operations will increase and the transfer of commissioning power to GP consortia will be inherently unstable. Sickness rates within businesses could increase dramatically with workers unable to have even mild illnesses treated promptly, and this will impact employee availability and increase costs of short-term labour or significant spending on alternative business strategies. Privatisation and mergers of hospitals will also disrupt insurance arrangements for employees.
  • In the meantime, we expect a resurgent Labour Party to have produced and campaigned on an alternative plan to reduce the deficit at the same time as “punishing” those who are seen to have caused it. This will increase business unease and pose problems for long-term investment planning.

However the political debate pans out, the Coalition’s actions may not be enough to sustain the public support for cuts, and businesses must plan for the possibility of the UK sailing into the eye of the Perfect Storm and sinking below a tide of cuts, together with civil unrest and a double-dip recession.

The above are highlights from a recent SAMI Consulting scenario planning think tank focused on the potential impact of the coalition government’s upcoming spending review.

Written by Gill Ringland, Chief Executive and Fellow at SAMI Consulting

http://www.samiconsulting.co.uk/


http://www.samiconsulting.co.uk/

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