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 Case Study
18 October 2011 | ITSM
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Private Sector Inadequately Equipped for Growth and Job Creation
Business leaders predict imminent 'double dip' but are cautiously optimistic about future prospects...

A report released by the Chartered Management Institute (CMI) reveals the concerns held by the UK’s managers and leaders about the current economic situation and the private sector’s ability to provide growth and jobs in the coming months.  CMI’s bi-annual Economic Outlook report does, however, also offer a glimmer of hope, outlining senior executives’ views on the state of the economy in 12 months and beyond.

Questioning respondents about a variety of economic performance indicators, including GDP, business insolvencies and levels of employment, key highlights from the report include:

  • Growth stagnation: just 8% of the 616 leaders surveyed for the report said they expect GDP to grow within the next 12 months – a figure that has dropped from 15%, six months ago
  • More bust than boom: more than three-quarters (76%) believe business insolvencies will increase over the next year and more than two-thirds (68%) also think that it is likely the UK will go back into recession
  • No thaw in recruitment freeze: 50% suggest their organisation has implemented a recruitment freeze and 46% anticipate a decrease in recruitment budgets between now and March 2012.  Surprisingly, respondents in the private sector are most pessimistic about future employment opportunities; 81% of private sector managers expect that employment levels will decrease or stagnate compared to 73% in the public sector and 70% in the third sector.

Following a day of the Conservative Party Conference devoted to discussions on how to rebalance the economy, today’s report has serious implications for the Coalition Government’s plan for the private sector to lead the UK back into growth and provide jobs for those lost in the public sector. 

It shows a growing sense of impatience with the actions being taken to reduce the national deficit. 60% of respondents, for example, expect levels of Government debt to have a damaging impact on their business in the next 12 months and a quarter of managers and leaders (25%) now think the Government is not acting quickly enough to reduce the deficit (up from 11% in March, this year). This increasing impatience is most pronounced in the private sector, where 33% want faster action. Concerns about deficit reduction (60%) are second only to fears about how to meet rising energy costs (72%) when leaders prioritise their biggest challenges for the future.

Responding to the report, CMI’s Director of Policy and Research, Petra Wilton, said: “It’s clear that managers in all sectors are very concerned about the immediate future of the organisations they run, and the economy more widely. Given the pressure on the private sector to spearhead the recovery, however, the predictions of business leaders make particularly uncomfortable reading. We’ve heard a great deal about the recent warnings from the IMF, downward revisions of GDP forecasts and stock market turmoil but this report tells us what the implications of all these challenges actually mean for the senior manager or business leader on the ground.

“Three years on from when the UK fell into recession, things don’t seem to have moved forward for managers and leaders – they still have to cut costs through redundancies and recruitment freezes, morale continues to worsen and half feel insecure in their own jobs. It’s not surprising, therefore, that an increasing number of organisations would like to see more being achieved sooner by the Government’s deficit reduction measures.”

Yet, despite the overall pessimism, there are signs that the UK’s managers and leaders see long-term prospects improving:

  • Changing perspectives: net optimism in the private sector currently sits at minus 8 points, up from minus 13 six months ago but looking 12 months forward this moves up to a positive net 7, and looking even further to 3 years time it is 41 positive.  However, the public sector sees an overall negative outlook rising from a current minus 42 to minus 24 in 3 years time.
  • Support for Government action: a majority of managers and leaders believe the Government is not powerless to act, with 66% agreeing it can take steps to encourage growth.  Top of the ‘policy wish list’ is the simplification of taxes (called for by 89%),  tax breaks to aid employers in investing in skills development (85%) and more Government funding for Apprenticeships (77%).

Petra Wilton continues: “We echo our members’ calls for the Government to support employers in training their employees and bringing skilled people into their workforces. The extensive restructuring across all sectors over the past three years – which looks set to continue – has left skills gaps and it’s vitally important that professionally qualified managers are in place if organisations are to recover from the ongoing change and succeed in the future.  That’s why there is some support for National Insurance holidays to encourage recruitment – they recognise that high quality, accountable employees have a hugely positive impact on the performance of organisations and can help insure against some of the worst business impacts of a recession. The faster the private sector recovers, the more able it will be to absorb job losses in the public sector and help pull the UK economy back on to its feet.”  

In addition to these calls for support from Government, the report shows that, where possible, organisations are doing what they can to try and prepare for the upturn when it comes. While more managers expect investment to decrease than increase in almost all areas of organisational operations, the two areas where managers do anticipate spending to increase slightly over the next six months are marketing and business development, suggesting they are looking ahead and planning for less harsh economic times. The continuing economic turbulence also appears to be fostering innovation, particularly in the third sector where 44% of organisations are creating new products and services in response to the economic climate.

The view the full Economic Outlook report and its recommendations click on the link. 


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