Among a long list of cuts to Whitehall departments administrative budgets and caps on the welfare state, Osborne announced that over the next four years 490,000 public servants will lose their jobs.
He said this would partly be achieved through natural wastage, but the economy must expect some redundancies.
Chris Gardner, director of Southend-based Obligo, said: “I think we’re going to find out just how resilient the private sector is now - trying to find 490,000 people new jobs will be tough. And the majority will more likely than not be mortgaged, which will create more problems for the mortgage market. I think this will be a seminal moment in what has been a horrific financial crisis.”
“This is judgement day,” he added. “The private sector has to pull together and work our way of the problem.”
Rob Killeen, director of London-based broker Capital Fortune, said: “The cuts in public sector jobs will reduce the spending power in the economy and I only hope the scale and timing will prove correct. No-one will ever support cuts but current spending is unsustainable.”
Dominik Lipnicki, director of Peterborough-based broker Your Mortgage Decisions, beleives the majority of public sector job cuts will be achieved through natural wastage.
But he added: “The bigger impact will be on agency staff and contract workers who’ll run out of work. That will take a lot of cash out of the economy. And I don’t think the private sector can replace half a million jobs.”
Tom Cleary, financial services director, at broker Start Financial Services, said: “On the most basic level I understand the public sector did not create the crisis and it seems unfair that they should have to bear the brunt of the cuts.
“But massive expenditure by Labour means it will have to. I think the biggest impact will be on consumer confidence and if people start spending less that will impact on recovery.”
Fahim Antonaides, group director of London-based Mortgage Centre IFA, was one broker who thought the cuts hit in the right places.
“The biggest cuts are to Whitehall and the public sector which over the past decade has bloated to this behemoth," he told Mortgage Introducer. "The only issue now is half a million people out of work will have to go somewhere. If the private sector is to take those people on – and most of the private sector is made up of SMEs – businesses will need to have the confidence they can take new people on.
“We need to see some incentive to SMEs to make sure the private sector can pick up the slack.”
Other announcements included cuts to the social housing budget and caps on tenants’ tenure in council housing.
Essex-based pundit Danny Lovey said Osborne’s announcement that 150,000 new affordable homes would be built from savings resulting from these cuts was a “nice try”.
“It’s a pimple on the face of demand for new homes,” he said. “And while it’s to be welcomed, I can’t see that it’ll have that significant an impact on the market.”
London & Country’s David Hollingworth said the general feeling in the market was that it could have been worse.
He said: “There’s a lot of detail to be sifted through still. There is talk of an increase in affordable housing but it’s difficult to know how the government plans to do that. I would guess shared equity won’t play a large role which would be a shame, but is perhaps not unexpected.”
First Action Finance’s Jonathan Cornell was concerned that there could be unintended consequences for the mortgage market.
“These cuts are bad but inevitable and it will be interesting to see how lenders respond to the news that half a million people in the public sector will be out of a job,” he said.
“Will they get more nervous lending to public sector workers? They may think it though I would guess they’ll struggle to put any discrimination into practice.”
