Business

Spending cuts and VAT rise to cost 1.6m jobs, says CIPD

London commuters
Image caption The CIPD says private sector jobs will be hit harder by the cuts than the public sector

The government's spending cuts and the rise in VAT to 20% in January will result in more than 1.6 million job losses across the public and private sectors by 2016, research suggests.

The Chartered Institute of Personnel and Development said the impact of the Spending Review had been "understated".

It predicts 725,000 public sector jobs will go - more than 100,000 higher than a government-appointed body.

It also estimates 900,000 private sector jobs will go.

The Treasury defended its spending cuts, saying: "The independent Office for Budget Responsibility (OBR) has set out its forecast showing sustained economic growth in the years ahead, with employment rising and unemployment falling."

John Philpott, chief economic adviser to the CIPD, said the number of public sector job losses cited in the Spending Review looked like "an underestimate, given what most public sector managers are telling [us]".

The OBR expects 610,000 public sector jobs to go by 2015-16. Mr Philpott puts the total number of jobs to be lost in the public sector between 2009-10 and 2015-16 at 725,000.

The number of jobs lost in the private sector due directly and indirectly from the cuts would be 650,000, with an additional 250,000 jobs to go due to the VAT increase, he estimated.

'Nonsense'

The CIPD's predictions were criticised by some MPs during a session of the Treasury Committee.

Conservative MP Michael Fallon described the figures as "nonsense".

He criticised the CIPD's record on forecasting job losses, saying the institute had been "spectacularly wrong before" when it predicted that unemployment would reach three million before the recovery got under way.

"It didn't," Mr Fallon said. It has recently hovered around 2.5 million.

During the heated and, at times, bad-tempered exchange, the MP said: "You are less reliable than a dead octopus."

Mr Philpott replied, saying, "Actually the octopus was pretty accurate while he was still alive."

He also defended the CIPD's record and asked Mr Fallon to withdraw his accusation that its work was "nonsense".

'Tall order'

Some business groups, including the CBI, have said that job creation in the private sector will be able to compensate for losses in the public sector.

However, the CIPD said that the private sector would be hit harder than the public sector.

An average of 320,000 private sector jobs a year would have to be created by 2015-16 just to keep unemployment steady at 2.5 million, it said.

In its report, the CIPD said the private sector was "perfectly capable" of creating more than 300,000 jobs a year, but only if the economy grew faster than 2.5% on average a year.

This, it said, "looks like a tall order".

The British Chambers of Commerce, however, said that in its experience, there was a huge amount of optimism among companies about the economic outlook.

"If the business community is allowed to get on with the job of creating wealth we won't see anything like the amount of job losses talked about [in this report]," director general David Frost told BBC News.

'Decisive plan'

Initial estimates show that the UK economy grew by 0.8% between July and September, and by 1.2% in the previous three months.

However, most economists expect growth to slow as a result of the spending cuts.

The government has argued strongly that the cuts are necessary in order to reduce the UK's budget deficit, which is one of the highest in Europe.

Reducing debt levels will restore the confidence of international money markets in the UK, and reduce interest payments that are sucking money out of the economy, it says.

"The chancellor has set out a decisive plan to reduce the UK's unprecedented deficit and restore confidence in the UK economy," the Treasury said in a statement.

"Not taking action to tackle this problem would put the economic recovery at risk - a view shared by the International Monetary Fund, World Bank, G20, Bank of England and the OECD."

However, some economists argue that the size and the speed of the spending cuts could undermine the recovery.

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