Cuts and tax hikes to cost 1.6m jobs, says CIPD

The coalition's cuts, plus the upcoming VAT hike, could cost the UK 1.6m jobs. Which is rather more than the Government suggested...

by Dave Waller
Last Updated: 06 Nov 2012

The Chartered Institute of Personnel and Development says last month’s Comprehensive Spending Review, together with the forthcoming rise in VAT to 20%, will result in the loss of almost 1.6m jobs by 2015-16.

It's also been quick to point out that the Government’s own take on the impact of the cuts was rather less horrific. The Office for Budget Responsibility initially estimated the loss of 490,000 public sector jobs - but the CIPD reckons the damage in that area will be more like 725,000.

Looks like the Coalition Government is learning just what a tricky lark running the economy is. It’s like that arcade game where you have to whack the mole with a mallet: smack a pest as it sticks its head out of one hole, and it will just pop out of another.

The CIPD put the discrepancy down to the Government failing to take in expected job losses this year and in 2015-16 – 50,000 and 120,000 respectively. Also, it says, it doesn’t factor in the indirect effects of cuts on businesses, nor the effect of the VAT hike.

While public sector workers will have to suffer the initial upheaval, the CIPD reckons the private sector may end up being hit even harder in the medium term. It's predicting  650,000 job losses as a direct or indirect consequence of spending cuts, plus a further 250,000 as the VAT rise hits demand for goods and services. Again, that’s higher than another recent prediction, this time by PwC, which put potential losses at almost half a million jobs, and £46bn in annual gross output by 2014-2015.

Interestingly, the CIPD's estimate is almost identical to the net fall in jobs suffered between spring 2008 and winter 2009, during the depths of the recession. So it's good to see the coalition keeping up with Labour in that regard. In fact, you could even argue that it’s surpassed them: the CIPD says the VAT hike will prove a far more significant ‘tax on jobs’ than the hike in employers’ NI contributions that the previous government planned to introduce next April - which it reckons would have cost a mere 75,000 jobs.

Dr John Philpott, the CIPD’s chief economic adviser (who's presenting evidence to the Treasury Select Committee on the impact of the review toda) reckons the Government’s attempts to increase economic growth will necessitate creating 320,000 private sector jobs a year by 2015-16, just to keep unemployment broadly stable.

That sounds a lot, but maybe it’s not such a tall order. The CIPD reckons the private sector is ‘perfectly capable’ of adding more than 300,000 net new jobs per year by 2015-16 – as long as the economy grows faster than 2.5% per year on average.  But that's still a big 'if', given all the cuts in the pipeline.

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