Business

UK will lose fewer public sector jobs, says OBR

  • 29 November 2010
  • From the section Business
Hospital ward
The OBR now expects a far smaller number of public sector workers to lose their jobs

The independent Office for Budget Responsibility (OBR) says public sector job losses will not be as high as previously thought.

The OBR now expects 330,000 public sector workers to lose their jobs over the next four years, far fewer than the 490,000 it forecast in its June report.

At the same time, it raised its estimate for economic growth this year, from 1.2% to 1.8%.

But it lowered its growth estimates for the next two years.

The OBR indicated that economic performance next year would be growth of 2.1% - down from its previous 2.3% forecast; and 2.6% in 2012, down from the 2.8% previously pencilled in.

There were further relatively positive predictions on jobs, with a forecast that, after a peak of just over 8% unemployment in 2011, the rate would fall steadily to just over 6% by 2015.

The OBR said it had changed its public sector job forecast because the government had put more emphasis on benefit cuts and less on departmental spending cuts than it had expected at the time of its earlier forecast.

The government-appointed body's chairman Robert Chote also said that the creation of one million private sector jobs in that time would "more than offset" falling public sector employment.

The Chartered Institute of Personnel and Development, which has forecast a much higher reduction in public sector jobs, said the picture painted by the OBR differed from reports it had received from "managers on the ground".

But its chief economist added: "If employment, unemployment and average earnings follow the path forecast by the OBR the 'era of austerity' will be felt more in workers' pockets and living standards than in terms of lost jobs," John Philpott said.

"As such the OBR forecast is most encouraging but it is still too soon to conclude that a rosy outlook for jobs is a dead cert."

'Slower recovery'

The OBR said the impact of government measures to cut the deficit, which include an increase in VAT from the current 17.5% to 20% and the £81bn of planned spending cuts would lead to "sluggish growth" in the medium term.

A statement from the body said: "The economy will continue to recover from recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s."

Mr Chote told reporters that the government's plans were consistent with sustaining an - albeit slow - economic recovery, although he warned such predictions were never assured.

"There is considerable uncertainty around any economic forecasts," he said.

The chief economist at the Institute of Directors, Graeme Leach, said the forecast was somewhat rosy.

"The OBR's 2011 growth forecast still looks a bit optimistic even after the downgrade," he said.

"We face very strong headwinds next year. Real take-home pay faces a sharp squeeze and the savings ratio is already very low."

'Unprecedented gamble'

Mr Chote stressed the independence of the OBR's views, which has previously been questioned, saying: "We have not come under any pressure from ministers or their advisers to change any of [our forecasts]".

Mr Osborne responded to the OBR's updated forecasts in his Autumn budget statement.

The chancellor said the findings endorsed the coalition government's policies: "The OBR has confirmed that the British economic recovery is on track and Britain is on the mend".

But Labour's shadow chancellor, Alan Johnson, said the report did not give the government a firm vote of confidence.

The government, he said, was taking "an unprecedented gamble with peoples' livelihoods and the country's future".

The OBR was formed by the coalition government in May and is intended to make an independent assessment of the public finances ahead of each Budget.

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