All the emphasis will be on the public sector -- what parts have been cut the most, which have survived relatively unscathed -- so before we all get absorbed with that I thought it might be useful to look at the state of the private sector. After all, the Coalition Government expects the private sector to take up the slack created by public sector cuts. Is that credible?
We won't really know until it happens but one thing that is not widely realised -- and rarely commented on -- is that for an economy only slowly emerging from recession the UK private sector is in reasonably good shape.
In the past 12 months well over 300,000 new private sector jobs have been created. True, many are part-time (though they could become full-time as the economy recovers) but over half are not -- which means a lot more full-time jobs have been created in the private sector in the past 12 months than have been lost in the public sector. That's the main reason unemployment continues to nudge down.
Of course, the bulk of the public sector job losses have yet to come. The Office of Budget Responsibility reckons that 80% of the job losses won't happen until 2013 and after. Just 40,000 are expected to go in 2011 and another 40,000 in 2012. So employment is likely to continue to grow over the next two years, even as the cuts start to bite, because private sector job growth will outpace public sector job losses.
But what then? The public sector will shed several hundred thousand jobs in the years after that -- maybe as many as 450,000. The Coalition's hope is that by then the private sector will be in robust growth and creating a lot more new jobs than the public sector is shedding. It's a stretch -- but not impossible if the economy gets back to growth close to 3% a year.
Look at the early 1990s when public sector job losses were last heavy: 75,000 went in 1994, 90,000 in 1995 and 110,000 in 1996. Yet these large losses -- painful for all those who lost their job -- were dwarfed by the growth in private sector employment, so that when Labour won in 1997 unemployment was on a firmly downward path -- despite the shrinking of the public sector.
But can the private sector stage a repeat -- and this time on a bigger scale? The signs are not entirely depressing. Corporate earnings are recovering fast as companies trim costs and exploit markets that are growing once more. UK profit growth is expected to outpace the global average for the first time in almost two decades.
So companies are flush with cash in their corporate bank accounts. At the same time, because investment collapsed during the recession, many are reaching capacity restraints. They will have to invest to take advantage of growing order books -- and they have the money to do just that.
Recovering profits, recent low investment, capacity constraints and modest growth in demand -- that is a potential recipe for investment to rebound. And it looks as if it might: recent surveys of Chief Financial Officers found that many companies were indeed poised to invest.
At the current rate of private sector job growth, over 1m new private sector jobs would be created by the time the cuts are complete in 2015. If that was to happen -- and there are many reasons why it might not, such as a double-dip recession at home or a rise in protectionism abroad -- then the large and painful loss of public sector jobs coming down the pike would be more than compensated for by a rise of private sector jobs. Whether these would be as well-paid or as satisfying as the public sector jobs lost only time will tell.
If Rosy Scenario has her day (and it is a Big If) then we might have been concentrating on the wrong problem for the Coalition. A compensatory rise in private jobs would make the current cuts less politically damaging than most of us currently think. A bigger political problem for the Coalition that is currently being ignored is the manner in which very low growth in earnings (which could be exacerbated by the switch from public to private sector jobs) coupled with an increase in various taxes is seriously cutting the purchasing power of the take home pay of the average earner.
Figures I've seen suggest that living standards for those on average incomes are now in decline -- it is as if there's been a national pay cut thanks to very low wage growth and a very strong rise in taxes and prices (the highest in Western Europe) -- and that's before the rise in VAT to 20% in January. The squeeze on earning power is probably the toughest for almost 30 years.
The political fallout from that could be much worse than the cuts.