2010-06-10
LONDON (Dow Jones)--U.K. public-sector job cuts could total 725,000 by 2015 if the government cuts spending as sharply as expected, a report said Thursday.
The Chartered Institute of Personnel and Development said while reducing the U.K.'s record budget deficit in a timely manner should ultimately boost the U.K. economy over a longer time, the shorter term outlook over the next five years will suffer.
"Although tough fiscal medicine is unavoidable and may boost the U.K.'s long-run economic growth and job prospects, reliance on cuts in public spending rather than tax increases as the primary means of cutting the deficit makes the short-term outlook especially bleak for those individuals and communities already suffering the greatest hardship in society," said John Philpott, chief economic adviser at the CIPD.
The coalition government has already announced GBP6.24 billion of government spending savings and will outline further, larger scale spending cuts and tax hikes in the June 22 budget.
Prime Minster David Cameron's ruling coalition has made clear at every possible opportunity that the fiscal tightening that will be announced by Chancellor of the Exchequer George Osborne is down to the huge level of debt passed onto them by Gordon Brown's Labour Party administration. But this won't soften the blow to up to 725,000 public-sector workers who stand to lose their jobs in the next five years.
"Prior to the implementation of deficit reduction measures recently announced for the current fiscal year, it is possible that U.K. unemployment would have peaked at just over 2.65 million in 2010," Philpott said. "The revised CIPD forecast, which is subject to further review at the time of the emergency budget on June 22, is that unemployment will rise to a peak of 2.95 million in the second half of 2012 and remain close to that level until 2015. There is little prospect of real wage growth on average throughout this period, and...real wage cuts in the public sector [will continue]."
U.K. unemployment has been less severe than expected during the recession and has shown a decline in the number of new job seekers in three out of the first four months of 2010. The CIPD, and other institutions, don't expect this more upbeat tone to continue.
Philpott added that while in other countries--notably Canada--a strict deficit reduction plan didn't lead to a sharp increase in unemployment, that was largely due to more favorable economic conditions allowing the private sector to expand and employ many of the public-sector staff who lost their jobs.
"Unfortunately, however, the favourable macroeconomic conditions that eased the pain of public sector downsizing in the 1990s do not exist as we enter the current age of austerity," Philpott said. "This time around deficit reduction will slow an already anaemic recovery and in the short-run be bad for jobs in both the private and public sectors, stalling any hopes of a sustained improvement in job prospects this year and causing the labour market to relapse next year."
Source: online.wsj.com
