Budget will cost 1.3m jobs - Treasury

Exclusive: Leaked government data concerning next five years shows hidden costs of austerity drive

* Larry Elliott, economics editor
* guardian.co.uk, Tuesday 29 June 2010 21.02 BST


George Osborne's austerity budget will result in the loss of up to 1.3m jobs across the economy over the next five years according to a private Treasury assessment of the planned spending cuts, the Guardian has learned.

Unpublished estimates of the impact of the biggest squeeze on public spending since the second world war show that the government is expecting between 500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector by 2015.

The chancellor gave no hint last week about the likely effect of his emergency measures on the labour market, although he would have had access to the forecasts traditionally prepared for ministers and senior civil servants in the days leading up to a budget or pre-budget report.

A slide from the final version of a presentation for last week's budget, seen by the Guardian, says: "100-120,000 public sector jobs and 120-140,000 private sector jobs assumed to be lost per annum for five years through cuts."

The job losses in the public sector will result from the 25% inflation-adjusted reduction in Whitehall spending over the next five years, while the private sector will be affected both through the loss of government contracts and from the knock-on impact of lower public spending.

The Treasury is assuming that growth in the private sector will create 2.5m jobs in the next five years to compensate for the spending squeeze. Osborne said in last week's speech that tackling Britain's record peacetime budget deficit would help keep interest rates low and boost job creation. "Some have suggested that there is a choice between dealing with our debts and going for growth. That is a false choice." However, investors are increasingly nervous about the lack of growth in the world economy. The FTSE 100 fell more than 3% yesterday as fresh jitters hit confidence.

The opposition and trade unions said the unpublished Treasury forecasts backed up their argument that the unprecedented scale of the cuts in public spending would hamper Britain's recovery from the deepest and longest recession since the Great Depression.

Alistair Darling, the shadow chancellor, said: "Far from being open and honest, as George Osborne put it, he failed to tell the country there would be very substantial job losses as a result of his budget.

"The Tories did not have to take these measures. They chose to take them. They are not only a real risk to the recovery, but hundreds of thousands of people will pay the price for the poor judgment of the Conservatives, fully supported by the Liberal Democrats. It shows the risks they are prepared to take. If they get it wrong, those people losing their jobs will not get back to work."

Osborne said last week that his newly appointed panel of outside experts – the Office for Budget Responsibility – believed the jobless rate would soon start to improve. "The unemployment rate is forecast by the Office for Budget Responsibility to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015," he said. This forecast was fleshed out in the Treasury's Red Book, which says: "The decline in employment appears to be coming to an end and we expect a modest recovery in employment in the second half of 2010."

From next year, officials believe that stronger growth and a rising working population will lead to an acceleration in jobs growth. Over the five-year period from 2010 to 2015, the Treasury assumes that employment will rise from 28.8m this year to 30.1m in 2015, despite the loss of jobs caused by spending cuts.

The TUC general secretary, Brendan Barber, said: "With Treasury figures revealing that spending cuts will hit private sector jobs harder than those in the public sector, it is absurd to think that the private sector will create 2.5m new jobs over the next five years."

"This is not so much wishful thinking as a complete refusal to engage with reality. Much more likely are dole queues comparable to the 1980s, a new deep north-south divide and widespread poverty as the budget's benefit cuts start to bite. Many will find that a frightening prospect."John Philpott, chief economist at the Chartered Institute for Personnel and Development, said: "There is not a hope in hell's chance of this happening [the creation of 2.5m new jobs]. There would have to be extraordinarily strong private sector employment growth in a … much less conducive economic environment than it was during the boom."

The CIPD has estimated that there will be 725,000 jobs lost in the public sector alone by 2015, although Philpott said the number could be lower if the government succeeded in pushing through pay cuts.

He added that Osborne was expecting a similar rise in employment over the next five years to that seen during 13 years of the last Labour government, when around a third of the employment growth came from the public sector. "This is a slower growth environment and there will be no contribution from the public sector."

Last night David Miliband, one of the candidates for the Labour leadership, said: "This proves what we feared but the government kept secret. The budget will slash jobs not create them, and the least well-off will pay the highest price."

Andy Burnham, another of the Labour leadership candidates, said: " The human cost of Osborne's budget is now clear, despite his best efforts to hide it."

Budget will cause 1.3m job losses, says Treasury | Exclusive | Larry Elliott | UK news | The Guardian

David Cameron and Harriet Harman clash over leaked Treasury document on unemployment

• Prime minister refuses to answer when questioned by acting Labour leader over Guardian revelation that budget may lead to 1.3m rise in unemployment



* Hélène Mulholland, political reporter
* guardian.co.uk, Wednesday 30 June 2010 13.35 BST


Harriet Harman today warned of "abject misery" in the jobs market after leaked Treasury documents suggested last week's emergency budget could drive up unemployment figures by as much as 1.3m.

The acting Labour leader used prime minister's question time to call on David Cameron to publish the secret Treasury analysis reported in today's Guardian.

The analysis reveals that George Osborne's austerity budget will result in the loss of at least 500,000 public sector jobs and between 600,000 and 700,000 jobs in the private sector by the end of this parliament.

Harman told MPs: "He hasn't agreed to publish those documents. The prime minister should know what abject misery this unemployment will cause to individuals, to families and to communities. Can he tell us how much extra this will cost in unemployment benefits?"

Cameron dodged calls to publish the figures and instead cited a separate forecast published today by the Office for Budget Responsibility (OBR), the government's newly-appointed panel of outside experts.

The forecast suggests unemployment will fall "every year" of this parliament amid an expected job rise of 1.4m in the private sector.

Commenting on the OBR figures, which include full tables for the budget for employment in the public and the private sectors, Cameron said: "The figures published today show two million more private sector jobs. They show 1.4 million people in work at the end of this parliament. They show unemployment falling every year."

The gap between the 2m new jobs and the figure of 1.4 million people in work suggests a gap of 600,000 private sector jobs – in effect chiming with the private Treasury assessment of the impact of the planned spending cuts reported in the Guardian.

This shows the government is expecting between 600,000 and 700,000 private sector jobs to disappear by 2015 as a direct result of Osborne's budget, which represents the biggest squeeze on public spending since the second world war.

The unpublished Treasury analysis also shows that between 500,000 and 600,000 public sector jobs will be lost over the five-year period.

Cameron refused to confirm the figures and resisted citing the OBR's forecast for public sector jobs, but a Downing Street spokesman earlier confirmed that public sector job cuts were in the pipeline as part of a drive to "rebalance" the share of jobs in the private and public sectors.

"You cannot continue funding jobs in the public sector on the back of a budget deficit because they are not sustainable jobs," the spokesman said.

"In order to see employment and growth in the longer term, you need to tackle the deficit. We want to see a rebalancing from the public to the private sector, both in terms of their share of national output and their share of employment."

Harman told Cameron: "I know you've published some figures today, but it's the figures you haven't published that I'm asking about – the figures that say that 1.3 million jobs will be lost. Why won't you publish these Treasury documents? Why are you keeping them hidden?"

The prime minister said the OBR forecast was independent of the government. "It's no good Labour MPs chuntering about this," he added.

"They now support the OBR. This is an extraordinary approach. Before the election the then chancellor [Alistair Darling] was asked the question: 'Will you acknowledge that public sector jobs will be cut?' Darling: 'It's inevitable.'"

Cameron accused Harman of scoring a "spectacular own goal" as he seized on forecast figures that suggested the former Labour government's plans would have resulted in 70,000 fewer public sector jobs next year and 150,000 fewer the year after.

"She doesn't seem to understand unemployment is going to be falling during this parliament," he said. "And in terms of publishing the figures, we have published the full figures.

"But it's not now us publishing the figures, it's the Office for Budget Responsibility. She has to understand this is something the Labour party now supports.

"But let me repeat – what the figures show is that unemployment in the public sector is higher under Labour's plans next year and the year after.

"When she gets to her feet, perhaps she will tell us ... do you now support the pay freeze to keep unemployment down?"

David Cameron and Harriet Harman clash over leaked Treasury document on unemployment | Politics | guardian.co.uk

Slashing the budget deficit will have a dire effect on the north

George Osborne's budget cuts will lead to grinding unemployment in places dependent on the public sector

o Larry Elliott
o guardian.co.uk, Tuesday 29 June 2010 21.04 BST


Given that he was announcing a six-year programme of spending cuts unprecedented in the modern era, George Osborne said little in his budget speech about unemployment. Now we know why.

Over the next five years, the Treasury believes that at least 2,000 jobs a week are to go from the public sector and up to 2,800 a week from the private sector as a direct result of the planned spending cuts. So much for the idea that the coalition government is taking a surgical knife to a bloated state, creating the space for an unshackled private sector to take up the slack. The private sector will face a double whammy: work from the public sector will dry up, while the loss of so many public jobs will have a ripple effect through the private sector. Those parts of the country heavily dependent on the public sector, anywhere north of a line from the Wash to the Severn estuary, the impact threatens to be dire.

Osborne's argument is that he has no choice but to take drastic action; but, apart from the supposed need to appease the bond markets, there is no economic rationale for slashing the budget deficit in the way being planned.

First, there is no evidence that the public sector is "crowding" out investment in the private sector. On the contrary, it has only been the demand from the public sector that has prevented the economy sliding into an even bigger hole over the past two years. The chancellor seems to believe that taking the axe to the deficit will lead to a spontaneous recovery in the animal spirits of firms, who will respond by investing more, exporting more, and taking on more workers. This seems improbable, not least because the "crowding in" of the private sector would require a big and permanent reduction in interest rates. But both short-term rates (those set by the Bank of England) and long-term rates (set in the bond markets) are already at historically low levels.

Second, the climate for job creation is poor and likely to remain so. Britain's biggest export market, the euro area, is moribund, while the US, which hitherto has rebounded more quickly than Europe from recession, appears to be running out of steam. Bank credit is available, but only at a price, and on conditions businesses consider too onerous. As a result, investment is weak. Consumers swallowed pay cuts and pay freezes in order to safeguard jobs: now it appears more than a million jobs are going to be lost anyway. The temptation for households to save rather than spend will be mightily strong over the next few years.

Third, the attempt to appease the markets may prove counter-productive, as big sell-off in share prices on both sides of the Atlantic showed. The plunge was caused, not by concerns over a sovereign debt crisis, but because of a sharp fall in US consumer confidence. Having panicked governments, including ours, into crash deficit reduction, the markets are now worried about the impact on growth. All of which shows it is dumb to allow the financial markets to dictate policy.

In Britain's case, that means spending cuts on a scale that will exceed both in scale and duration those imposed by the International Monetary Fund between 1976 and 1982. Yet, unless the next few years throw up a source of job creation as yet unidentified, the impact of this budget will be depressingly similar. Think 1980s. Think Boys from the Black Stuff. Think a new lost generation.

Slashing the budget deficit will have a dire effect on the north | Business | The Guardian