Government Underestimating Likely Rise in Unemployment Warns CIPD

The Government is underestimating the impact of its austerity measures on the number of people likely to become unemployed and also on the number of jobs the private sector will need to create to absorb them.

The warning comes from the Chartered Institute for Personnel and Development (CIPD) which says that whilst job losses in the public sector can be expected to be around 725,000, job losses in the private sector could be substantially higher than has previously been estimated, at around 900,000.

The reason, according to the CIPD is that not only will 500,000 private sector jobs be lost because of the cut backs in Government spending, but the impact of the rise in VAT has not been sufficiently factored in to previous job loss forecasts.

Pay freezes in the public sector for workers earning £18,000 a year or more will mean cuts in real day, whilst the increase in VAT will also reduce discretionary income as some basic goods and services will cost more, he explained.

The CIPD estimates the private sector will need to create 1.6 million extra jobs by 2015-16 to offset the full impact of the public spending cuts and the rise in VAT. 

“The CIPD considers the private sector perfectly capable of adding more than 300,000 net new jobs per year by 2015-16 if the economy grows faster than 2.5% per year on average, “ says John Philpott.

But given the headwinds facing both the global and UK economy this looks like a tall order, especially prior to 2013, and consequently unemployment is likely to rise throughout 2011 and much of 2012. If the coalition government completes its planned fiscal consolidation with unemployment no higher in 2015-16 than it is today it will have made a significant achievement.

 But the question ‘where will the new jobs come from?’ is bound to be asked for quite some time yet,” he added.

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