Public sector job cuts expected to outweigh private sector expansion

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A gloomy official forecast on jobs will be issued next week in another blow to George Osborne's economic strategy.

Ministers expect the independent Office for Budget Responsibility to downgrade its previous prediction that the country's public sector job cuts will be outweighed by a big expansion in the private sector. "The figures will be grim," one minister said.

In March, the OBR forecast that total employment would increase by about 900,000 by 2015, with 1.3 million extra jobs in private firms more than compensating for 400,000 lost public sector jobs. But after anaemic growth levels, it will revise the figures next Tuesday, the day of the Chancellor's autumn statement.

As some Tory MPs joined Labour in calling on Mr Osborne to adopt a "Plan B", Danny Alexander, the Chief Treasury Secretary, revealed that the Chancellor would speed up some big building projects without increasing borrowing, by using unspent funds earmarked for day-to-day spending. He said: "We are shaking the Whitehall tree to make sure no one is stockpiling capital that can be put to good use today. That's why next week's announcement will switch funds to capital spending plans."

Conservative MPs are increasingly jittery. Yesterday David Ruffley, a member of the Treasury Select Committee, said Tory backbenchers were even discussing Labour's call for a temporary cut in VAT. "Even if we can't find the money for tax cuts from public spending savings we could add it to the deficit," he said. "The markets will not go haywire if there was a modest loosening in borrowing in the short run if it was for the right reason."

The Labour leader, Ed Miliband, will accuse Mr Osborne of failing to hit three key targets – cutting borrowing, cutting inflation and creating jobs.