Spending cuts will cost a million jobs, warns PwC

Almost one million jobs will be lost as a result of the Government's programme of deficit reduction – many in the very regions and industries that have already suffered most in the recession, according to a powerful report from a leading firm of accountants.

Economists at PricewaterhouseCoopers say that a further half a million jobs will be lost among private sector contractors and suppliers as a result of the Chancellor's anticipated £84bn in cuts, due to be announced in detail in eight days' time. The Office for Budget Responsibility has already acknowledged that half a million public sector jobs will go by the time the cuts programme is fully implemented, by 2015. The outlook for the UK economy, PwC says, "remains in the balance". It adds: "There is no escaping the fact that the fiscal squeeze will have a significant adverse effect on many sectors and regions."

Those regions most dependent on the public sector will suffer the largest reductions in employment, peaking at 5.2 per cent of the workforce in Northern Ireland. However, the cumulative impact may be greatest in areas where manufacturing jobs, in particular, were shed most rapidly in the downturn, such as the West Midlands, where unemployment went above 10 per cent, as well as South Wales and the North-east.

As the public sector embarks on a near-ban on the use of management consultants, PwC say that the large business services sector faces a potential output loss of about 4 per cent, leading to a drop of 180,000 jobs. In relative terms though, construction jobs will suffer most, with a 5 per cent loss in contracts for building and maintenance in everything from roads to social housing implying a loss of 100,000 jobs.

Despite the gloom, PwC's chief economist, John Hawksworth, said: "Predicted levels of public and private sector job losses will be a drag on the pace of the economic recovery, but should not derail it altogether. While private sector employment may be affected, this could be mitigated by increased labour market flexibility on wages and hours worked.

"We would expect at least some rise in private sector employment over the next five years despite the fiscal squeeze, bearing in mind that this squeeze should allow interest rates to remain lower for longer."

Many economists are concerned that the UK may follow the US into a "jobless recovery". In Britain, such job creation as there has been has been heavily weighted towards part-time and temporary work, generally less secure or well paid than traditional full-time employment. Employers have been cautious to take new people on even when business confidence was running higher than now, preferring instead to extend overtime or hire temps to meet any upturn in demand.

One danger for the economy as a whole is if the long-term unemployed become unemployable, and cyclical unemployment becomes structural – especially if new private sector jobs are created in parts of the country and demand the type of skills that ex-public sector staff in the Midlands or North will find it difficult to move to and retrain for.