Cuts threaten 100,000 more public jobs

Another 100,000 jobs are likely to go from the public sector in order to meet Government's spending cuts, according to the Ernst & Young ITEM Club forecast published today.

The ITEM Club report claims that the Office for Budget Responsibility will give a higher estimate of job losses when its revised forecasts are presented on Tuesday, alongside the Chancellor's Autumn Statement. Robert Chote's OBR is expected to say that projected public-sector job losses could rise from 400,000 to half a million over the next five years.

Andrew Goodwin, ITEM's senior economic adviser, also warns that a deteriorating economic outlook, caused by the deepening eurozone crisis and weakening consumer demand, will force the OBR to slash its UK GDP forecasts for 2011 and 2012 from 1.7 per cent and 2.5 per cent respectively, to 0.9 per cent and below 1.0 per cent.

He said: "The economic outlook has darkened considerably since the OBR's last forecast in March, and so this week's statement is likely to bring little festive cheer to the Government."

While there is little wriggle room for George Osborne to boost the economy without breaking the deficit reduction plan, he is expected to announce a number of big infrastructure projects in the pipeline which are to be funded from cash saved in government departments. But Lord Oakeshott, a former Treasury spokesman, urged the Chancellor to use the UK's record low long-term interest rates "not as a virility symbol but as a Golden Gateway for getting £50bn of 50-year institutional investment into self-funding capital projects. Plan B for building is the key for jobs – there's no reason we can't build another 100,000 desperately needed houses for rent every year."

In another blow to economic confidence, the EEF manufacturers' trade body warned at the weekend that its members are reporting a deterioration in business activity and a sharp fall in confidence. Terry Scuoler, EEF chief executive, said: "Export orders are declining from customers in the eurozone and the rest of the world. Manufacturing growth, forecast for 3.6 per cent this year, may well have to be revised down."

Revised GDP figures are likely to force the OBR to push up its borrowing forecast because government borrowing may have to rise to make up for weaker growth and lower tax receipts, expected to be some £8bn higher for the year after next.

There is good news, too, as ITEM says the economy could build up enough steam by the end of the Parliament for the Government to meet its target of slashing the structural deficit within the next five years, helping keep borrowing levels low.

Support for the housing market and securing jobs – by reversing the rise in employers' National Insurance Contributions or reducing employers' NICs on workers under the age of 25 – are top of ITEM's list of measures it would like to see to boost growth.

Mr Goodwin added that scrapping stamp duty for first-time buyers should be considered. "Housing was one of the great beneficiaries of the low interest rates in the 1930s, taking thousands off the dole. History could repeat itself with the right support from Government."