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13 October 2010

The coalition cannot bank on a private sector recovery

New report warns that the private sector is set to go "cold turkey" and lose 500,000 jobs.

By George Eaton

The coalition’s economic policies are premised on the belief that the private sector is strong enough to sustain the recovery through the cuts. But today’s report by PricewaterhouseCoopers should give George Osborne pause for thought.

The report warns that the private sector is set to go “cold turkey” and lose nearly half a million jobs as cuts of £84bn force it to curb its dependence on public sector contracts. It also predicts that the private sector will generate 600,000 less jobs than forecast by the OBR in June.

All of which explains why Osborne has been so foolish to discuss the private sector in isolation from the rest of the economy. When the Q2 growth figures (1.1 per cent) were published in July, the Chancellor confidently noted that the private sector contributed “all but 0.1 per cent of the growth”. But this casual attitude fails to take into account the knock-on effect that public sector retrenchment will have on the private sector as contracts and consultancy work dry up.

PwC stops short of forecasting a double-dip recession but warns that the predicted job losses will act as a “drag on the pace of economic recovery”. With the public sector also set to lose at least 500,000 jobs, the risk of a US-style “jobless recovery” is real. Those in the coalition, such as Chris Huhne, who are pushing for a more flexible apporach to the cuts must prevail.

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