Expected cuts to Government spending could see Northern Ireland’s economy fall further behind other parts of the UK, a high-profile think-tank has warned.

The Centre for Economics and Business Research (CEBR) forecast the UK Government will have to make spending cuts of £80bn to bring public finances into line.

That could result in Northern Ireland, Wales, Scotland and the North East of England — which have relied on a buoyant public sector for growth in the past — becoming “de-coupled” from the economic recovery for years to come, it said.

CEBR’s chief executive Douglas McWilliams said: “The necessary cutback in Government spending is likely to become a major drag on the economic growth prospects for regions with a high dependence on public spending such as Wales, Northern Ireland and parts of Northern England.

“Only a concerted effort to promote entrepreneurship and support private sector growth can prevent them falling further behind the more prosperous parts of the UK.”

CEBR said the percentage of Northern Ireland’s economic output attributable to public expenditure is the highest of all the regions at 67.9% by the Gross Value Added measure, while economic growth will be the lowest at 0.5% between 2010 and 2013.

The report comes just a week after the An Bord Snip report in the Republic recommended more than 17,000 public sector jobs be axed to restore public finances.

Last month the Chartered Institute of Personnel’s chief economist John Philpott warned 10,000 jobs in Northern Ireland could go in the next five years as the government reduces borrowing.

Northern Ireland is the UK region most dependent on the public sector, employing 220,000 people or 32% of the workforce.

A Department of Finance and Personnel spokeswoman said resources available to the Executive over the period 2011-2014 will only be confirmed after the next UK wide Spending Review in 2010.

“However, it is clear that there will be a more constrained public expenditure environment going forward, following the slowdown in UK public expenditure growth in recent spending reviews. While the record levels of investment in public services and infrastructure delivered by the Executive in 2008-09 provided significant short-term support to local business it is clear that sustainable long-term growth can only be achieved by further development of the private sector,” she added.

Bank of Ireland economist Alan Bridle, agreed that the public/private sector imbalance means this region is unlikely to enjoy the upturn to the same extent, with growth remaining low.

“My sense is that elements of Northern Ireland's public sector are already beginning to feel the squeeze even in the context where spending is still growing in real terms. After the general election, a harsher budgetary climate is certain irrespective of who forms the next government and the Stormont Executive will face something it has not been used to — managing a budget that is shrinking in real terms,” he said.

But economist John Simpson did not support CEBR’s predictions.

“First, they are assuming that they know how much public spending will be cut. But no official statistics have been revealed and all the signs are that the Treasury are not going to be so dramatic in the next year or so. The Treasury is looking for a softer approach.

“Second, CEBR continues to calculate public spending as a proportion of GVA: hence the 67%. This is very misleading since a large part of public spending does not enter GVA.

“The better guide is the scale of public sector employment, which is about 30% of all employment in Northern Ireland and about 25% on a UK basis.”

sross@belfasttelegraph.co.uk