Belfast Telegraph

Imminent public spending cuts will raise unemployment, warns report

The Government's deficit reduction measures will raise UK unemployment close to three million and "stall" any recovery in the jobs market, a new report warned today.

Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD) said cuts in public spending made the outlook "bleak" for individuals and communities already suffering the greatest hardship as he revised up his unemployment prediction.

The institute had estimated that the UK-wide jobless total would reach 2.65 million this year, but its revised forecast is that unemployment will rise to 2.95 million in the second half of 2012 and remain close to that level until 2015.

There was also little prospect of real wage growth throughout this period, while public sector workers were facing pay cuts, said Dr Philpott.

"Although tough fiscal medicine is unavoidable and may boost the UK's long-run economic growth and job prospects, reliance on cuts in public spending rather than tax increases as the primary means of cutting the deficit makes the short-term outlook especially bleak for those individuals and communities already suffering the greatest hardship in society," he said.

Meanwhile, business lobby group the CBI today said the UK's huge deficit should be tackled with £4 in spending cuts for every £1 in tax hikes.

In a letter to Chancellor George Osborne ahead of the emergency Budget on June 22, the CBI called for a shake-up of public services provision to save money through moves such as job cuts and sharing back office functions.

CBI deputy director-general John Cridland said: "A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost reduction strategy can safeguard future growth."

The CBI has "major concerns" over proposals to hike capital gains tax to similar levels as income tax and wants a broad definition of business assets to prevent deterring start-ups.

It also wants tax credits for research and development protected as well as capital spending levels to be restored as soon as possible.

"The UK's future economic prospects depend on the ability of firms across the country to create new jobs and win orders. Increasing taxes makes this more difficult," Mr Cridland warned.

Separate research from the Institute for Public Policy Research (IPPR) for the Robin Hood Tax Campaign, found today that taxing banks could help raise an extra £20bn and prevent a predicted rise in VAT that would hit low and middle-income Britain hardest.

The research found that with profits and bonuses rising once again, banks, hedge funds and other financial service providers could potentially afford to pay an additional £20bn a year in taxes.

Profits and bonuses in the UK financial services sector were estimated to reach £90bn by 2011, the report said.

An increase in VAT, predicted by experts to be included in the Budget later this month, would hit ordinary people the hardest, the report added.