Government Cuts in Spending Lead to Loss of Jobs in UK

500,000 Jobs at Risk as Government Cuts in Spending Take Toll

May 3, 2011

The Scotsman - More than 100,000 UK private sector workers face losing their jobs as the coalition government cuts back on buying goods and services from British firms, a senior economist warned today.

Roger Bootle, economic adviser to accountancy firm Deloitte, predicted the government's cuts to procurement will force companies to let staff go. He also expects 400,000 public sector workers to be axed before the next UK general election, in addition to 100,000 government posts cut in the past year. Mr Bootle said:

"I still doubt that the private sector will generate enough jobs to offset this. The fiscal squeeze could also lead to the loss of about 100,000 private sector jobs a year through cuts in procurement."

The coalition government has pinned its hopes on a growth in the private sector balancing the loss of jobs in the public sector.

Deloitte's second-quarter economic review also warned rising unemployment would keep a lid on pay rises, adding to the pressure on household finances.

Mr Bootle predicted that average salaries would grow by only 2.5 per cent this year, while inflation is likely to run at about 5 per cent meaning that, in real terms, pay will continue to fall.

Real earnings will fall by 1.5 per cent this year, Deloitte predicted, the fourth consecutive year of falls -- the first time that has happened since the 1870s.

Tax changes introduced by the Chancellor are also squeezing households' disposable income. Mr Bootle predicted that the money in families' pockets will fall by 2 per cent this year, wiping £780 off the average household's spending power.

"It will take until 2015 or so for incomes to get back to their peak in 2005," he said. "The big picture is that pretty much all households face a further squeeze over the next year or two."

Squeezes on household spending from higher taxes and rising inflation are also feeding through to the wider economy, experts have said.

Deloitte believes that a "renewed consumer downturn is getting under way", with rising investment by businesses and higher exports unlikely to offset the fact less money is being spent in the UK's shops.

Mr Bootle said he expects the Bank of England to keep interest rates on hold at a record low of 0.5 per cent throughout 2011 and 2012 in order to try and stimulate the UK's weak economy.

The firm's economic survey also warned that, despite the weak pound, UK exporters were losing market share -- while demand abroad for UK goods is rising, the export of services has been under-performing.

But he hopes current investment by UK firms will eventually lead to higher levels of exports.

Middle Income Families Warned Tax Shift Will Hurt

May 3, 2011

The Scotsman - The government's tax changes will hurt families on middle incomes, experts said yesterday.

The Chartered Institute of Taxation warned that families on between £40,000 and £50,000 were set to face a "considerable increase" in their tax burden as a result of changes to tax credits and child benefit. A considerable number of households where the sole earner was a higher-rate taxpayer were in the fourth income decile, meaning they already had a below-average income, the group said. It said:

"The effective freezing of the higher-rate threshold, the proposed withdrawal of child benefit from households containing a higher-rate taxpayer, and the reductions in working tax credit -- particularly the childcare element -- will result in those households falling further down the income distribution."

Warning of Industrial Action 'on a Massive Scale'

May 3, 2011

The Scotsman - The UK government has been warned it faces industrial turmoil on a "massive scale" as unions start planning to step up opposition to spending and job cuts.

A series of union annual conferences will start later this month, and activists are set to express their growing anger at the coalition's austerity measures and discuss industrial action.

Dave Prentis, general secretary of Unison, yesterday accused the Conservatives and Liberal Democrats of breaking promises. He said:

"The economy is still in intensive care, but the government's medicine is not working.

"Unless this government changes direction, it is heading for industrial turmoil on a massive scale."