The private sector will lose more jobs than the public sector following the coalition government’s spending cuts and VAT rise and will struggle to create a targeted 300,000 posts per year by 2015-16.

 
The warning from the Chartered Institute of Personnel and Development (CIPD) came as researchers revealed that graduate unemployment had hit the highest level in 17 years, rising 1% over the previous year to 8.9%.
 
The CIPD estimates that the government’s austerity measures will take a total of 1.6 million jobs out of the economy over the next five years, with 900,000 posts being lost in the private sector and 725,000 going in the public sector.
 
John Philpott, the HR body’s chief economic advisor, who joined other experts yesterday in giving evidence to the House of Commons Treasury Select Committee, said that soundings from public sector managers indicated that, from the end of this fiscal year until 2015-16, there was likely to be a net reduction of 12.5% in the number of positions available.
 
The direct and indirect effect of public spending cuts would also result in the loss of 650,000 private sector jobs, with another 250,000 being cut as a result of the VAT hike to 20% next year.
 
The increase would lead to reduced demand for many goods and services, which would, in turn, hit company revenues and profits. This meant that it would become a more significant “tax on jobs” than the former government’s planned rise in employer’s National Insurance contributions, which was abandoned by this government. That initiative would have cost 75,000 posts, the CIPD estimates.
 
“On these estimates, 1.6 million lost jobs looks to be the total employment cost of the coalition government’s fiscal austerity measures,” Philpott said. “The test of the coalition’s overall strategy for balancing the public finances and restoring sustainable economic growth will be how quickly and by how much job losses on this scale is offset by net new job creation in the private sector as a whole.”
 
While the private sector could potentially create the hoped for 300,000 annual net new jobs by 2015-16 if the economy grew faster than 2.5% on average, the “headwinds” facing both the global and UK economy made it look like “a tall order”, particular prior to 2013. As a result, unemployment was likely to rise throughout 2011 and during much of 2012.
 
“If the coalition government completes its planned fiscal consolidation with unemployment no higher in 2015-2016 than it is today, it will have made a significant achievement. But the question ‘where will the new jobs come from?’ is bound to be asked for quite some time yet,” Philpott said.
 
The news came as the Higher Education Careers Service Unit (HECSU) revealed that unemployment rates among the 21,020 students that it questioned who graduated last year had now hit 8.9% – the equivalent of 21,000 across the economy as a whole – although the situation was likely to have peaked and could well go into reverse next year.
 
Nonetheless, Charlie Ball, the HECSU’s deputy research director, was concerned over how public sector job cuts would affect graduates as it was one of the very few markets that had continued to recruit last year.

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