Expert warns public sector losses won’t be made up in private sphere

A leading economist has suggested that re-growth in private sector employment over the coming months will not be sufficient to compensate for cuts in the public sector.

Andrew Smith, chief economist at KPMG, has suggested that while the UK would probably escape without a double dip recession, there was still a lot of spare capacity around the world and private sector job creation would be insufficient to offset the scale-back in public sector roles.

He added that the Government had not left itself any leeway if its forecasts proved to be incorrect – and plans rarely panned out as predicted. “The hope is to rebalance the economy and the talk is about export growth, but Europe is our major export market and it is retrenching. There is no Plan B,” he told a forum of finance directors and investors from the hospitality market, run by Peach Network.

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“This is a bigger squeeze than under Labour, whose plans were already tough. If it works it is fantastic but we might kill the patient in the intervening period.”

Quoted in HR Magazine, Smith said the trend for governments to compete to cut deficits quicker than one another was worrying. “Macho austerity threatens growth,” he stated.

The Government’s plans, outlined in last month’s Budget and to be detailed further in the forthcoming autumn spending review, will be politically difficult to pull off. “I am not convinced it will be 80/20 [cuts versus tax rises]. In the 1990s it ended up being 50/50. Expect tax increases,” he predicted.

Despite this, company insolvencies and unemployment had not reached the levels of previous recessions, Smith said more optimistically.

Chief executives and finance directors from companies including Carluccio’s, Tragus, Fullers. Orchid and Gaucho predicted that job losses, low consumer confidence and chancellor George Osborne’s VAT rise would hit the hospitality market but that companies with a strong proposition could take advantage of cheaper assets to expand. Long-term prospects for the sector were positive, they agreed.