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Wednesday, February 28, 2024

Public sector cuts 'could be lower'

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Projections have been lowered for public sector job cuts

The Office for Budget Responsibility (OBR) could lower projections for public sector job cuts by nearly a fifth in revised forecasts for the economy, analysts have said.

The OBR – formed in May to make an independent assessment of the public finances ahead of each budget – is also expected to upgrade its economic growth forecasts for 2010 and reveal an overshoot in tax revenues, according to forecast group the Ernst & Young ITEM Club.

The ITEM Club report, released ahead of the OBR’s autumn forecast, said the department could revise its estimates of public sector job losses – set out by Chancellor George Osborne in last month’s Comprehensive Spending Review (CSR) – down from 490,000 to 400,000.

Bigger-than-expected welfare cuts announced in the CSR, which did not feature in the emergency budget in June, mean 90,000 jobs could be saved, the ITEM Club said.

The OBR is likely to increase its GDP growth estimate for the whole year from the 1.2% forecast in June to nearer 1.7%, the ITEM Club said, while tax revenues are also expected to overshoot forecasts by £10 billion. Economic growth in the UK has slowed down over the year, although the most recent quarterly figure for GDP output was better than expected.

The Office for National Statistics said the British economy grew 0.8% between July and September, compared with 1.2% in the previous three months. The third quarter GDP growth eased fears of a double dip recession and reinforced Government hopes that the private sector will pick up the slack created in the economy by mammoth public spending cuts.

The OBR forecasts will provide the fiscal framework for the Government’s next budget in March. The Chancellor will respond to the revised figures in his autumn statement on Monday.

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said the OBR forecast will provide further joy for the Coalition. He said: “Since the OBR’s forecast in June, we’ve seen an impressive recovery in the economy and a particularly impressive recovery in tax revenues, which will undoubtedly be reflected in a more optimistic outlook in the OBR’s forecast.”

The Chancellor announced in the CSR that additional welfare reforms would enable savings of £11 billion by 2014/15.

Mr Spencer said: “Buffering departmental budgets with an additional 3% of current spending will have saved some public sector jobs, assuming that there will be a similar balance between staffing and procurement costs, and a similar rate of public sector wage growth.”But he warned additional savings made to welfare reform will lead to a drop in household incomes.

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