The private sector will need to create around 1.6m new jobs to offset the combined impact of public sector spending cuts and an impending rise in VAT.

According to Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD), cuts in public spending announced in last month’s Comprehensive Spending Review (CSR) and the rise in the standard rate of VAT to 20% due in January will result in the loss of almost 1.6m jobs across the UK economy by 2015-16, with the private sector hit harder than the public sector.

Philpott says: “The CIPD estimate, based on soundings from public sector managers, is that from the end of 2009-10 to 2015-16 the public sector will shed a total of 725,000 jobs (a net reduction of 12.5%). The combined direct and indirect effect of public spending cuts will result in the loss of 650,000 private sector jobs.

“And the rise in the standard rate of VAT to 20% will result in the loss of a further 250,000 private sector jobs, as reduced demand for many goods and services hits company revenues and profits. Ironically, the VAT hike will prove a far more significant ‘tax on jobs’ than the hike in employers’ National Insurance contributions the former Labour government planned to introduce in April 2011 (which the CIPD estimates would have cost 75,000 jobs by 2015-16) but which was wisely abandoned by the coalition.

“On these estimates 1.6m lost jobs looks to be the total employment cost of the coalition government’s fiscal austerity measures. 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 loss on this scale is offset by net new job creation in the private sector as a whole.

“The CIPD considers the private sector perfectly capable of adding more than 300,000 net new jobs per year by 2015-16 if the economy grows faster than 2.5% per year on average. But given the headwinds facing both the global and UK economy this looks like a tall order, especially before 2013, and consequently unemployment is likely to rise throughout 2011 and much of 2012.”