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Ian Brinkley
Economic Advisor
Ian Brinkley

OBR Forecasts More Credible – But may still be too optimistic

Authors: Ian Brinkley Ian Brinkley

29 November 2010

The new Office for Budget Responsibility economic forecasts published at lunchtime yesterday ( 29 November) show that public sector job cuts will be less severe than first feared. Between the first quarter of 2011 and the first quarter of 2016 general government employment is expected to fall by 400,000 compared with 600,000 at the time of the June Budget.


At the same time, the assumed growth of jobs in the rest of the economy is reduced from an eye-watering 1.9 million new jobs between 2011 Q1 and 2016 Q1 to a still impressive 1.5 million new jobs over the same period.


However, the changes to the forecasts have been more apparent than real. The OBR still takes a fundamentally optimistic view on the prospects for private sector job generation. There has been no change in the forecast of the total in work by 2016.


The reason why we seem to need fewer new private sector jobs to get to the same total is for two reasons. Firstly, the OBR forecast now starts from a higher level in 2010-2011, building in strong job growth since the June forecasts were published. This reduces the number of private sector jobs to be created after 2012 by about 200,000. Secondly, it assumes that public sector job losses will be 200,000 less over the same period, reducing the need to find extra private sector jobs.


The total number of private sector jobs to be created over the five years from Q1 2012 to Q1 2016 looks more comparable with previous recoveries. But there is still a problem. In the 1990s recovery GDP growth was in excess of 3 per cent, with growth hitting 4.3 per cent in 1994. The OBR forecasts assume GDP growth closer to 2.5 per cent. So to get the same number of private sector jobs requires a much more job rich recovery than in the 1990s.


There is also considerable uncertainty over the public sector cuts – as the OBR itself makes clear. The OBR assumes that because planned welfare cuts are even greater than at the time of the Budget, this must translate into fewer job cuts in the public sector. However, it is not clear how this will happen. Moreover, most of the actual decisions on job levels are not made in Whitehall – nearly 40 per cent of all jobs are in English local authorities, another 20 per cent in the devolved authorities, and another 25 per cent in NHS Trusts. The final total could be more or less than the OBR expects.

What is more worrying than whether the OBR has got its numbers right is the absence of a convincing overall strategy on where the new jobs are to come from. The expected White Paper on growth has been reduced to a Growth Review in which business and others are urged to hold Whitehall Departments to account for removing barriers to growth and investment. The outcome will, it is promised, inform the April 2011 Budget.


It is not clear what the Government thinks it will hear over the next six months that is substantially different from the submissions it has already received from business groups over the past six months. The idea of creating a more thoughtful and focused process to help policy formulation is not a bad one, but it needs more substance and a clearer lead from government if it is going to deliver.