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Mon October 26 2020

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Spending cuts mean 100,000 construction job losses, says PwC

13 Oct 10 The looming public sector spending cuts will mean over 100,000 jobs are lost in the construction sector, according to a report by PricewaterhouseCoopers.

The looming public sector spending cuts will mean over 100,000 jobs are lost in the construction sector, according to a report by PricewaterhouseCoopers (PwC).

The study, based on Office of National Statistics figures and HM Treasury spending plans, found that the cuts could reduce private sector output by around £46bn per annum by 2014/15, with almost half a million private sector jobs lost in total.

When combined with public sector job loss forecasts from the Office of Budget Responsibility, it means nearly one million could face unemployment as a result of the spending cuts due to be announced next week.

Construction is predicted to lose 104,000 jobs, making it the second worst affected sector after business services.

John Hawksworth, chief economist at PwC, said: “The construction sector could see large cuts with an output loss of around 5% leading to over 100,000 job cuts. This reflects the greater exposure of this sector to cuts in public sector capital investment, which are particularly severe.”

However, the report also highlights the potential for job creation in the private sector resulting from outsourcing. Construction companies like Carillion have already indicated they see opportunities arising from government cutbacks.

Jon Sibson, partner and head of public sector at PwC, said: “A sector likely to see growth opportunities from spending cuts is outsourcing, and not only in back office services. Government and public sector organisations will look to reduce their non-core and fixed cost operations by increasing the use of private and voluntary sector organisations for the delivery of front-line services.”

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Regionally, the worst affected area in percentage terms is Northern Ireland, which may suffer job losses of 5.2% (around 36,000 jobs), compared to 3.1% in London and the south east. However, the latter two regions could see 230,000 job losses given the larger size of their economies.

Impacts also vary within regions – within Yorkshire and Humberside, the analysis shows that Leeds may suffer less than Hull due to its stronger private services sector.

John Hawksworth, chief economist at PwC, tried to put an upbeat perspective on the report: "Predicted levels of public and private sector job losses will be a drag on the pace of the economic recovery, but should not derail it altogether.

“While private sector employment may be affected as much as the public sector, this could be mitigated by increased labour market flexibility on wages and hours worked, as we saw in 2008-9 recession. Evidence from the 1993-99 fiscal consolidation showed a net rise of around 1.2 million in private sector employment during those years.

“Although the recovery may not be as strong this time as in the 1990s, we would expect at least some rise in private sector employment over the next five years despite the fiscal squeeze, bearing in mind that this squeeze should allow interest rates to remain lower for longer.”

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