Look beyond the big society rhetoric and there's a very flawed theory at the heart of George Osborne's chancellorship. It was outlined in the June 2010 Budget, when Osborne advoacted:
"An economy where the state does not take almost half of all our national income, crowding out private endeavour"
This 'crowding out' theory managed to infiltrate the independent Office for Budget Responsibility which stated in June that although the government's cuts would cost 600,000 public sector jobs, with a knock-on loss of 700,000 in the private sector, the private sector would also create 1.6 million jobs over the same four year period (a net gain of 300,000 jobs).
However, a report published by Pricewaterhousecoopers today shows in fact that the private sector will only create 1 million jobs over the four years, so that becomes a net loss of 0.3m jobs. It undermines Osborne's claim that cutting the public sector can be compensated by private sector growth (definitely not in a weak economy). I think the PWC report still might be a bit optimistic.
Data released since the Budget seem to be proving the PWC right and Osborne wrong. Both the IMF and the Bank of England have downgraded UK growth prospects. As the Morning Star points out, both the British Chamber of Commerce and British Retail Consortium have warned that growth in the service sector had been "slow" and was showing no signs of picking up before the VAT rise in January next year.
BCC chief economist David Kern said: "The dismal performance of the service sector is particularly disturbing since it occurs even before VAT is due to rise to 20 per cent."
It goes to show cutting the public sector won't 'make room' for the private sector, but will sap demand and weaken the private sector too.
For an excellent brief history and demolition of 'crowding out' theory see Aditya Chakrabortty's piece in the Guardian earlier this month.
Update: There's more on this story in the Morning Star, with quotes from Len McCluskey and Dave Prentis.