Let’s keep the debate on cuts open and honest

When the true impact of cuts is being analysed, gloomy spinning isn’t  any better than the Panglossian kind. The Guardian’s exclusive that the “hidden” costs of the budget will be the loss of 1.3 million jobs, according to a leaked Treasury will bring satisfaction only to the coalition’s most relentless critics.

…500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector by 2015.

From Economics editor Larry Elliot’s analysis:

..there is no evidence that the public sector is “crowding” out investment in the private sector. On the contrary, it has only been the demand from the public sector that has prevented the economy sliding into an even bigger hole over the past two years. The chancellor seems to believe that taking the axe to the deficit will lead to a spontaneous recovery in the animal spirits of firms, who will respond by investing more, exporting more, and taking on more workers. This seems improbable, not least because the “crowding in” of the private sector would require a big and permanent reduction in interest rates. But both short-term rates (those set by the Bank of England) and long-term rates (set in the bond markets) are already at historically low levels

 But hold on. As the excellent if economically dry Iain Martin points out in his Wall St Journal  blog:

As the Guardian goes on to report: “The Treasury is assuming that growth in the private sector will create 2.5m jobs in the next five years to compensate for the spending squeeze… So, two scenarios seem possible at this stage: the budget measures contribute to a situation in which private sector growth more than compensates for the losses in existing jobs (leading to substantial falls in unemployment). Or the impact on unemployment levels ends up being neutral.

So the story doesn’t quite support the headline. Over at the Times, the great Kaletsky fears the effect of the Osborne cuts on science and technology essential for growth. Osborne should not ring fence Health and should concentrate on bringing down public sector pay inflation and pensions – being more reflective  like Hamlet rather than acting like Polonius he says, but look what happened to both of them. 

Kaletsky adds that Osborne has misunderstood the vaunted Canadian austerity parallels – a point echoed by a Canadian guest blogger  in Alan Trench’s Devolution Matters.

Regarding the devolved governments in Scotland, Wales and Northern Ireland, Westminster’s cuts to English programmes will, mechanically, be passed along via the Barnett formula: consequently, they will be hit only as hard as English spending is hit. But with little or no capacity to tax or to borrow, these governments will be stuck with whatever spending cuts and tax increases Westminster decides; their response limited to moving money around within a reduced spending envelope. In any event, the relatively small fiscal size of the devolved governments, means that the UK Government cannot offload as large a portion of its fiscal problem onto regional administrations as did Canada’s federal government.

The realistic  lesson for NI is to protect high tech public investment while facing up to the inevitability of  cutting the number  public sector jobs and selling off public assets.  How well placed is the private sector to take up the slack?  Cutting  public sector wage rates and pensions will take the sort of  courage  the Executive  hasn’t shown so far.

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