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.


Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London

  • tierney

    The Guardian’s headline is certainly spin, while not factually inaccurate. If it said ‘net cost of 1.3 million jobs’, that would be a lie. But to be fair to them, they do, as you say, discuss the Treasury prediction of 2.5 million additional private sector jobs. It is just that it is fairly clear how the 1.3 million jobs will be lost because of direct spending cuts – axing public sector jobs and the private sector losing public contracts. It is not remotely clear where the extraordinary rate of predicting job creation in the private sector is going to come from, as Larry Elliott (among others) points out. Without this optimistic private sector scenario, of course, tax receipts will fall further and the welfare bill will increase. So the substance of the arguments in the Guardian story do support the headline (which doesn’t stop it being spin, too).

  • Lorcan

    No, that doesn’t quite make sense: I think the headline is fair. According to the Treasury forecasts, the job losses in the public sector are a fact, they will result from concrete, planned cuts.

    The added job growth in the private sector is only presumed – so not quite as credible as the known job losses. There’s some evidence to suggest that the recovery in manufacturing is down to short-term inventory replenishing – where will the long term demand come from? Has the underlying credit logjam been breached?

    That news of mass job losses will: “bring satisfaction only to the coalition’s most relentless critics” is especially facile – the existence of the job losses is not a political football in this case, it’s revealed fact.

  • Now consider Cameron’s statements in PMQs:

    The figures published today show 2 million more private sector jobs. They show 1.4 million people in work at the end of this parliament allowing for the obvious miscue thre, Cameron, by my count, is still 200,000 out on his mental arithmetic].

    They show unemployment falling every year… [actually, they don’t.]

    … unemployment is going to be falling during this parliament and in terms of publishing the figures, we have published the full figures, but is not now us publishing the figures it is the Office of Budget Responsibility.

    Now, there are assertions I expect rapidly to be glozed into “aims” or an “aspirations”.

    Jim Pickard, doing his blog for the FT this afternoon, is worth a visit as he tries to extract Cameron’s dangly bits from the mangle. Part of the calculation, it seems, involves the natural “churn” in the economy, with the assumption that the normal growth amounts to a net ¼ million additional jobs each year.

    Except, as Pickard was promptly challenged, Cameron’s expectations were achieved only once in living memory (1966); but these prospects anticipate three such years on the trot.

    Pickard concludes:

    … the employment growth forecasts seem heroically optimistic. [my emphasis]

    That sound horrendously like Sir Humphrey to Jim Hacker:

    … ‘controversial’ will lose you votes; ‘courageous’ will lose you the election.

    Will this be Cameron’s foot-in-mouth moment, in the tradition of “If it’s not hurting, it’s not working”, “No more boom and bust”, etc?

  • Greenflag

    “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’

    Given the nature of the current worldwide economic mess built as we know on a mountain of assumptions on the efficiency of deregulated financial markets , the high ethical standards of the banking fraternity worldwide , and the brilliant sharp awareness of how the world economy actually works by the elected politicians -one would have thought that the Treasury much less the Guardian would not deign to assume that tomorrow will be a Friday .

    ‘where will the long term demand come from? ‘

    Assumptions . A million or more freshly unemployed Britons will rise to the occasion just like the present almost 2 million and by dint of jumping on bicycles and a frenzy of entrepreuneurial activity and innovation they will borrow the money the banks refuse to lend them and build ‘green’ industries which will with the help of a strong revalued pound export their new products and services to Germany and China and the USA and lets not forget Ireland .

    ‘the employment growth forecasts seem heroically optimistic.’

    They don’t have the conviction of the underlying assumptions I’d have said but then we all know how to spell ass u me don’t we .

    It seems to me that the politicians everywhere not just the new UK government are ‘gambling ‘ once again . Without wishing to sound like Boris Johnson our assembled Finance Ministers , Chancellors , Treasury Secretaries and the IMF mandarins and assorted members of the worldwide western union of economic soothsayers are like a line of 50 slot machine afficionados on a cruise ship – destination hopefully somewhere – each pulling their own one armed bandit while sneaking furtive looks to both the left and right to see if any one has yet hit the jackpot and released the world economy into a new era of economic growth , increased productivity and higher living standards for all ;)?

    It should’nt take too long perhaps a year from now to see whether the Osbornian optimal outcome will turn into another fine mess .

    Somehow the UK will muddle through . There are no Wat Tylers or Oliver Cromwell’s on the horizon just yet .