I could have spent some time writing about the absurd assumption the government and its poodles at the Office for Budget Responsibility have made on the private sector’s capacity to create 2.5 million new jobs in the UK over the next fives years, but Larry Ellliot and David Blanchflower have done it for me. Larry first:
In the recovery of the 1990s, when interest rates were cut aggressively and the pound depreciated by 25%, it took seven years for employment to grow by 1m. In the 13 years of Labour government after 1997, 2.5m jobs were created in a period that included a housing boom, a bubble in the City and the creation of 800,000 jobs in the public sector.
So where would the 2m jobs come from? Financial services were never a big generator of employment even in the boom years, and the City is as likely to get smaller as bigger over the next five years. Construction is also unlikely to expand, as any pick-up in house building and commercial property will be matched by the drying-up of public-sector work. That leaves only three real motors of growth — retailing, business services, and personal services.
Yet a big increase in two of these sectors — retailing and personal services — requires consumers to have plenty of money in their pockets to hit the high street or to pay for gym-club memberships, beauty treatments and the like. Yet the OBR's breakdown of national output shows that consumer spending will grow far less rapidly than in the boom years.
For the OBR's forecasts to come good, Osborne needs three things. He needs interest rates — short and long-term — to stay low. He needs the international environment to remain benign. And he needs a lot of good fortune.
But Mervyn King has said he’ll raise rates if there’s any sign of growth. And the Eurozone is in a mess. No amount of good fortune will overcome that double whammy.
But let's look in detail at what the OBR is saying. First, in its own budget forecast it projected that unemployment would fall steadily each year from 2010, however it is measured. Second, despite the fact that they are planning on cutting 1.3 million jobs, overall employment will rise by about 1.2 million from 29.1 million in 2010 to 30.2 million in 2014, meaning that the private sector would have to create approximately 2.5 million jobs.
This is completely implausible. It is simply not credible to argue that suddenly the private sector will step into the hole created by Osborne's rash budget. And what if it doesn't?
According to the Office for National Statistics, between the first quarter of 2000 and the second quarter of 2008, the private sector created 1.6 million jobs at a time when the economy was booming. The vast majority of this job growth came from the financial and construction sectors — which seems unlikely to be repeated. So where exactly will these private sector jobs come from? There is little evidence that the private sector has any plans to hire.
This unnecessary and dangerous budget will to push the economy back into recession, believe me. The big worry is that it will lead to what economist Paul Krugman has called the long depression— zero growth and high unemployment for years.
This is not scaremongering but a realistic possibility. The worry is that the government has no plan B for what will happen if the data come in badly, as it surely will. When that happens this government will have to change course and reinstate any public spending cuts and reinflate the economy. And that will surely spook the markets that Slasher places so much faith in.
Blanchflower is right: there is no Plan B.
The plan is to slash the state.
And people do not matter when seeking to achieve that objective.
That’s the reality of the ConDems.