Originally published @ 4:19 pm, Fri 29th Oct 2010
The ConDems' gush will come a cropper.
Celebrating growth figure's of 0.8% because it's 0.4% higher than predictions might seem clever but it is down on the previous quarter's figures.
A right-wing pundit on TV today said the abverage growth for this year would have been 2% if it hadn't been for the cold weather in january. All a bit desperate and they must be getting it from somewhere. (The space was left open to the left-wing pundit to say the growth we've had this year was because of the increase in spending.)
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Tony Blair famously said on May 2nd, 1997 – “a new dawn has broken has it not”.
None of that ambition or hope can be found in the ConDems’ plans which will lead to higher unemployment, poorer public services and real crises for many families and households.
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The ConDem’s Spending Plans represent old-fashioned thinking, a callousness for people and a lack of ambition for people and the country.
The impact for Nottingham is set to be particularly damaging. PriceWaterhouseCooper’s predictions of local jobs lost over 4 years is 5,000.
Nottingham City Council, as a typical council is set to lose 27% of its grant in 4 years, but authorities with similar levels of social deprivation are set to lose 36%.
Schools are apparently to be protected, but such promises don’t account for increasing school rolls. Finance to re-build 2 new Nottingham schools have already been withdrawn and a 40% claw back for other schools to be re-built has already been discussed, despite boasts of an extra £15 billion for such works.
Harder to predict is the impact of £19 billion of cuts in welfare and benefits, and the reduction of subsidy for new social tenants. The ConDems’ spending plans are regressive and are set to hit hardest the people whose are least likely to vote, or even to register. (The ConDems are planning to re-organise Parliamentary constituency boundaries on the basis of people registered to vote rather than estimates of population.)
Genuinely surprising are –
ï David Cameron’s claim that unemployment will fail;
ï George Osborne’s claim that “we will make sure that the financial catastrophe that happened under the previous Government never, ever happens again”; yes, he promised to end bust.
So what are the ConDems thinking? 1. Reducing the deficit will remove the macroeconomic uncertainty which they believe threatened business investment decisions; 2. The reduction in the public sector workforce increases labour supply to the private sector and reduces the price of labour; 3. Alternative debt reduction strategies would load increasing burdens on tax, both personal and corporate, and this would constrain job creation; 4. Delaying debt reduction would increase debt interest paid and perhaps increase effective interest rates over time; 5. The scale of (relatively safe) public borrowing "crowds out" lending to the private sector which is inherently less safe.
Response is - 1. The cuts will sharply reduce domestic demand (through job losses, tax increases and benefit cuts) and European and US demand remains depressed. If we don't find another engine to drive our economy, it will stagnate, increasing the deficit and negating the effects of the cuts imposed. 2. There is an assumption that labour can freely switch between sectors which did not occur for a large number in the 1980s. 3. Public spending cuts have differential and multiplier effects. The construction sector will be disproportionately affected impacting important manufacturing supply chains. These labour-intensive parts of the private sector may lose more jobs than are created elsewhere. 4. The relatively long maturities of public debt in the UK means that we don't face the problems encountered in Greece; the bond markets had shown no sign of great anxiety and recent massive debt offerings (under Labour) had passed through the market without either difficulty or onerous rates.
Labour’s alternative was to focus on securing the economic recovery and to reduce the deficit at a lower rate, such that in four years time it would be halved and £30 billion of that halving would have been achieved through higher growth and lower unemployment that what would have been projected. (Note, this year’s deficit is actually projected to be £19 billion lower thought in March.)
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