The consequences of the CSR, particularly in terms of employment, depend to quite a considerable extent on how far the private sector can generate new jobs to offset the nearly 500,000 to be lost in the public sector. Of course, it will not be necessary to provide that number as some of those leaving will retire.
That in turn will depend to some extent on the condition of the global economy and I will return to that later. Let's first consider the domestic situation.
The downturn resulting from the global financial crisis saw a 6 per cent drop in output as against 3 per cent in the early 1990s. However, fewer companies have become insolvent. Employment was down 1 to 2 per cent at peak compared with 5 per cent in earlier recessions. Jobs have increased by 300,000 in the last six months, although it is doubtful whether that rate can be sustained.
Nevertheless, given the amount of emphasis that has been replaced on the dependence of private companies, it is as well to remember that Britain is not a Soviet style economy. It is still a private sector led economy. After the 1990s recession the private sector created 2 million jobs.
One concern is that the type of labour found in the public sector is not necessarily the type of labour that the private sector requires. Hence, the natural rate of unemployment could go up.
There are some concerns about the global economy which could impact on the growth rate in the UK. The Chinese economy may not be growing as fast as it has been. There is a risk of 'currency wars' in which countries engage in competitive devaluations of their currencies. This in turn could lead to a resurgence of protectionism.
It is also evident that G-20 is working less well than it did at the onset of the crisis. There is not an adequate mechanism for generating properly coordinated policies at a global level. Even the central bankers who meet every two months do so to share information rather than to coordinate.
The future is therefore very uncertain and the unemployment risks of the CSR could be substantial.
Showing posts with label Comprehensive Spending Review. Show all posts
Showing posts with label Comprehensive Spending Review. Show all posts
Thursday, 21 October 2010
Friday, 15 October 2010
Liam Fox wins
Cuts in the defence budget will be less than 10 per cent after the personal intervention of the prime minister. It's a considerable victory for Liam Fox after what Michael Heseltine described 'as the letter designed to be leaked'. Even Hilary Clinton weighed in on his side.
There will be some painful cuts for the Navy and RAF, but the two aircraft carriers are safe. Cutting them would have hit jobs in what remains of the shipbuilding industry hard. There will be some unspecified savings on Trident as a concession to the Lib Dems.
The schools budget is also to be protected, at least in the sense tha Nick Clegg's 'pupil premium' for disadvantaged pupils will offset cuts elsewhere. This could mean that some schools with better off pupils could lose out.
All this means bigger cuts elsewhere. Higher education will take a big hit with 79 per cent of the teaching budget cut and £1bn off the research budget. Higher education is effectively being marketised and there will be big structural changes as a result with some universities merging or disappearing.
Although the Government is doing what it can to protect the less well off, some of these cuts, such as those in education, could hit median income families hard. However, the Government is going to give £1.5bn to Equitable Life policy holders from 'middle England', although their spokeswomen was not pleased and argued that taxpayers should have provided nearly £5bn.
And the Scottish Government has somehow found the money to abolish prescription charges.
There will be some painful cuts for the Navy and RAF, but the two aircraft carriers are safe. Cutting them would have hit jobs in what remains of the shipbuilding industry hard. There will be some unspecified savings on Trident as a concession to the Lib Dems.
The schools budget is also to be protected, at least in the sense tha Nick Clegg's 'pupil premium' for disadvantaged pupils will offset cuts elsewhere. This could mean that some schools with better off pupils could lose out.
All this means bigger cuts elsewhere. Higher education will take a big hit with 79 per cent of the teaching budget cut and £1bn off the research budget. Higher education is effectively being marketised and there will be big structural changes as a result with some universities merging or disappearing.
Although the Government is doing what it can to protect the less well off, some of these cuts, such as those in education, could hit median income families hard. However, the Government is going to give £1.5bn to Equitable Life policy holders from 'middle England', although their spokeswomen was not pleased and argued that taxpayers should have provided nearly £5bn.
And the Scottish Government has somehow found the money to abolish prescription charges.
Wednesday, 4 August 2010
Salami slicing
An increasing concern is being expressed, particularly on the right of the Conservative Party, that the Comprehensive Spending Review is taken the form of salami slicing. Quite big slices, yes, but rather than starting from a zero base and asking whether government needs to be undertaking a particular activity, good programmes are being cut as much as bad ones.
In this context the presentation by Andrew Gamble on the 2010 spending review at a British Academy forum last week was of particular interest. Gamble looked at different conceptions of the state such as the mimimal state (Nozick), the frugal state (Bentham) and the active state (Keynes). He set out three models of government spending (each relating to a share of public expenditure in GDP):
1) 44 per cent, the social investment model
2) 38 per cent, the Anglo-Saxon model
3) 25 per cent model, the free market model with the 1920s and 1930s in Britain as the historical precedent.
He argued that after periodic forest fires public spending tends to grow back. The consensus in the discussion was that Britain was likely to revert to a 38 per cent model and indeed there were some indications that that was George Osborne's conscious intention.
Of course, it is possibly to become too preoccupied with the arithmetic (which in any case is substantially influenced by how fast GDP is growing) and the size of the state rather than its shape. What can the state do and how can it do it effectively?
In this context the presentation by Andrew Gamble on the 2010 spending review at a British Academy forum last week was of particular interest. Gamble looked at different conceptions of the state such as the mimimal state (Nozick), the frugal state (Bentham) and the active state (Keynes). He set out three models of government spending (each relating to a share of public expenditure in GDP):
1) 44 per cent, the social investment model
2) 38 per cent, the Anglo-Saxon model
3) 25 per cent model, the free market model with the 1920s and 1930s in Britain as the historical precedent.
He argued that after periodic forest fires public spending tends to grow back. The consensus in the discussion was that Britain was likely to revert to a 38 per cent model and indeed there were some indications that that was George Osborne's conscious intention.
Of course, it is possibly to become too preoccupied with the arithmetic (which in any case is substantially influenced by how fast GDP is growing) and the size of the state rather than its shape. What can the state do and how can it do it effectively?
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