Economic policies under fire from right

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The Government came under a dual attack on its economic policies from leading right-wing economists yesterday.

Professor Tim Congdon, a member of the Treasury's panel of ''wise persons'' and former adviser to Baroness Thatcher, said the much-vaunted ''flexibility'' of the labour market had weakened Britain's economic performance.

In a separate report, the Institute of Directors said the public finances were in a worse position now than before the tax increases announced in 1993. It added that the Government's future public borrowing predictions were based on over-optimistic forecasts for growth in the economy.

Professor Congdon, in his latest monthly economic review for Lombard Street Research, argues that the shift from full-time jobs to part-time working during the past decade and a half meant the Government had been unable to translate huge improvements in productivity in manufacturing industry into a general strengthening in economic performance.

With growth in output per hour four-times as high as it was in the 1970s and amongst the highest in the industrialised world, the productivity miracle in manufacturing has been genuine. But, according to Professor Congdon the gains were achieved "only by heavy redundancies of skilled and able men''.

Full-time jobs in highly productive industries have been replaced by part-time jobs in far less productive areas.

The next government must thoroughly review tax and social security measures that had favoured the switch to part-time over full-time work, he writes. ''The central weakness of the Conservatives' supply side policies has been the failure to maintain high levels of full-time labour force participation.''

The Institute of Directors launched a separate attack in a paper criticising the Government's record on cutting public sector borrowing. ''Between the November 1993 and 1995 budgets, the underlying deterioration in the prospects for public finances was larger than the amount of extra revenue raised in the two tax-increasing budgets of 1993,'' it concludes.

Since future projections for the PSBR are based on unrealistic assumptions about how fast the economy will grow, the Government needs to scale back its spending plans even further, author Stephen Davies argues.

In November 1993, the Government predicted that its current expenditure and revenues would be in balance next financial year. In last November's Budget this had slipped to a shortfall equivalent to 1 per cent of GDP - despite forecasting an extra 1.75 per cent of GDP growth.