David Blanchflower: The Chancellor has good reason to avoid answering questions on austerity and cuts

Let’s put a few other claims to rest, especially the Government’s exaggerated claims about job creation

David Blanchflower
Monday 16 March 2015 00:56 GMT
The employment rate for younger workers is well below its pre-recession level
The employment rate for younger workers is well below its pre-recession level (Rex)

The Prime Minister doesn’t want to debate with Ed Miliband. Now it turns out that the Chancellor, George Osborne, doesn’t want to debate with his shadow, Ed Balls.

The shadow Chancellor cannily managed to get Mr Osborne to shake hands on a head-to-head TV debate when he sprung the idea on him during Sunday’s Andrew Marr show. The Chancellor said he would be “happy” to meet Mr Balls in a debate, but his actions tell a different story. At the last minute he came up with excuses on why he couldn’t be in the House of Commons to answer questions Mr Balls set out in a letter asking for point-by-point clarification of his spending plans and which essential services would be slashed to obtain an (unnecessary) budget surplus.

His excuse was that he had to attend an Ecofin meeting in Brussels, but didn’t inform the opposition of this until the last minute. Normally they would have notice of his attendance well in advance, but not this time. It appears from the published data that approximately one third of the time he would send junior ministers, usually Mark Hoban or Greg Clark. I have repeatedly asked the Treasury press office to confirm such details, but they have remained silent, despite a promise that “somebody will be in contact”.

We have a pretty good idea why the Chancellor doesn’t want to answer questions on his spending plans in the House of Commons, because of the speech Mr Balls made last week. In that speech my friend, who will make a great Chancellor, explained that the plans announced by the Chancellor in his Autumn Statement would result in £70bn of spending cuts over four years rather than the £30bn already announced, which, it appears, cover only two years. Interestingly, not one of these new numbers has been contested by the Tories.

Speaking on BBC News on 9 March, Paul Johnson, director of the Institute for Fiscal Studies, confirmed the enormous scale of the planned cuts, saying “it’s not very difficult to come to a world in which you are looking at £50-60-70bn of spending cuts”.

The shadow Chancellor calculated that if the inevitable spending cuts were applied equally to non-protected departments they would lead to unprecedented cuts to vital public services such as policing, defence and social care. Indeed, he suggests these cuts are so large they would lead to the smallest police force since comparable records began, the smallest army since Cromwell, and over a third of older people receiving social care losing their entitlement to it. The scale of the cuts are such, claims Mr Balls, that the Foreign and Commonwealth Office, the Department for Work and Pensions and the Department of Transport would actually have no day-to-day budgets left at all, while others, such as the Communities and Local Government department, would almost cease to exist. If not, that would mean that Mr Osborne would have to break his pledge to ring-fence the NHS budget and impose charges.

The spin continues to be that he has a long-term economic plan that is better than Ed’s. I have never been clear whether the unprecedented fall in real wages that has occurred since May 2010 is part of that plan, or an accident. It is also hard to understand claims for success given that the recovery is the slowest since the South Sea Bubble 300 years ago. Indeed, since Q3 2010, GDP has grown less than in 11 OECD countries, including the US, Canada, Australia, Sweden, Ireland and New Zealand.

As Professor John Van Reenen noted in a new paper last week*, the Office for Budget Responsibility calculated that austerity reduced GDP growth by 1 per cent in both 2010 and 2011, but he notes that recent research on the impact of government spending in recessions suggests that this “is likely to be an underestimate of the negative impact”. Professor Van Reenen concludes about Mr Osborne’s austerity that “in retrospect this looks like a mistake”. It sure does. I wouldn’t want to answer questions about it either.

Let’s put a few other claims to rest, especially the Government’s exaggerated claims about job creation. The first chart on the left sets out the employment rate for those aged 16 and over. That is the right way to look at job creation, as a proportion of the relevant population. It makes clear that in the latest data release (59.7 per cent) it is still below its level at the start of the recession at the beginning of 2008 (60.4 per cent). What is notable is the steady rise in the employment rate through August 2010 under the Labour government. If these pre-austerity trends are extrapolated it is likely that the employment rate would have reached its starting level by the beginning of 2012.

The second chart relates to youngsters under the age of 25. We see that their employment rate remains well below its starting level, as does their unemployment rate. This, it turns out, is in direct contrast to that of other age groups, all of which have higher employment rates today than at the start of the recession. It is apparent from the data that this is in part a labour supply problem, as the number of young people declined through 1999 and then subsequently rose to another peak in 2011. The employment rate appears to track these cohort size changes closely. As a proportion of the 16-plus population youngsters went from 13.6 per cent in 1998 to 14.5 per cent in 2011. Being a member of a large cohort is bad when a recession hits. The young are certainly not “all in this together”.

So we are headed into this week’s Budget where we will likely hear how great things are, when they aren’t. There may even be a few giveaway party favours or scaling back of potential cuts. Real wages are down and output per head is down. The young have been hurt especially hard, and there are massive cuts coming, along with another inevitable increase in VAT if the Tories win. No wonder the PM and the Chancellor are running “frit”.

* “Austerity; growth costs and post-election plans”, Centre for Economic Performance, March 2015.

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