Leading article: If Mr Osborne has got it wrong, he should start afresh

Unemployment looks likely to rise to 2.7 million while those in work see a fall in their real income

Wednesday 29 December 2010 01:00

The Chancellor, George Osborne, professes great faith in the ability of private enterprise to make up for large-scale job losses in the public sector. Set Britain's entrepreneurs free, he maintains, and they will soon find ways to take up the slack caused by layoffs.

In his view, Britain is already emerging from a short, sharp period of shock therapy that will result in a leaner and fitter economy, the knock-on effect of which will be that the chronic imbalance between what the country earns and spends starts to close.

To those who subscribe to this optimistic scenario, the latest jobs forecast by the Chartered Institute for Personnel and Development will make for sobering reading. According to the CIPD, the most likely outcome for 2011, though admittedly not the only one, is that unemployment will rise over the coming year by around 200,000 to 2.7 million, while those in work will experience a fall in real incomes as low-level pay rises fail to keep pace with growing inflationary pressures.

The CIPD further warns that many of the new jobs created in the private sector will not adequately replace those at risk of being lost, because the bulk of the vacancies will befor part-time or temporary jobs that do not come with pensions or offer a great deal in terms of security.

This is an alarming prospect, but it should not come as a surprise. Since the formation of the Coalition Government, this newspaper has argued that the Chancellor was cutting too hard and too fast, and that the most likely result of what appears an ideologically driven crusade against the public sector would be a prolonged 1980s-style recession, the most obvious consequences of which would be massive growth in income disparities and a growing north-south divide.

One of the basic flaws in the Government's thinking has been its apparent failure to consider the impact of massive public-sector job losses on the regions, and an exaggerated confidence in people's willingness and ability to migrate in search of work.

Back in the days of Margaret Thatcher's government, Norman Tebbit notoriously urged the unemployed to get on their bikes. But this is no more realistic a solution now than it was then. House prices, to take one key index, differ drastically from one region to another, which means that when someone loses a job in the depressed North-east they cannot necessarily shift easily to buoyant East Anglia if houses there cost several times more. Nor are many people going to uproot themselves from one part of the country to another if the vacancies in question take the form, say, of temporary bar work.

It is true that in some parts of Britain the level of participation by the state in the economy is unacceptably high. The Government rightly aims to reduce this.

But such dependence needs to be tempered gradually, not radically; otherwise we risk triggering the economic equivalent of a stroke. Cuts should not be implemented across the board. Due allowance must be made for their overall impact on the economy of a given area. Above all, the downward economic impact of job cuts needs to be cushioned by a finely calibrated policy of regional aid. Unfortunately, there is not much sign of this happening. Regional aid is being cut back.

For all the tough talk of no turning back, the Chancellor should make it clear in the new year that, if the employment situation deteriorates markedly, he is willing to be more flexible about the scale and pace of the reductions that he is proposing. This is not a demand for a U-turn, as few people seriously question the need for significant savings in public spending if the country is to remain creditworthy. The questions concern their timing and degree.

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