Ayr, 4 November 2011

The economic case against the cuts

A crisis of growth and jobs; not a crisis of the public finances

Scottish labour marketSince December 2007:ILO unemployment increased by 90,000 to

212,000Claimant count more than doubled to 145,000Underemployment 190,50018-24 JSA up by 116%Long-term u/e (all ages) up by 189%Women u/e increasing rapidly: 20% in yr to

Sept ‘11Claimants to FT vacancy ratio of 10:1 across

Scotland

Scotland’s Full-time employment deficit

Those who want to work in full time jobs but currently;

Unemployed 152, 570Under-employed 184,118Economically inactive but wanting to work 131,613

= 468,301 or 17.25%

Ayrshire Labour market

Total JSA Claimants

Dec 2007

Sept 2011

% increase

East Ayrshire

2,356 4,38486.1

North Ayrshire

2,990 5,37479.7

South Ayrshire

1,713 2,84065.8

Scotland 69,165 140,010 102.4

UK 790,3701,578,60

9 99.7

JSA over 6 months

Dec 2007

Sept 2011

% increase

East Ayrshire

760 1,845142.8

North Ayrshire

925 2,265144.9

South Ayrshire

425 1,045145.9

Scotland 18,965 54,980 189.9

UK 238,310 608,120 155.12

JSA 18-24 yr olds

Dec 2007Sept 2011

% increase

East Ayrshire

725 1,38090.3

North Ayrshire

860 1,62588.9

South Ayrshire

490 89582.7

Scotland 19,245 41,625 116.3

UK 235,210 485,655 106.5

JSA 18-24 yrs, over 6 months

Dec 2007Sept 2011 %

increaseEast Ayrshire

90 385327.8

North Ayrshire

115 470308.7

South Ayrshire

45 235422.2

Scotland 2,370 11,065 366.9

UK 32,190 121,490 277.4

Claimants to vacancy ratiosTotal

claimants

Total notified vacanci

es

standard full-time

vacancies

No. of claimants per vacancy

No. of claimants per full-time vacancy

East Ayrshire 4,786 303 15015.8 31.9

North Ayrshire 5,933 307 15419.3 38.5

South Ayrshire 2,998 392 1447.6 20.8

Column Total 148,702 23,597 15,0716.3 9.9

Economic Growth?

About to get worse?

Total public sector employment in Scotland, 1999 – Q2 2011, headcount

Annual change in public sector employment (Q2 2010 – Q2 2011)

GfK Index of Consumer Confidence October 2011

Economic case against the cuts

Is rapid and deep austerity really unavoidable?

Is the UK in fiscal crisis?

The truth about the public financesThe current deficit and rising net debt are problems;

but not problem is so great that it cant be exaggerated and distorted

Investors have enthusiastically funded UK debt at low cost throughout the crisis

Gilt auctions consistently oversubscribedMinisters & media have raised the prospect of an

imminent debt crisis whilst failing to describe what is actually happening in the markets

Investors consider a wide range of factors such as stock of debt, maturity of debt, structure of debt and future economic prospects as well as current deficit

5 reasons why the UK was not, and is not, in danger of becoming the next Greece (or Ireland, or Portugal or Spain)

1. The UK is not in the Euro

The UK has its own currency and the additional economic levers it provides:

Currency devaluationMonetary policy (interest rates) The UK can make its own decisions

without consulting EU, ECB, IMF and France

2 The UK deficit is high by international standards; stock of debt is not

General Government Debt (% of GDP)

2007 2009 2010 2014

UK 44.1 68.7 81.7 98.3

United States 61.9 84.8 93.6 108.2

Japan 187.7 218.8 227.0 245.6

Italy 103.5 115.8 120.1 128.5

France 63.8 78.0 85.4 96.3

Germany 63.4 78.7 84.5 89.3

Advanced G20 economies

78.2 98.9 106.7 118.4

Key issues (2)

3 The cost of servicing UK debt is low; much lower than in Greece and other nations judged to be at risk of default

Debt interest payments - £400m a day!

Debt interest payments will rise from 1.6% of GDP in 2007 to 3.1% in 2014

Greece is currently spending 12%Average for G20 advanced nations in

2014: 3.5%US in 2014: 4.5%Average debt interest payments for

75 years between 1916-1991: over 3%

4 The structure of UK debt is different: it is much longer term and the majority is held within the UK; not by external investors

5 UK economy is bigger, less corrupt and more diverse and dynamic than the Greek economy

People generally pay their taxes in the UK; taxes are routinely avoided in Greece

Investors trust UK economic Budget data; Greek Budget data is constantly being revised

World Bank rates the UK 4th best country in the world in which to do business (not necessarily a good thing!) – Greece rated 109th

The market’s price signals – the great hypocrisy

“Markets have also been remarkably relaxed about funding these deficits: interest rates on index-linked gilts have been 1 per cent, or less, for more than a year; the yield on 10-year gilts has remained below pre-crisis levels and is now close to 3 per cent; and spreads over German bunds have been 1 percentage point, or less, throughout the crisis”.

Martin Wolf, Chief Economics Commentator, Financial Times 16 September 2010

Cuts are not good for growth!The evidence does not support the

proposition that contractionary fiscal policy (i.e. spending cuts) is expansionary – the confidence fairy is in hiding!

The UK in 2011 is not Canada in the 1990s

The UK is uniquely poorly placed to take advantage of growth in emerging markets – currently export two and half time more goods and services to Ireland than we sell to China

Cuts are not good for growth – the growing evidence baseCoalition inherited a recovery growing in

strength but growth has since flatlinedGrowth forecasts revised down by OBR and BoEUnemployment rising across UKReal wages fallingReal household income fallingConsumer confidence collapsingVAT rise receipts likely to pay for lower than

expected growth; will not contribute to paying down debt

…and all before the cuts really start…

Learn the lessons of economic history1When unemployment is high, there is a

risk of deflation and interest rates are already close to zero…deficit/stimulus spending is required to boost growth and get people back to work.

2Stimulus should be implemented quickly, be short in duration and targeted on a) getting people back to work and b) expanding the economy’s long term capacity to grow sustainably.

There is a Better WayConsolidation of public finances (spending cuts and

tax rises) should be contingent on growthHistory suggests that period of sustained growth is

the most effective way out the UK’s fiscal positionConsolidation when it comes must be as ‘fair and

progressive’ as possible: more balanced towards tax rises for individuals and firms who can afford it

More important is action to support a shift to a fairer, more sustainable economic and social model: fixing finance, supporting manufacturing & rebuilding the economy’s equalising institutions

There is a Better Way campaign website/facebook/twitter

Tempestuous Seasons blogsboyd@stuc.org.uk@stephenboydSTUC