Wednesday, 16 November 2011

Rising unemployment and failing Osborne

Today's unemployment figures were a timely update on the failure of the coalition's austerity policies. Unemployment has risen by 129,000 in the last 3 months to 2.62 million, while youth unemployment broke through 1 million for the first time ever.

First the stats: the unemployment rate (8.3%) is the highest since 1996, the numbers unemployed the highest since 1994. Youth unemployment is the highest on record, and female unemployment the highest since 1988 (Q: what do all those years and 2011 have in common?*).

The youth unemployment figure reflects a failure to create jobs - nearly a quarter of young unemployed people have been without a job for over a year. That is a grim statistic (read Danny Dorling's Injustice for the impact long periods of unemployment have on young people). With no strategy to create jobs, new cohorts of young people are going to be added to those figures in the coming months and years.

Female employment is rising faster than ever predominantly because of public sector job cuts. In the last two years 250,000 public sector jobs have gone - 110,000 in the last 3 months alone. Several areas have been particularly badly hit: the civil service has lost 8,000 jobs per month in the last quarter. But even in supposedly protected areas like the NHS and education 26,000 and 16,000 jobs respectively have gone in 3 months.

Now the economics: With unemployment rising, and employment falling 300,000 in the quarter that means fewer people are paying taxes and more people are claiming benefits (though nowhere near the number who are entitled to). These people are in turn spending less (because they have less) depressing the private sector and reducing VAT revenues.

This is bad news for Osborne because, combined with flatlining economic growth, it means the government is receiving less revenue and paying more out in welfare than it projected.

Worse still for Osborne is that inflation is at 5.4% while wage increases lag at 1.7% - meaning living standards are falling (depressing demand, reducing VAT revenue, etc).

This leaves Osborne with a choice ahead of his autumn statement on 29 November: will he cut more to reduce expenditure or borrow to stimulate the economy in some way? If he cuts he'll exacerbate the problem, but if he borrows he'll be forced to abandon his 'Plan A' and admit he was wrong. So the question is whether the misery of millions is a price worth paying to temporarily shield Osborne's ego?

This is a big issue for Osborn, who based his economic policy on 'crowding out' theory. In the June Budget he promised to slash the bloated public sector which was crowding out private endeavour and depressing the economy. LEAP dismantled that argument in October 2010 'Osbornomics unravels'.

At that point Osborne was predicting economic growth of 2.6% in 2012, and jobs growth from the private sector. The jobs have failed to materialise (despite determined slashing of the public sector) and the Bank of England downgraded its 2012 growth forecast to 1%.

Osborne appears not for turning, so it's up to us to turn him out of office, but his motley millionaires turn the UK into Greece.


* A: Tory governments

No comments: