Sunday, 26 October 2014
Where's the private sector recovery, George?
Remember when George Osborne told us that the UK's economic malaise was due to the state "crowding out private endeavour"? That was during his Emergency Budget in June 2010.
Since then austerity has devastated the public sector. Two years of pay freeze followed by two years (so far) of a 1% pay cap have left public sector workers up to 20% worse off in real terms once extra pension contributions have been included.
Since being elected, he has made 87,000 job cuts in the civil service, reducing it to its smallest size since before the Second World War. In the last year alone, 280,000 public sector jobs have been cut (according to ONS) causing all sorts of cuts to services (e.g. local government social services) and delays (passport processing).
In this space that Osborne's cuts have created, the private sector would flourish, he told us. This graph below (via Newsnight's Economics Editor Duncan Weldon) shows the recovery in private sector wages:
The graph shows that since Osborne became Chancellor private sector wages have continue to fall in real terms. There has been no recovery in the pay packets of private sector workers.
One can speculate several reasons as to why: firstly, the 'crowding out' theory has long been debunked as having no evidential basis (see Chakrabortty here); secondly, union density in the private sector remains weak at just 14% of workers - with collective bargaining coverage low; thirdly, the public sector pay restraint influences private sector employers - as they do not have to compete for higher wages; and fourthly, a lack of investment has meant lower productivity, producing lower profit rates.
The second key sign that Osborne's private sector-led recovery is AWOL is the news today that profit warnings by UK-listed firms have risen to their highest summer level in six years. Profit warnings are issued by companies to inform shareholders that profits will be lower than in the previous year.
Finally, while Osborne can point to higher employment in the private sector, it has not been full-time employment as while pre-crisis 64.4% of workers were employed full-time, now only 62.1% work full-time. So record employment is now accompanied by higher underemployment.
With the recovery faltering, the deficit rising rather than closing, Osborne will be itching to make further public sector cuts in his Autumn Statement on 3 December. The evidence to date shows it won't be a prelude to a private sector recovery.