Underlying economic issues still there


By George Kerevan
DURING his ill-starred 2010 election campaign, Gordon Brown made the controversial pledge to “create British jobs for British workers”. Of course, his proposal was illegal under European Union rules, but then Brown did not actually intend to do anything about it. His use of language worthy of the BNP was a classic political “dog whistle” – an emotive phrase intended to lodge in the subconscious of a key electoral group.

This week, George Osborne blew his own dog whistle, promising to “fight for full employment in Britain”. Naturally, our Austerity Chancellor added a quiet caveat rejecting “artificial jobs paid for with borrowed money”. However, Osborne has achieved his primary aim – a rush of headlines associating him with full employment. Eat your heart out Boris.

What is Osborne up to? The Chancellor has become adept at sending out different messages to different interest groups. To Tory back-benchers he breathes austerity – hence his other recent proposal, to run a budget surplus in perpetuity. But surely a permanent budget surplus implies more cuts, not full employment?

The Chancellor is talking up jobs because there is a general election next year. Unless you’ve been on another planet, you cannot fail to have noticed that Osborne has gone into pre-election overdrive – hence his “Budget for savers”. Removing the rule forcing savers to buy an annuity with their pension pot cost Osborne nothing, but won him instant plaudits from the over-55s. By the way, did I tell you that 58 per cent of Ukip supporters are over 55?

Stopping Tory voters defecting to Ukip is only half the battle. That would give the Conservatives around 35 per cent of next year’s vote. To be sure of seeing off Ed Miliband, they need 40 per cent. To achieve that means eating into Labour’s working class support. Seeming to back full employment is part of that strategy. The other half concerns the current housing boom.

Early last year, we were still talking about the prospects of double-dip or even treble-dip recession. Then, in his 2013 Budget, Osborne suddenly turned on the monetary tap with his Help to Buy scheme. It sounds innocuous, but essentially Osborne is printing money to pump circa £130 billion of new mortgage lending into the economy, at rock bottom interest rates. Result No1: a house price bubble. Result No2: ordinary folk feel richer because their property has risen in value, so they spend more. Result No3: economic growth explodes and the Tories win the 2015 general election. Clever George Osborne.

Unfortunately, there is a Result No4: the current boom will collapse after the election and unemployment will be worse than ever. Osborne is giving us a modern version of the infamous Barber Boom of the early 1970s, when Anthony Barber was Tory chancellor. Barber aimed at a “dash for growth”, using unsustainable tax cuts on top of a massive de-regulation of credit and mortgage supply. But the economy over-heated massively, with house prices rising at a staggering 36 per cent per annum (twice the rate in the early 2000s). The boom duly collapsed, but before Edward Heath, the prime minister, could call an election.

Like the Barber Boom, today’s artificial surge in consumer spending is not benefiting manufacturers. Instead, we are sucking in imports from the rest of the world. Britain’s trade deficit is approaching 5 per cent of GDP. The recent rapid rise in the value of sterling will only make matters worse, as UK exports become more expensive. Add that to the fact that British productivity has collapsed to 21 per cent below the G7 industrial average, and you’ll understand the fool’s paradise Osborne has created.

Forget all the guff about a radical Chancellor creating a revolution in private pensions. On the contrary, Britons have already stopped saving. Household savings have dropped from 8 per cent of national income in 2012 to only 5.4 per cent in the third quarter of last year – I’ll bet they’ll be even lower when the next statistics come out. Consumers are spending, not saving. The Treasury itself thinks it will rake in an extra £1bn in tax as people cash in their pension pots and spend, spend, spend. Those who don’t buy Lamborghinis will buy property to let, adding to the housing bubble. Tony Barber must be laughing in his grave.

All of which makes me deeply cynical about the Chancellor’s sudden espousal of full employment as a policy goal. On the contrary, Osborne (helped by Brown before him) has created a Frankenstein, dysfunctional labour market in Britain. At the top is a tiny, professional elite that is highly paid and enjoys massive fringe benefits. They are supported at the bottom by an army of low paid, semi-skilled, and often part-time workers. As a result, the share of wages in national income is being squeezed remorselessly, while social mobility has frozen.

Recently, Osborne claimed that Britain now has a record number of people “in work”. That’s true only if you count the 4.1 million self-employed, 1.6 million temporary workers, 6.7 million part-time workers, 1 million on work schemes, 1.5 million unpaid carers and 1.1 million with second jobs. But together these constitute nearly half of all “employees”.

Osborne will tell you this kind of workforce is very flexible in a crisis, but it also explains why Britain’s productivity (measured by output per hour worked) is so pathetic by international standards.

I don’t doubt Osborne will conjure up a definition of full employment that he can claim to meet. But it won’t represent every human being finding gainful, paid work at a living wage. To achieve that goal requires more than an ad hoc housing boom; it requires the wholesale reform of how labour markets work in the 21st century.

We might start by taxing the glut of capital sloshing about in the financial markets, and which is responsible for all the periodic financial bubbles. At the same time, we need to tax employment less and raise wage levels to make working more attractive. Only then will something like full employment be a possibility.

Courtesy of George Kerevan and the Scotsman