Tag: economy

What kind of jobs recovery is going on?

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There is some good news in today’s labour market statistics. There were 2,448,000 people unemployed in the three months from July to September, down 9,000 on the figures for April to June. The number of people in employment was up 167,000 from April-June, reaching 29,189,000.

These figures continue a slow trend in the right direction that has now lasted for six months, and the favourable impression they created hasn’t been confined to newspapers that support the coalition; the Financial Times reported a “Surprise fall in unemployment”, with The Guardiansuggesting:

“… the labour market may be in better shape than was feared.”

The figures are positive – and reflect the fact that the economy has been recoveringfrom recession for a year now. What is more worrying is the nature of the recovery – dependent on self-employment, part-time and temporary work. Worse, there is no sign yet of an increase in the number of job vacancies and the number of people flowing in to Jobseeker’s Allowance is higher than the number coming off.

Self-employment grew under the last Labour government and part of the story of the recovery is the extent to which self-employment has been responsible for the growth of overall employment.

In the chart below, the left hand scale shows the number of employees (the unbroken line) while the right hand shows the number self-employed (the dotted line):

Numbers-of-employees-and-self-employed
There has been no recovery in the number of employees – it stopped falling last summer, but the level has been quite steady since then. By contrast, the number of self-employed people has not stopped rising. Of course, some people have always dreamed of being their own boss, so this is not a bad thing in itself. But a weak recovery is a dangerous time to set up your own enterprise and there has to be a question mark about how long the new self-employed will stay in business.

 

This has also been a recovery characterised by temporary employment. Involuntary temporary employment is a clear sign of workers’ weak labour market position, but the growth of temporary employment overall has a more mixed character.

It can be one of the “green shoots” of recovery, where companies take on temporary staff to respond to healthier order books; on the other hand, the fact they are recruiting temporary workers indicates that they are still not entirely confident about the recovery and are hedging their bets. In recent months, the two figures have started to diverge.

The number of involuntary temporary workers has continued to rise, and is now the highest it has been since the summer of 1999, but this month saw the total number in temporary work fall for the third successive month:

Temporary-employment-in-the-recession
The picture for part-time employment is a little different. It is remarkable that, as far as part-time employment is concerned, the recession might never have happened – part-time employment was more than 400,000 higher in today’s figures than at the start of the recession and there has been no change of direction in recent months:

Part-time-employment-in-the-recession
The next aspect of the labour market picture to highlight is what has been happening to the flows on to and off Jobseeker’s Allowance. In today’s figures, the inflows and outflows are both up on last month, but the picture becomes quite clear when we look at the picture since the start of the recession:

JSA-flows
On the left hand side of the chart, we can see the impact of the recession, with many more people coming on to JSA than leaving. Late last year this reversed, but, for the second month running, we see inflows higher than outflows. This strongly suggests a weakening of employment prospects that is confirmed by the picture for vacancies.

In today’s figures, there were 459,000 vacancies, the lowest figure since Sep-Nov 2009:

Vacancies over the past year
Aug-Oct 2009: 432,000
Sep-Nov 2009: 441,000
Oct-Dec 2009: 465,000
Nov-Jan 2010: 481,000
Dec-Feb 2010: 484,000
Jan-Mar 2010: 475,000
Feb-Apr 2010: 472,000
Mar-May 2010: 481,000
Apr-Jun 2010: 489,000
May-Jul 2010: 479,000
Jun-Aug 2010: 466,000
Jul-Sep 2010: 459,000

The trend is clearly down since the late spring. The ONS figures show that there are 5.3 unemployed people for every vacancy – another sign of weakness. In recent weeks we have seen a lot of talk about the:

“Workshy … who need an extra push to get them into the mindset of being in the working environment.”

All of which ignores the fact that the number of unemployed people chasing each job has been rising since before the election and rose again this month (from 5.25 to 5.33, disguised by rounding in most reports)

http://www.leftfootforward.org/2010/11/labour-market-stats-november-2010/

 

Spending review cuts hit poor hardest, says Institute of Fiscal Studies Respected thinktank says most secondary pupils will lose out as families with children take brunt of cut

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Britain’s leading tax and spending experts today flatly contradicted the key claims made by George Osborne and the coalition over the fairness of its £81bn austerity programme.

In a move that forced the government on to the defensive, the highly respected Institute for Fiscal Studies challenged the chancellor’s contention that his plans for four years of belt-tightening would be progressive, safeguard frontline school spending, and require smaller savings for departments than Alistair Darling would have demanded.

The IFS said poor people would be hit harder than the rich, the four-year plan would see spending for most secondary school pupils cut, and Whitehall departments would face deeper cuts than under Labour’s plans.

The IFS also said that the £2.5bn pupil premium would fail to compensate for rising school numbers and other cuts in the education budget, resulting in funding reductions for 60% of primary school pupils and 87% of secondary school children.

Angela Eagle, shadow chief secretary to the Treasury, said: “George Osborne’s smoke and mirrors have well and truly unravelled. On any measure his plans hit the poorest hardest. And the IFS have all but called him a liar for his ridiculous claim that he is cutting less than Labour planned.”

In its detailed analysis of Wednesday’s comprehensive spending review, the IFS said the £7bn of fresh welfare cuts, together with public spending reductions, reinforced the regressive nature of the changes introduced by the coalition since it came to power. Families with children would be the hardest hit by the changes and only by including the increase in the top rate of income tax introduced by Labour could the coalition justify the claim that the better-off were being hit more than the poor.

“The tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures announced yesterday this is, unsurprisingly, reinforced,” said the acting director of the IFS, Carl Emmerson.

“Our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way.”

Emmerson expressed concerns about the government’s plans to reform council tax benefit, saying it would make the system more complex and less transparent. “It will also make it harder to make the benefit system fit together better as a whole. The incentive it provides to local authorities to encourage low-income people to move elsewhere is undesirable.”

The IFS also questioned Osborne’s claim that the 19% cut he is demanding of Whitehall departments was slightly less draconian than the 20% cut pencilled in by Labour. The thinktank said that once both sets of plans had been adjusted for the ringfencing of the NHS and Department for International Development, Labour’s cut would have been 16%.

A Treasury spokesman said last night it was legitimate for the government to include tax changes previously planned by Labour in the assessment of whether the coalition’s tax, spending and welfare package was progressive.

David Cameron, meanwhile, said that higher earners would pay more as a percentage of their income and that fairness was “about asking how much people give as well as how much people get”.

He added: “They pay most, not just as an amount of cash, they pay more as a percentage of their income, and that is what the definition of what being progressive is. You are asking those, as you go up the income scale, not just to pay more in cash but to pay more as a percentage of your income. That is what the figures show.”

None of the cuts would increase child poverty, he said, thanks to extra help for youngsters from deprived backgrounds.

“I think that we have done it in a way so we can genuinely say: it is difficult, it is tough but it is fair and we are going to take the country with us,” the prime mini ster added.

Imran Hussain, head of policy, rights and advocacy for the Child Poverty Action Group, said: “The IFS analysis is a devastating dismissal of the chancellor’s hollow claims of fairness yesterday. The government’s reputation on fairness is now shot to pieces. The IFS have made clear the awful truth that families with children are hardest hit.”

http://www.guardian.co.uk/politics/2010/oct/21/ifs-spending-review-cuts-poor-hit-hardest

“official action to tackle tax avoidance and fraud is “a drop in the ocean”

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A former adviser to the Thatcher government has warned that official action to tackle tax avoidance and fraud is “a drop in the ocean” in light of the amount of tax revenue lost to the Treasury, which he believes to be almost £120bn a year – almost twice the amount estimated by Revenue and Customs.

John Christensen, former economic adviser to the UK and Jersey governments, who has also worked within the tax haven industry in the past, said government plans announced yesterday at the Lib Dem conference in Liverpool to raise an extra £7bn by 2014-15 by tackling tax avoidance and frauds were “too timid”.

He criticised Britain’s “permissive” tax laws, which he said placed Britain in the unenviable position of leading the world on tax evasion, with over half of all tax havens around the world being British, he said.

Christensen, part of the non-partisan Tax Justice Network, said the government needed to reverse the job cuts in HM Revenue & Customs – which unions say have numbered 30,000 over the past five years, to allow tax collectors to claw back the billions of uncollected revenue.

He told a fringe meeting at the Liberal Democrat conference in Liverpool organised by the Public and Commercial Services Union (but not listed in the conference guide), that tax avoidance by the wealthy who pay accountants to identify loopholes had become “too respectable”.

Those who shunned paying their dues to the nation’s coffers ought to be named and shamed in the same way as those convicted of benefit fraud, he said.

“HMRC are doing deals and settling out of court with people who have been avoiding tax for many years,” he said. “There is a fundamental injustice here.”

Christensen said that the government needed to apply an “anti-tax-avoidance principle” and crack down on slack tax laws.

He cited one mechanism that allowed large companies and supermarket chains to avoid VAT on items worth £18.50 or less by shipping products such as DVDs and CDs to Guernsey and Jersey before posting them back to the UK for sale.

Christensen said the “anti-competitive” loophole, put in place as a special arrangement in the 1960s to stop flowers being shipped to the UK perishing during delays at customs, was benefiting the “big players” at the expense of small businesses.

A Lib Dem MP who attended the meeting and backed the coalition’s budget deficit reduction programme described the loophole as “mad”.

John Hemming, who represents Birmingham Yardley, said he had no idea this loophole existed and agreed the government “should not allow that to happen”.

Danny Alexander, the Lib Dem chief secretary to the Treasury, yesterday promised to clamp down on wealthy individuals and business who thought paying extra tax was an optional extra.

Much of the plan will involve more intensive scrutiny of those liable to pay the new 50p tax band introduced by the Labour government. Revenue and Customs looks at 5,000 high net-worth individuals, but will expand that number to 150,000.

He also promised a more robust criminal deterrent against tax evasion by increasing the number of criminal prosecutions by Revenue and Customs fivefold. Alexander revealed the Treasury would strengthen a team of investigators to catch those hiding money offshore.

The plans will be funded by a ringfenced investment of £900m, which will cover the spending round and is separate from any final deal imposed on Revenue and Customs in the spending review due on 20 October.

The Treasury estimates evasion costs £7bn a year in uncollected tax revenues, while avoidance costs roughly the same. Attacks on the tax system by organised criminals are estimated to cost around £5bn.

Alexander also promised to contract out up to £1bn of tax debt per year to private sector debt collection agencies.

But Christensen claimed the true scale was far higher, citing annual figures of £26bn in uncollected revenue, £25bn lost annually through tax avoidance, and a further a further £70bn in tax a by large companies and wealthy individuals.

Thousands of jobs had been cut by HM Revenue and Customs in recent years and thousands of local tax offices closed, making it more difficult to collect taxes, he said.

Christensen said the government should reverse the job cuts and follow Denmark’s example, who added 500 additional staff to target tax avoidance rather than £900m to bring staff to investigate the problem on a short-term basis.

Mark Serwotka, the general secretary of the Public and Commercial Services (PCS) union, said Alexander’s announcement was a “small step” in the right direction.

The PCS has spearheaded the call to target the billions of pounds of uncollected taxes by people who were avoiding or deliberately evading paying their fair share, instead of targeting public services for cuts.

He is lobbying for a reversal of staffing cuts in Revenue and Customs, which have seen around 30,000 jobs cut in the past five years; more are expected following the spending review.

Serwotka warned the fringe meeting that taking the axe to public services had not been part of the Lib Dem general election manifesto.

Millions of people voted for the party’s progressive policies, not to see it go along with slashing spending on essential public services, he said.

The union leader warned that the coming months would be “dire” if George Osborne, the chancellor, confirmed billions of pounds of cuts in next month’s comprehensive spending review.

He said the prospect of a cull of hundreds and thousands of job losses in the public sector and in private firms would lead to spiralling unemployment and threaten a double dip recession.

“We intend to step up our political campaign, but if this is dismissed we will see a lot of industrial strife the length and breadth of the country, the like of which we have not seen for decades,” Serwotka said.

Avoid the masochistic excesses of the chopper Chancellor.

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With the Spending Review just four weeks away, pressure is beginning to ramp up on George Osborne with widespread public dissatisfaction over his cuts and a challenge from his colleague, Boris Johnson, over the strategy. Pre-empting the Labour leadership candidates’ debate on deficit reduction, I gave a presentation to the Reform think tank earlier this week setting out my own deficit reduction plan which avoids the masochistic excesses of the chopper Chancellor.

My slides started with four graphs setting out the true story about the deficit, public debt, and thebond market using figures from HM Treasury, the OECD, and Bank of England. Regular readers of Left Foot Forward will be familiar with the argument on which I elaborate below(*) but the essential point is that while the deficit has to come down, there is no compelling economic case for the pace of retrenchment that George Osborne proposes.

But since the deficit has to come down, how can we do so responsibly? My proposal is to stick to Alistair Darling’s plan to cut the deficit in half over four years but split the impact 50:50 between tax and spending cuts – precisely what Norman Lamont and Ken Clarke did in the 1990s.

This would mean £28.5 billion in tax rises by 2013-14 delivered through the 50p tax rate and fulfillment of Labour’s proposed increases to NICs. I would add to that a mansion tax, the full Capital Gains Tax rise proposed in the Lib Dem manifesto, and a doubling of the banking levy.

On the spending side, there is no need for any of the deeply regressive welfare cuts including to housing benefit, the freeze on child benefit, or tax credit reforms (though I do have some sympathy with making 16 the cut off for child benefit). Instead, I would look for an average efficiency of 8.1 per cent across all Government departments aside from DfID. This would, of course, include the Health department which makes up close to one-third of all departmental spending. A significant chunk of this could come from a 3-year public sector pay freeze (around £8 billionaccording to the SMF).

Before getting into the broad macroeconomic and specific microeconomic policies that are needed to deliver economic growth, this responsible deficit reduction would reduce growth by virtually half as much as the Tory programme. Using the cautious multipliers estimated by the Office of Budget Responsibility (Table C8 of the Budget), I have calculated that my deficit reduction plan would take just 1.5 per cent out of the economy compared to 2.7 per cent by the Conservatives.

The responsible deficit reduction plan also avoids the ideological and masochistic approach taken by the Tories. There is no need for a regressive VAT rise, no need for huge welfare cuts that will disadvantage the most vulnerable, and no need for 25 per cent cuts from unprotected departments.

Given the proximity of the Spending Review, I’d be very interested to hear your thoughts on this approach.

Damascene conversion of Nick Clegg

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At some point in early May, Nick Clegg’s economic philosophy switched from Keynesian to that of a deficit hawk. Today he completed the conversion by reiterating Margaret Thatcher’s flawed household debt metaphor.

During his speech today, Nick Clegg said:

“It’s the same as a family with earnings of £26,000 a year who are spending £32,000 a year. Even though they’re already £40,000 in debt. Imagine if that was you. You’d be crippled by the interest payments. You’d set yourself a budget. And you’d try to spend less. That is what this government is doing.”

The argument was first used by Margaret Thatcher in 1976 when she told Thames TV’s ‘This Week’:

“I think you’re tackling public expenditure from the wrong end, if I might say so. Why don’t you look at it as any housewife has to look at it? She has to look at her expenditure every week or every month, according to what she can afford to spend, and if she overspends one week or month, she’s got to economise the next.

“Now governments really ought to look at it from the viewpoint of ‘What can we afford to spend?’ They’ve already put up taxes, and yet the taxes they collect are not enough for the tremendous amount they’re spending. They’re having to borrow to a greater extent than ever before, and future generations will have to repay.”

But this line has been thoroughly debunked in recent times by The Times’ Anatole Kaletsky and New York Times’ Paul Krugman as well as by Keynes himself. Of course, until his Damascene conversion, Nick Clegg knew this. On Saturday May 1, he told Reuters that:

“My eight-year-old ought to be able to work this out – you shouldn’t start slamming on the brakes when the economy is barely growing. If you do that you create more joblessness, you create heavier costs on the state, the deficit goes up even further and the pain with dealing with it is even greater. So it is completely irrational.”

Lib Dem members tend to share this older view. AYouGov poll today found that only 29% of party members fully agree with the government’s policy of cutting spending to reduce government borrowing. An identical proportion of Lib Dem voters share Clegg’s position.

At some unknown point after the Reuters statementbut before he spoke to Mervyn King, Clegg changed his mind. With his conversion complete, the Liberal John Maynard Keynes will be turning in his grave.

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