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New Labour Cuts and Tory Cuts – Both Bad

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Nobody emerges well from the heated exchanges at PMQ yesterday in the Commons.   The Guardian that morning had argued the Treasury estimated that the Budget would cost 1.3m jobs.   In the ensuing mele’e Cameron responded to Harriet Harman’s taunt in two ways by claiming that (a) “unemployment will be falling during this Parliament” (words that he may well come to rue) and (b) the rise in unemployment would have been worse under Labour.   He is vulnerable on both counts.

His claim that unemployment will fall rather than rise in the course of this Parliament is based on the OBR assessment, rapidly rushed out to give ammunition to contest the anticipated Harman attack (incidentally providing the first suspicions about the OBR’s objectivity), that whilst 600,000 public sector jobs will be lost by 2015-6 and a similar figure (though unspecified) in the private sector as a result of the public spending cuts, some 2.5 m jobs will be created over the same period in the private sector.   This is for the fairies.

Such a level of job creation never even remotely occurred in the boom years under Brown, so what hope in the deficit-cutting fetish of the current  international economic austerity?    Labour did indeed create 2.5m jobs, but it took 13 years, not 5, and were brought about at the price of a credit bubble, a housing boom, and a rise of 0.8m jobs in the public sector – none of which will exist in the next few years.   The first uncomfortable truth exposes the OBR as a politically-driven massaging operation, not an independent and rigorous analyst.

By the same token Cameron has nailed himself to the mast of continually falling unemployment.   By naively swallowing the OBR’s last-minute PR exercise, he will crucified month after month as the jobless figures rise, as they inexorably will, past 3m and quite likely past 3.5m.

But New Labour doesn’t come out of this very well either.   Osborne stated in his Budget that the Treasury papers he inherited showed that Labour were planning post-election spending cuts of £73bn – to which he promptly added a further £40bn.   If this is true (and it hasn’t been denied), it does reveal that New Labour were also planning to tackle the deficit overwhelmingly through public spending cuts, albeit slightly less so than the Tories.

It cannot be said too often or too strongly that this is the wrong policy.   It leaves out the very substantial contribution that 2-2.5% annual growth would make to cutting the deficit, and indeed imposes spending cuts of such a magnitude as would significantly ratchet down growth potential and risk a double-dip recession.   Such a policy also plays down the much bigger contribution that higher taxes on the bankers and super-rich should play, not least because basically they caused this deep recession in the first place.

Time for a genuinely independent fiscal commentator (the IFS?), a PM who can recognise spoof economics when he sees it, and an Opposition (post-New Labour) bold enough to develop radical policies that are not just a pale shadow of the Tory conventional wisdom.

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