Prune economic barriers to create growth or it might never come

October 11, 2011 10:29 AM

The Chartered Institute of Personnel and Development (CIPD) has released a note warning the Government that it is meeting its public sector headcount reduction targets faster than projected but recommending that it should announce a temporary halt to the progress being made. The CIPD’s chief economic advisor, John Philcott, expresses concern that the number of new jobs created by the private sector might not be able to keep pace with reduction in the numbers in the public sector:

Public sector job cuts in this context would be a false economy – exacerbating weakness in the labour market, adding to unemployment and in turn hindering rather than helping the task of fiscal deficit reduction. A more sensible course would be to delay all further public sector job cuts to the end of this Parliament and, if necessary, into the next, thereby enabling them to be more easily absorbed without nasty macroeconomic side effects.




[caption id="attachment_41134" align="alignright" width="300" caption="Too slow?"][/caption]

The Government’s modest austerity program leaves no room for further loosening of the purse strings. It is in no small part because of the credibility of Britain’s deficit reduction plan that borrowing costs are still manageable, despite our deficit being just as large and unsustainable as Greece’s. And we shouldn't be running up debt hoping today's low interest rates will last forever. They won't. When they do rise, the cost could quickly become crippling.

It is worth noting that the Government plans are expected to increase the size of the national debt by 50 per cent over this Parliament already. And even if it was sensible to increase borrowing, any measures should cut taxes and promote real growth rather than carry on wasting taxpayers’ money on keeping staff whose jobs aren’t necessary on the payroll.

Lloyds TSB International Wealth revealed yesterday that 17 per cent of wealthy individuals surveyed reported as ‘actively considering a move overseas’, compared to 14 per cent six months ago, which adds to the growing pressure for tax cuts as a higher priority than raising spending. If we leave tax cuts until they've all left, that really will be a false economy as jobs and tax revenues leave with them.

The economy is weak and growth is faltering but high public spending and unnecessary public sector jobs are not the solution to the problem - they are the problem. Growth will pick up when the barriers to growth are removed. This means when businesses are freed from the overzealous regulations of the type recently identified in a report by the Institute of Directors, and when taxes are cut which are getting in the way of value-creating economic activity by making it prohibitively expensive. But it also means when buildings, land and employees are reallocated from poor value tasks in the public sector to more useful jobs in the private sector that genuinely create wealth.

This task is always going to be bumpy and cannot and should not be micromanaged to ensure the numbers always match in each quarter. It’s also hard for the people whose jobs are being cut and the businesses whose contracts are being scaled back. But the underlying rate of growth cannot be raised without taking tough decisions. Britain needs lower, simpler taxes for real growth and that means we should cut spending by more than the Government plans to, not less.The Chartered Institute of Personnel and Development (CIPD) has released a note warning the Government that it is meeting its public sector headcount reduction targets faster than projected but recommending that it should announce a temporary halt to the progress being made. The CIPD’s chief economic advisor, John Philcott, expresses concern that the number of new jobs created by the private sector might not be able to keep pace with reduction in the numbers in the public sector:

Public sector job cuts in this context would be a false economy – exacerbating weakness in the labour market, adding to unemployment and in turn hindering rather than helping the task of fiscal deficit reduction. A more sensible course would be to delay all further public sector job cuts to the end of this Parliament and, if necessary, into the next, thereby enabling them to be more easily absorbed without nasty macroeconomic side effects.




[caption id="attachment_41134" align="alignright" width="300" caption="Too slow?"][/caption]

The Government’s modest austerity program leaves no room for further loosening of the purse strings. It is in no small part because of the credibility of Britain’s deficit reduction plan that borrowing costs are still manageable, despite our deficit being just as large and unsustainable as Greece’s. And we shouldn't be running up debt hoping today's low interest rates will last forever. They won't. When they do rise, the cost could quickly become crippling.

It is worth noting that the Government plans are expected to increase the size of the national debt by 50 per cent over this Parliament already. And even if it was sensible to increase borrowing, any measures should cut taxes and promote real growth rather than carry on wasting taxpayers’ money on keeping staff whose jobs aren’t necessary on the payroll.

Lloyds TSB International Wealth revealed yesterday that 17 per cent of wealthy individuals surveyed reported as ‘actively considering a move overseas’, compared to 14 per cent six months ago, which adds to the growing pressure for tax cuts as a higher priority than raising spending. If we leave tax cuts until they've all left, that really will be a false economy as jobs and tax revenues leave with them.

The economy is weak and growth is faltering but high public spending and unnecessary public sector jobs are not the solution to the problem - they are the problem. Growth will pick up when the barriers to growth are removed. This means when businesses are freed from the overzealous regulations of the type recently identified in a report by the Institute of Directors, and when taxes are cut which are getting in the way of value-creating economic activity by making it prohibitively expensive. But it also means when buildings, land and employees are reallocated from poor value tasks in the public sector to more useful jobs in the private sector that genuinely create wealth.

This task is always going to be bumpy and cannot and should not be micromanaged to ensure the numbers always match in each quarter. It’s also hard for the people whose jobs are being cut and the businesses whose contracts are being scaled back. But the underlying rate of growth cannot be raised without taking tough decisions. Britain needs lower, simpler taxes for real growth and that means we should cut spending by more than the Government plans to, not less.

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