Friday, 19 November 2010

Fiscal aggression or sound economics?

I was lucky enough to attend a seminar today at which Will Hutton (from the work Foundation) spoke. Drawing extensively on his recent book ("Them and Us" published by Little, Brown), I was struck by many of the points he made, but two in particular struck home:

The first was Hutton's emphatic view that the current round of public sector cuts, tuition fee increases and the rest are happening too fast: "Fiscal policy as aggressive as this in the wake of an economic crisis as profound as we've had is precisely what you should not do". Now I appreciate that there is nothing close to a consensus amongst economists, let alone 'lay' folks such as me about how far / how fast - but it was refreshing to hear a clear case made for doing things more slowly, primarily to allow compensating capability to adjust to accommodate the changes. On Hutton's estimates, the public sector job losses forecast plus the impact they will have on dependent private sector jobs (supply chain etc.) will require the creation of over 2 million jobs in the private sector over the next 5 years to compensate. That is well above what was achieved in the last upturn (some 1.2m private sector jobs created), particularly as 3 out of 4 of those jobs was in Financial services. Coupled with the points below, that seems like a very tall order.

The second point was the compelling picture he portrayed of the geographical inequalities of opportunity across the UK. Put simply - only a very few regions and cities (for example the South East, London and it's satellites) have the necessary capability (primarily in the knowledge economy) to be able to add economic value by creating the kinds of jobs needed. Elsewhere, there simply aren't the capabilities available.

The result is likely to be further geographic polarisation. As Hutton puts it - if 'brute bad luck' means you have been born in one of the low capability areas, your life chances are severely curtailed. I tend to agree.

Perhaps a gloomy prognosis . . . but I for one feel moved to buy the book to see what further remedies Hutton suggests. The path of the current cuts has been set, but I shall return to this theme in a later post, exploring possible options to address some of the issues raised.

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