Economy

It is almost a cliche to describe jobs figures as a "mixed picture" — and yet that's exactly what today's are. Beneath the headline finding that the number of unemployed people has risen above 2.5 million, are numbers that will fuel not only David Cameron's happiest dreams, but also his most paranoid nightmares. Let's start with the nicer stuff first. The graph above shows the cumulative change in employment levels since the recession started to take hold in 2008. What it shows is something that often goes ignored: that is was the private sector, not the public sector, that took the greatest hit from the crunch.

Councils from Liverpool to Bromley have cut voluntary sector funding; but Reading Borough Council is defying the trend. It will increase its voluntary sector funding by more than £200,000 in 2011-12. This will be achieved by transferring £956,000 in loose grants to strict revenue contracts, which deliver greater value for money. This is part of a wider administrative rationalisation that raised an extra £181,000 for local groups, which will now apply for cash on a clearly specified basis to ensure that frugality survives the current efficiency drive. An efficiency drive was certainly needed.

Today’s decision to leave base rates at an emergency 0.5 per cent — the lowest since the Bank of England was founded in 1694 — shows how Britain is running out of options. Not even Mervyn King would deny that Britain has an inflation problem: global prices may be up, but the UK seems to have been hit worse than almost any major economy, as I blogged yesterday. With food prices up by 6.3 per cent and CPI inflation by 4.1 per cent, what’s happening to prices? The below graph, again out today from a FTSE350 survey, suggests that pay is up by just 0.5 per cent in the private sector. And it’s even worse in the manufacturing sector.   You could argue that one should not compound this pain by jacking up debt interest.

Matthew Sinclair’s piece on high-speed rail makes two main criticisms, both of which have already been addressed in the material published earlier this week for the consultation – but I would like to explain our approach again here.   First, Matthew criticises our forecasts. He would prefer us not to forecast demand beyond 2026, but HS2 would be a long term investment and would bring benefits for successive generations over many decades. It would be absurd to forecast only 10 years ahead. Therefore, we have taken a longer term but still realistic view. Demand for long distance rail travel more than doubled between 1994 and 2009 – an annual growth rate of around 5 percent. We have predicted a far slower growth rate than this: approximately 1.4 percent.

Matthew Sinclair argues that the government’s plans for high-speed rail would not create enough jobs to justify the government spending money on the project. But his argument is disingenuous as he is not comparing like for like. He is comparing predictions about jobs created directly by high-speed rail with predictions about jobs created indirectly by investment in the wider economy. The 40,000 jobs created directly by high-speed rail are simply the tip of the iceberg – tens of thousands more will be created by the investment boom in the cities the new line will link up. These are the jobs being created by the “wider economy” that he mentions, but which the government does not attempt to quantify.

National Pay Bargaining is one of the major impediments to rebalancing the national economy and improving the quality of public services. But as Julian Astle, the head of the Liberal think tank Centre Forum, notes the coalition is doing little about it. It knows that the public sector unions will go to the wall for national pay bargaining and so are holding off. Gordon Brown flirted with doing something about national pay bargaining, announcing a review of it in the 2003 Budget. But he then backed away from the issue. One area where the coalition is chipping away at national pay bargaining is schools. Academies and free schools have the right to set their own pay and conditions. But, interestingly, academies tend not to use these freedoms.