The Economy: a The Economy: a crisis of growth crisis of growth

and jobsand jobsStephen Boyd, Assistant Stephen Boyd, Assistant

Secretary, STUCSecretary, STUC

The employment situation is bad and getting worse!

Start of recession to June Start of recession to June ‘10…‘10…

Employment downEmployment down 106,000 106,000 Unemployment Unemployment up 112,000 up 112,000 to 223,000to 223,000 Claimant count Claimant count up by 66,000up by 66,000 to 135,000 to 135,000 Youth unemployment Youth unemployment up 80%up 80% Long-term unemployment Long-term unemployment up over 100%up over 100% Claimants to vacancy ratio around Claimants to vacancy ratio around 9:19:1 Massive rise in Massive rise in under-employmentunder-employment

The economic recovery is somewhere between very weak and non-existent

Why this time is different…Why this time is different…

Remember that the 08/09 recession was Remember that the 08/09 recession was deeper and longer than ‘80s and ‘90s deeper and longer than ‘80s and ‘90s recessionsrecessions

Recession was different in origin; effects will be Recession was different in origin; effects will be felt over longer timescale; approx 5 yearsfelt over longer timescale; approx 5 years

Growth in Scotland Q1 2010 was Growth in Scotland Q1 2010 was 0%0% Independent forecasts predicting growth Independent forecasts predicting growth

between 0.3% - 1.4% in 2010; 1.3% - 2.3% in between 0.3% - 1.4% in 2010; 1.3% - 2.3% in 2011 – 2011 – implying little if any fall in implying little if any fall in unemploymentunemployment

Slow growth predicted in Scotland’s key export Slow growth predicted in Scotland’s key export markets: rest of UK and Eurozonemarkets: rest of UK and Eurozone

What are the prospects for growth and jobs?

Very bleakVery bleakBarriers to growth and jobs include: Barriers to growth and jobs include: ‘‘paradox of thrift’ paradox of thrift’ access to finance access to finance collapsing confidence collapsing confidence low demand for goods/serviceslow demand for goods/services withdrawal of stimuluswithdrawal of stimulus

…………....& CUTS!& CUTS!

A ‘double-dip’ recession is A ‘double-dip’ recession is possiblepossible…but real issue is …but real issue is the the probabilityprobability of a of a sustained period of low sustained period of low growth and high growth and high unemploymentunemployment

... does the data agree?... does the data agree?

There is an economic crisis – it is a crisis of low growth and high unemployment. It is not a crisis of the…

The public financesThe public finances

The deficit

What is it? What is it? The gap between what a country spends and The gap between what a country spends and

what it earns in revenueswhat it earns in revenuesWhat size is it?What size is it?The UK deficit in 2010 was 11.4% of GDP – The UK deficit in 2010 was 11.4% of GDP –

the second largest deficit among G20 the second largest deficit among G20 nations nations

Is it a problem?Is it a problem?The deficit is simply a consequence of The deficit is simply a consequence of

exceptional economic circumstances. It is exceptional economic circumstances. It is a problem but one that is a problem but one that is consistently consistently exaggerated and distortedexaggerated and distorted

We are told that cuts are ‘unavoidable’ and that the UK is an economic basket case…but was there ever a genuine possibility that the UK might become the next Greece?

The truth about the public The truth about the public financesfinances

Investors continue to enthusiastically fund Investors continue to enthusiastically fund UK debt at low cost; interest rates close to UK debt at low cost; interest rates close to 0% on long term government debt0% on long term government debt

Gilt auctions consistently oversubscribedGilt auctions consistently oversubscribed Ministers & media raise the prospect of an Ministers & media raise the prospect of an

imminent debt crisis whilst imminent debt crisis whilst failing to failing to describe what is actually happening describe what is actually happening in the markets in the markets

Investors consider a wide range of factors Investors consider a wide range of factors such as stock of debt, maturity of debt, such as stock of debt, maturity of debt, structure of debt and future economic structure of debt and future economic prospects as well as current deficitprospects as well as current deficit

5 reasons why the UK is not the next Greece

1. The UK is not in the Euro

The UK has its own currency and the additional economic levers it provides:

Currency devaluation Monetary policy (interest rates) The UK can make its own decisions

without consulting EU, ECB, IMF and France

2 The UK deficit is high by international standards; stock of debt is not

General Government Debt (% of General Government Debt (% of GDP)GDP)

20072007 20092009 20102010 20142014

UKUK 44.144.1 68.768.7 81.781.7 98.398.3

United StatesUnited States 61.961.9 84.884.8 93.693.6 108.2108.2

JapanJapan 187.7187.7 218.8218.8 227.0227.0 245.6245.6

ItalyItaly 103.5103.5 115.8115.8 120.1120.1 128.5128.5

France France 63.863.8 78.078.0 85.485.4 96.396.3

GermanyGermany 63.463.4 78.778.7 84.584.5 89.389.3

Advanced Advanced G20 G20 economieseconomies

78.278.2 98.998.9 106.7106.7 118.4118.4

Key issues (2)Key issues (2)

3 The cost of servicing UK debt is low; much lower than in Greece and other nations judged to be at risk of default

Debt interest payments

Debt interest payments will rise from 1.6% of GDP in 2007 to 3.1% in 2014

Greece is currently spending 12% Average for G20 advanced nations in

2014: 3.5% US in 2014: 4.5% Average debt interest payments for 75

years between 1916-1991: over 3%

4 The structure of UK debt is different: it is much longer term and the majority is held within the UK; not by external investors

5 UK economy is bigger, less corrupt and more diverse and dynamic than the Greek economy

People generally pay their taxes in the UK; taxes are routinely avoided in Greece

Investors trust UK economic Budget data; Greek Budget data is constantly being revised

World Bank rates the UK 5th best country in the world in which to do business – Greece rated 109

Avoidable, Unfair and Regressive - Avoidable, Unfair and Regressive - Why Osborne is wrong on cutsWhy Osborne is wrong on cuts

Timing, pace and scaleTiming, pace and scale Growth and jobs – Growth and jobs – deficit was already falling due deficit was already falling due

to stimulusto stimulus UK in 2010 is not 1990s Canada UK in 2010 is not 1990s Canada Balance between cuts and tax rises is all wrong Balance between cuts and tax rises is all wrong Likely to fail on his own terms – debt will rise as Likely to fail on his own terms – debt will rise as

u/e rises and tax receipts fall furtheru/e rises and tax receipts fall further Markets are not rewarding austerity!Markets are not rewarding austerity! Setting policy to please the markets is Setting policy to please the markets is

never the right thing to donever the right thing to do

An alternative strategy…

Learn the lessons of economic history

1 When unemployment is high, the risk is deflation and interest rates are already close to zero…deficit/stimulus spending is required to boost growth and get people back to work.

2 Stimulus should be implemented quickly, be short in duration and targeted on a) getting people back to work and b) expanding the economy’s long term capacity to grow sustainably.

Recognise the positive relationship between public spending and

growth Evidence fails to demonstrate any adverse

relationship between public spending and private investment

Scottish public sector institutions are critical to the success of the Scottish economy through providing basic infrastructure as well as key human and technological resources for emergent sectors such as biotechnology

Need to develop a more sophisticated understanding of how public & private sectors inter-relate in successful and balanced economies

Introduce genuine reform

Fix financeReinvigorate manufacturing

industryRebuild ‘equalising institutions’

– trade unions, progressive taxation, living wages

Tackle the tax gap

An intentionally broad messageAn intentionally broad message Tackle the deficit through sustainable Tackle the deficit through sustainable

economic growth and job creationeconomic growth and job creation Spending cuts will strike at the heart of our Spending cuts will strike at the heart of our

communities and damage the economycommunities and damage the economy The better off should pay their fair share The better off should pay their fair share Ordinary people should not be forced to pay Ordinary people should not be forced to pay

for the mistakes of policymakers and bank for the mistakes of policymakers and bank bosses through poverty pay and inadequate bosses through poverty pay and inadequate benefitsbenefits

sboyd@stuc.org.uk

EDINBURGH DEMOEDINBURGH DEMO

SATURDAY 23 SATURDAY 23 OCTOBEROCTOBER