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Why Cameron will soon have to eat his words

The PM's claim that employment will rise contradicts leaked Treasury analysis of George Osborne’s Bu

I promised, in my last column, that I would look at developments in the labour market in order to evaluate the coalition government's programme of spending cuts and tax increases. It turns out to be particularly apposite, given that the Prime Minister has since insisted that unemployment will fall each year over this parliament. He will come to regret that promise.

David Cameron based his unlikely claim on figures from the Office for Budget Responsi­bility (OBR), which rushed out a new employment forecast after a leaked Treasury analysis got the government in a bit of a jam. As I suspected it would be, the OBR is no more than the Chancellor's mouthpiece. It is proving as independent as Conservative Central Office, and appears to know as much about labour economics as I do about flower arranging. No wonder Alan Budd announced he will step down as the OBR's chairman after just three months.

The leaked Treasury analysis revealed that George Osborne's Budget will result in the loss of at least half a million jobs in the public sector and 600,000- 700,000 in the private sector by the end of this parliament. This was closely followed by an indication, in a letter to ministers from the Lib Dem Chief Secretary to the Treasury, Danny Alexander, that the job losses could be even greater. Alexander ordered government departments (with the exception of Health and International Development) to identify possible spending cuts of up to 40 per cent. He also asked departments to show how they would cut day-to-day administrative costs, excluding salaries, by 33 per cent at the lower end and 50 per cent at the upper end.

Hard to deliver

The loss of jobs in the private sector is partly the result of much private-sector employment being dependent on spending in the public sector. So cuts in public spending make people in the private sector redundant - or seriously reduce the incomes of, say, consultants, many of whom depend on the public sector for a significant proportion of their work. And yet, the OBR says, employment will grow from now on. Despite the Budget's expected destruction of 1.3 million jobs, the OBR projects that employment will rise by an astonishing 1.2 million between 2010 and 2014. Hence, the private sector is going to create about 2.5 million jobs.

Let's look at why the OBR's forecast is overly optimistic. First, job growth of this kind is unprecedented in the private sector. According to the Office for National Statistics, between the first quarter of 2000 and the first quarter of 2008, when the latest recession began, the private sector created 1.6 million jobs, at a time when the economy was booming.

The table below shows the change in the number of jobs in the public and private sectors between the first quarter of 2000 and the first quarter of 2008, and between the second quarter of 2008 and the end of 2009. Most of the job growth up to 2008 was in financial and business services and construction, along with the public sector. This seems highly unlikely to be repeated over the next five years. (Note that RBS and Lloyds are included in the public-sector estimates from December 2008 onwards.)


The coalition's austerity measures have already hit business confidence, according to the Chartered Institute of Purchasing & Supply's latest services survey. Business expectations dropped to a 15-month low in the single biggest month-on-month fall ever recorded. It is hard to see which industries all of these new private-sector jobs are supposed to come from.

Second, with all G20 members tightening fiscal policy at the same time, it will be "hard to deliver on improving growth for all, or possibly any", as the chief economist at Goldman Sachs, Jim O'Neill, has warned. Adding to that worry, O'Neill notes, is growing evidence that both the US and Chinese economies are slowing.

Third, it is unlikely that people fired from the public sector, such as care assistants, police officers and local authority workers, can simply jump to jobs in the private sector. Occupational differences between any new jobs and jobseekers will be a problem - a skills mismatch.

Fourth, the chances are that most people who lose their jobs in the public sector will live in regions that are heavily dependent on the public sector, such as the north, while any new private-sector jobs are likely to be in different regions, ­especially the south, where access to housing will be a problem - a regional mismatch.

Not constructive

Fifth, many companies have managed to retain staff during the downturn by reducing their hours of work. In any upswing, firms are likely to increase hours rather than create jobs. This will be especially bad for young jobseekers.

Sixth, any increase in jobs will lure back workers from eastern Europe, who left Britain when job opportunities began to disappear. In such circumstances, measured employment will not rise as the OBR expects.

Seventh, there is no intellectual basis for believing that the public sector is crowding out the private sector. In a letter to the Times on 1 January 1938, John Maynard Keynes argued: "Examples abound in all parts of the world where public loan expenditure has improved employment: and I know of no case to the contrary." That seems right. Public spending is keeping many private firms from bankruptcy.

Eighth, plans for building new schools and hospitals are to be scrapped under a review of capital spending, and private-sector construction jobs will fall as a result. Even the CBI thinks these cutbacks are a bad idea.

The downside risks to the OBR's forecast suggest that Cameron's claim of future falls in unemployment is simply not credible. I will be watching the labour market data and will report back regularly. Sadly for the British people, Cameron is going to have to eat his words.

David Blanchflower is a labour economist and a professor at Dartmouth College, New Hampshire, and the University of Stirling.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 12 July 2010 issue of the New Statesman, Behind the mask

Photo: Getty Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.