The Economy: a crisis of growth and jobs

1. The Economy: a crisis of growth and jobs Stephen Boyd, Assistant Secretary, STUC

2. The employment situation is bad and getting worse!

3. Start of recession to June ‘10… • Employment down 106,000 • Unemployment up 112,000 to 223,000 • Claimant count up by 66,000 to 135,000 • Youth unemployment up 80% • Long-term unemployment up over 100% • Claimants to vacancy ratio around 9:1 • Massive rise in under-employment

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

6. Why this time is different… • Remember that the 08/09 recession was deeper and longer than ‘80s and ‘90s recessions • Recession was different in origin; effects will be felt over longer timescale; approx 5 years • Growth in Scotland Q1 2010 was 0% • Independent forecasts predicting growth between 0.3% - 1.4% in 2010; 1.3% - 2.3% in 2011 – implying little if any fall in unemployment • Slow growth predicted in Scotland’s key export markets: rest of UK and Eurozone

7. What are the prospects for growth and jobs?

8. Very bleak Barriers to growth and jobs include: • ‘paradox of thrift’ • access to finance • collapsing confidence • low demand for goods/services • withdrawal of stimulus ……..& CUTS!

9. A ‘double-dip’ recession is possible…but real issue is the probability of a sustained period of low growth and high unemployment ... does the data agree?

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

17. The public finances

18. The deficit What is it? The gap between what a country spends and what it earns in revenues What size is it? The UK deficit in 2010 was 11.4% of GDP – the second largest deficit among G20 nations Is it a problem? The deficit is simply a consequence of exceptional economic circumstances. It is a problem but one that is consistently exaggerated and distorted

19. 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?

20. The truth about the public finances • Investors continue to enthusiastically fund UK debt at low cost; interest rates close to 0% on long term government debt • Gilt auctions consistently oversubscribed • Ministers & media raise the prospect of an imminent debt crisis whilst failing to describe what is actually happening in the markets • Investors consider a wide range of factors such as stock of debt, maturity of debt, structure of debt and future economic prospects as well as current deficit

22. 5 reasons why the UK is not the next Greece

23. 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

24. 2 The UK deficit is high by international standards; stock of debt is not

26. Key issues (2)

27. 3 The cost of servicing UK debt is low; much lower than in Greece and other nations judged to be at risk of default

28. 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%

30. 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

32. 5 UK economy is bigger, less corrupt and more diverse and dynamic than the Greek economy

33. 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

34. Avoidable, Unfair and Regressive - Why Osborne is wrong on cuts Timing, pace and scale Growth and jobs – deficit was already falling due to stimulus UK in 2010 is not 1990s Canada Balance between cuts and tax rises is all wrong Likely to fail on his own terms – debt will rise as u/e rises and tax receipts fall further Markets are not rewarding austerity! Setting policy to please the markets is never the right thing to do

35. An alternative strategy…

36. 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.

38. 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

39. Introduce genuine reform Fix finance Reinvigorate manufacturing industry Rebuild ‘equalising institutions’ – trade unions, progressive taxation, living wages Tackle the tax gap

40. An intentionally broad message • Tackle the deficit through sustainable economic growth and job creation • Spending cuts will strike at the heart of our communities and damage the economy • The better off should pay their fair share • Ordinary people should not be forced to pay for the mistakes of policymakers and bank bosses through poverty pay and inadequate benefits

41. sboyd@stuc.org.uk EDINBURGH DEMO SATURDAY 23 OCTOBER