CBI in a twist on recipe for recovery
The CBI has, today, downgraded its growth forecast for 2011, following measures announced in the emergency Budget to tackle the fiscal deficit. The employers lobby group believes that growth next year will reach 2.0%, rather than the 2.5% forecast in June.
I won’t get into commenting on the specific figures, as different forecasts suggest different things, but the argument that a deficit busting Budget will slow growth is one that few would argue with.
My quarrel with the CBI is more to do with the accompanying comment by its Director General, Richard Lambert.
Mr Lambert argues:
“The fragile nature of the recovery is why, in the forthcoming spending review, the Government must focus its scarce resources on those areas which most galvanise growth, namely infrastructure and capital investment.”
I have led on industry policy for the TUC for the past six years, so anyone arguing for government support for infrastructure and capital investment will get no opposition from me. The trouble is, in this context, what Richard Lambert is saying is, by implication, don’t cut infrastructure spending, cut consumption spending instead. Since the CBI support the government’s deficit reduction strategy, there is no other conclusion that can be drawn.
Consumption spending might mean public sector jobs. It might mean public sector contracts, which in turn cuts private sector jobs. This was shown graphically by the leaked Treasury report which found that whilst 600,000 public sector jobs could go as a result of the deficit reduction strategy by 2015, another 700,000 jobs that are reliant on public spending could go as well.
That would take 1.3 million wage packets out of the economy – the kind of wage packets that buy new cars, or domestic appliances, or spend money in restaurants or on holidays, or on any number of non-basic items like food and rent/mortgage payments. So Richard Lambert’s members would be helped to produce all kinds of products that consumers could no longer afford to buy.
The TUC believes the deficit reduction strategy is wrong. Not only is it going too far, too fast, but it is set to hit the poorest, hardest. We believe the deficit must be tackled over time, by a combination of high growth and fair taxes. The undoubted pain must be shared. We have studiously avoided saying, “don’t cut this, cut that instead” because we know that that is a fools game. Like the CBI, we are a vested interest too, but we have refrained from trying to protect the position of trade union members at the expense of vulnerable non-trade union members in wider society.
Getting back to steady economic growth and reducing the deficit over time, while not undermining the fabric of society is the challenge. It is huge, but we cannot duck it.