The answer is that the package is in fact meaner than it first appears, apparently comprising a weekly payment that is slightly less than JSA for 13  weeks (£65) and which falls to £33 a week for the remaining 13 weeks, leaving someone on the scheme who isn’t successfully making any cash with less than they would have had on benefits. But even more worrying is the option that all participants will have the opportunity to take out a loan of up to £1,000 repayable at a 10 per cent interest rate to support their businesses.

Many loans providers appear to be private businesses, who seem likely to seek to recover payments from recipients should their businesses fail. Given that rates of small business start up failure are high (this BBC report suggests that 4 out of 5 new businesses fail), and are likely to be higher in more deprived areas and when they are headed by people without previous experience of self-employment, this suggests that a significant number of recipients may find their enterprises do not succeed and that they return to unemployment. The impact? A loan of £1,000 gaining 10 per cent interest annually that will have to be repaid out of JSA of £67.50 a week.

Given this scheme will apparently be made available to 40,000 people nationally, of which it is anticipated 30,000 will take out a loan,  this could mean that around a minimum of 15,000 unemployed people (assuming a 50 per cent rate of business failure before significant profits are generated) find themselves with a £1,000 debt to repay, courtesy of the DWP. No statistics on take up rates provide any details on the number of claimants who have taken out loans, or on rates of business success – I wonder when they will become available.

This view is an insult to the 2.68 million people who are unemployed and looking for work. There are 463,000 jobs available in the economy (down 18,000 on last year and down 34% on pre-recession levels).* There are over one million more unemployed people looking for employment than there were four years ago. The ratio of unemployed people to jobs currently 5.8. Factor in the far from perfect match between the geographical locations (see Anjum’s regular round up of the areas of the UK where there are as many as 32 claimants for every available post) and skills profiles of jobs and claimants, and that family committments mean the hours of work offered won’t fit with the caring responsibilities of every unemployed worker, and the picture becomes even bleaker.  It is simply not feasible for everyone who is out of work to find employment.

Those who are unemployed are not ‘failing to do the right thing’. They are, in the main, desperately seeking employment (and any who are not will quickly be denied benefits under current, extremely strict, JSA rules). The benefit cap (which, incidentally, will also hit those who aren’t even required under current benefit rules to be actively seeking employment) will do nothing to help them, and where people have to move from jobs rich to more deprived areas it is likely to make their efforts even harder. To moralise about unemployment when the labour market is in the weakest position is has been for 17 years is simply offensive.

*Of course the vacancy level is net, but so is the unemployment total, so while there will, of course, be more vacancies over the course of every month than the net figure suggests, this is also true of the number of unemployed people.

The main reason for this outburst of optimism turns out to be that ‘everyone feels the pain, rather than just certain sections of the community as in the Eighties and Nineties’. Apparently the ‘democratic nature’ of the recent downturn, combined with various pieces of recent ‘good news’, mean that it’s time to stop worrying. Unfortunately, this assessment doesn’t stack up.

Firstly, it simply isn’t the case that the downturn is affecting all of us equally. Those in the lowest paid work are always more likely than everyone else to lose their jobs, and during an economic slowdown their risk increases more quickly than is the case for middle and higher paid workers.  And those in the lowest paid work do not only have the highest risk of unemployment, they also face the highest risk of spending more than six months out of work and ending up in long-term unemployment.

Different areas of the UK are also feeling differential amounts of pain. The downturn has hit economically weaker areas of the country far more than those which were already better off – hence current unemployment rates of 12 per cent in the North East (with a 2.3 point annual increase) compared 6.4 per cent in the South East (a far lower increase of 0.7 points). With public sector job losses set to hit those areas which already have higher rates of unemployment, regional inequalities look set to become worse not better.

There’s also the question of who is hardest hit by the current living standards squeeze. It’s absolutely right that real wages are falling for the many rather than the few, and have been for over two years. But with the poorest fifth of households having far higher inflation rates than those in higher income deciles, and those who are underemployed in temporary or shift work more likely to be lower paid (and facing both the impacts of falling wages and not enough work), again those on lower incomes are worst affected. And of course, rising inflation costs will inevitably form a higher proportion of the income of those with lower incomes (a £20 rise in basic weekly food costs will by definition form 20 per cent of the weekly budget of someone living on £100 a week, but only 4 per cent of the weekly costs of someone with £500 a week to spend).

In addition, ongoing falls in household incomes are accompanied and exacerbated by the steepest programme of public spending reductions since WW2 – something Laws neglected to include in his article. Extensive IFS analysis has regularly shown that the distributional impacts of government’s programme of spending reductions are anything but fair.  As the TUC showed at the time of the Comprehensive Spending Review, the poorest are being affected by cuts 15 times more than higher household incomes.

The second part of the Laws case for optimism rests on various pieces of supposed good economic news. But again the analysis is suspect.

Laws is right that falling inflation will help squeezed household budgets, but if earnings growth continues to fall then real wages will remain negative, ndeed the OBR say that they are set to fall throughout 2012. And when benefit and tax credit cuts are built in, the prospects for household incomes over the next year aren’t looking great. The rise in the tax tax-free personal allowance will provide an additional £120 a year for anyone on basic rate tax, but this is an amount that pales into insignificance compared to the cuts in household incomes many will be facing (for example, a duel earner household on an annual income of £26,000 paying for part-time childcare is set to lose over £1,500 in tax credit cuts alone by April 2012).

We also hear that ‘the Government has now delivered most of its bad news’, with the continued impact of that news, and the additional, steeper and as yet unspecified spending cuts that the Chancellor has factored in for after the next election easily glossed over – and that the low pound is a cause for celebration. Of course it’s better to have lower rates, which has had some benefit for exports as well as homeowners (at least those not in negative equity and on variable rates), but with domestic consumption (which makes a far greater economic contribution) continuing to fall through the floor and growth projections worsening, it’s hard to see how it can bring much cheer.

The Daily Mail often produces factually inaccurate analysis. So perhaps it’s no surprise that an ex-Cabinet Minister would choose to use the paper to promote a misleading picture of the state of the economy. But however warm his words, for many they simply won’t ring true.

On the basis of today’s performance it appears that the Prime Minister believes the excesses of corporate Britain can be solved by less regulation, and a Cooperatives bill.  Apart from that we had some dubious sounding statistics, lots of bland assertions and an attempt to argue simultaneously for unconstrained free markets and measures to keep the unacceptable extravagances of turbo-charged capitalism in check.

But this is an impossible position, leading to clear contradictions in Cameron’s analysis.

He wants to be for job creation and growth, while cutting spending on the very programmes that help those facing unemployment and presiding over an economic policy which implicitly accepts that unemployment is a price worth paying.  He argues for ‘corporate social responsibility and environmental responsibility’ while his Government’s policies have led to job losses in green industries and a growing green lobby backlash. And he criticises the previous Government’s ‘turbo-capitalism [which turned] a blind eye to corporate excess’ while refusing to support effective policies on limiting executive pay, and failing to advocate for industrial policies which have any chance of rebalancing the economy.

The Prime Minister sidestepped defining what an era of truly ‘responsible capitalism’ would look like. But the reality is that with his policy prescriptions it’s likely to be a more unequal and less successful version of what we have at the moment.  A world of  ‘less but better regulation’ facilitating markets which are ‘fair as well as free’ where ‘the real solution is more enterprise, competition and innovation’ will simply not solve the problems that most people refer to when they discuss growing discontent with British capitalism.

Simultaneously being for both the free market approach of the last 30 years and a ‘responsible capitalism’ does not add up. Small shifts of rhetoric and policy won’t  solve the problems of falling wages, excessive rewards at the top, poor quality jobs, growing labour force insecurity and employment polarisation that the public care about.

A major ratings agency has now joined the side of those who say fiscal austerity, as the central plank of the response to the eurozone crisis, is doing more harm than good

She concludes that not one recent downgrade has been due to the ratings agency thinking the government in question was not sufficiently committed to deficit reduction, with fears of external contagion and poor future economic growth forming the basis for their decisions. 

This analysis leads Standard and Poors to conclude that:

a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues

The austerity debate will continue – but the number calling for a priority to be placed on jobs and growth is growing.

But the challenge is finding meaningful policy solutions which will improve this situation – both in the short and longer terms.   Halting the stagnation in living standards is no easy feat. And at a time when upwards of 700,000 more public sector jobs are to be lost (jobs where the only occupational groups who are paid more than in the private sector are those where workers earn the lowest incomes) with conditions reduced for those who remain, where moderately paid manufacturing jobs have been falling consistently since the 1980s (and despite the improved performance of exports in the middle of last year the jobs fall has continued, with employment levels down 25,000 annually to September 2011), where the recession sped up the increasing polarisation (pdf) of well and poorly paid work and where unemployment is currently pushing 8.3 per cent, it will be particularly difficult.

A strategy that successfully aims to create better jobs will need (to name a few) to change the sectoral balance of our economy, offset the tendency towards job polarisation (a result at least in part of globalisation and technological change) that the economy may now contain, lower the differentials between top and lower pay across the private sector and incentivise businesses to boost investment in their workforces, most likely at the expense of dividend payments to shareholders. And that’s at the same time as the arguably even more pressing problem of creating enough jobs to bring unemployment down.

Don’t get me wrong – this is exactly the direction I think we need to be taking. Evidence from abroad shows that low-paid sectors need not always be so and that better jobs and wages are possible. But they are not easy to achieve. It takes a combination of a real industrial strategy (backed up by new means of providing finance to growing businesses in strategic sectors and regions), more widespread collective bargaining, a stronger out of work social security settlement, better employment protection at work, far stronger corporate governance, better funded public services (particularly those which enable labour market participation, such as childcare and social care), massive investment in workplace skills and smart incentives for employers to invest (often all funded by a far more progressive taxation regime) to achieve real change.

The reality is that these solutions are politically challenging, inevitably medium to long-term in nature and in large part rest on a significant change in the UK’s social and political culture as well as new policy solutions. A move, for example, to bring the UK towards anything near European levels of employment protection (or indeed taxation) would meet with strong resistance from the employer lobby. Even the seemingly straightforward ask of a state investment bank would take several years to set up, and all of these solutions are mutually reinforced by each other and rest upon a healthy economy that is creating rather than losing jobs. There is simply not a free short-term quick fix that will provide significant immediate relief to large- number of middle and low incomes families.

Of course there is a clear direction of travel for the future which can and should be set out. Long-term solutions all start with short-term changes, and improved workplace rights, a commitment to setting up and funding new systems of state support for industry and moves to reinvigorate contributory social security and to temper of corporate power are all actions that could be taken now. But it would be misleading to pretend that these solutions will provide any immediate living standards boosts.

This matters, particularly in the context of recent ‘black labour’ debate, which could be read to imply that fiscal austerity is compatible with rising living standards if we can achieve wider economic change. It seems absolutely right that we need to reconfigure the way our economy is run if we are to achieve better long-term outcomes for working people, but we also need to be honest about the short-term reality, which is that with deficit reduction based on spending cuts of the speed and scale that the Government have currently set out, short-term falls in living standards are inevitable as tax credit and benefit expenditure to households is cut and little money is available for investing in boosting growth.

So what is the short-term solution? Stronger growth is needed to enable wages to rise more quickly (which a significant immediate stimulus could help to achieve) and a longer-term timescale for deficit reduction would limit the need for cuts to key family benefits (such as Tax Credits) which are adding to the incomes squeeze. Even then,  the outcome would likely be no more than a slow return of middle incomes to relative levels somewhat below the pre-crisis status quo – meaning further spending reconfigurations, changes to taxation and social security boosts may be what are needed for families to see any real change as well as, of course, significant change in the way our economy is managed along the lines set out above. While it may not be ideal that increased tax credit type expenditure is what’s required to immediately raise incomes and reduce inequality, all countries with a fairer distribution of income have more of it than we do and, as Richard has shown, decades of social democracy has failed to disprove the idea that transfer payments play a key role in achieving improved social outcomes.

Whatever decisions political parties make about their spending commitments (which will inevitably be far more constrained than in the past) over the years ahead, it does seem important to be clear about the facts. Dealing with the problem of falling living standards needs, as with most areas of economic policy, short and long-term solutions. There is absolutely a significant agenda of policy change we need to start now if we are to rebuild a fairer economy – and it is important that the policy commitments to achieve this aim match the rhetoric. But it is also vital that the promise of longer-term change is not presented as the solution to today’s living standards falls – an approach which would risk both misleading the public as to the reality of what can be achieved, as well as failing to provide any real and immediate respite to the UK’s increasingly hard pressed households. Whatever your views on Coalition style fiscal austerity, the facts are that it is simply not compatible with short-term increases in living standards – regardless of your longer-term economic plans.

So recently published You Gov polling (commissioned by the Fabian Society and the TUC, and covered in today’s Independent) has sought to look in some more detail at public views on the direction that recent economic policy approaches are taking us in.

The results are interesting. Firstly, perhaps unsurprisingly, a majority are worried about the future. But this isn’t just the next few years. When asked to think about their own financial situation 51 per cent agreed with the statement that ‘I am worried about the future – in ten years time I fear that people like me will be worse off than I am now’. Women were slightly more concerned than men (with 54 per cent and 48 per cent agreeing respectively), older people more than those who are younger and those on lower incomes more than those who are better off. But still, 44 per cent of those in You Gov’s ‘ABC1′ classification did not anticipate that people like themselves would be better off in a decade’s time.

We also asked people about living standards in general, and again 53 per cent agreed that ‘things are getting worse – I fear that future generations will have worse jobs and living standards than mine’. While more of those in lower income brackets agreed than whose who are better off, the difference was smaller than might have been expected (49 per cent of ABC1s agreeing compared to 57 per cent of C2DEs).

These responses indicate public anxiety, no doubt partly attributable to the ongoing economic situation, about life chances of younger people as well as a sense that whatever the future holds it will struggle to lead to improvements in living standards of the sort we have seen in the past. When we consider that over recent decades many on middle incomes did not benefit as much as the growth figures could have led us to expect, concern that things are likely to further worsen is significant. We have no way to tell how much change there has been in the level of worry about the future over the last few years, or how much change a more rosy short-term economic picture could bring to these figures, but such high levels of public worry about the future direction of their own and their families lives should be a major matter for policy concern.

The polling also reveals concerns about the scale of inequality in the UK, with 70 per cent agreeing that ‘the gap between those at the top and everyone else is now too wide and is bad for ordinary people’. This percentage rises to 81 per cent and 82 per cent respectively among Labour and Lib Dem voters, and remains above 50 per cent (53 per cent) for Conservatives. A large number of people, not just those at the very bottom, also think that inequality is affecting them. 44 per cent (41 per cent among those classified as ‘ABC1′ and 47 per cent of those classified as ‘C2DE’) say that the gap between rich and poor is affecting their living standards and that it is not just a problem for the poorest. British Social Attitudes data has shown public concern about inequality for years. But it is interesting in our poll to see how many people believe that inequality is now impacting upon their own lives. 

There are also some signs that, while the public accept that deficit reduction is important (although as other recent polling shows, there is also significant support for a slower timetable that would better support growth) a majority are not in full agreement with the wider decisions the Government are making on economic management. Only 26 per cent believe that businesses have too much red tape to deal with and that companies should have more freedom to hire and fire, while 64 per cent agree that workplace rights are essential and don’t mean fewer jobs. 80 per cent would like to see businesses taking a longer-term approach, even if this means less money is paid out to shareholders, and 70 per cent believe that the government should actively seek to help manufacturing companies.

But the case for progressive policy solutions to the problems of jobs and living standards does not yet seem to have been fully made. Support for state intervention in the economy is relatively low (only 31 per cent agree that the government should play a more active role in supporting the best businesses, while 41 per cent agree that ‘in the past, government intervention has usually ended in tears’) and the sectoral balance of the economy is not a huge matter of public concern: 58 per cent say that it doesn’t matter what we do as long as successful companies make profits. Of particular interest given the recent ‘black labour’ debate, only 48 per cent agree that the government should ‘spend more on transport and infrastructure, even if it means raising taxes or spending less on other services’. Overall, 37 per cent think that before the recession we were heading in the right direction, 31 per cent disagree and 32 per cent don’t know.

Perhaps this is no surprise, as the BSA data shows – with persistent lack of support for progressive taxation and redistribution despite ongoing worries about wealth inequalities – it would be naive to assume majority public support for evidence based solutions to widely held economic concerns. But the high level of ‘don’t know’ responses may also indicate an opportunity for those who want to make the case for a new approach to managing the UK’s economy as the means to address public anxieties and persistently poor economic data.

But it also provides a warning: with public concern about living standards so high, and understanding about the impact that direct government intervention can have for the economy low, this polling would seem to suggest that an appealing electoral strategy will have to find ways to provide short-term boosts to jobs and living standards (rather than, for example, choosing to prioritise medium term growth by funding greater state investment in industry on the back of tax credit cuts) as well as setting a strategy in place for longer-term economic change. As I have recently argued in an article in Fabian Review, key to achieving public support for a new growth agenda is showing that such a policy will make a real difference to people’s lives. Perhaps I should also have added that the medium term nature of many of the changes that progressives believe could lead to economic renewal means that we also need more creative thinking about how shorter-term improvements to jobs and living standards could possibly be achieved in a constrained fiscal environment, as well as focusing on how we can move to both higher and better growth in the longer-term.

2012 will start with economic growth slowing to a near standstill, unemployment rising and inflation still high. The Government are hoping that they can continue to present the alternative as even worse – but with high public anxiety about jobs, living standards and rising inequality this is an increasingly risky approach. Of course we have to recognise the importance of rebalancing the public finances. But economic management is about more than the balance sheet . Even when spending is constrained there are real choices to be made about how available resources are prioritised, and how the proceeds of what growth we have are distributed, as well as how current policy can shape the long-term economic direction of the country. And on this agenda, our polling suggests that there may be public appetite for a more ambitious agenda than the Government is proposing.

Today’s data reveals that over the first year of its operation 3,345 employers have taken advantage of the scheme (1% of the total anticipated number) and that the NICS holiday has been claimed for 12,411 employees (2% of the anticipated number of jobs).

What’s more in the region that currently has the highest unemployment rate (the North East where unemployment is 11.7%) only 587 employers have used the scheme, supporting 571 jobs.  To put this in some context over the same period of time the unemployment level in the NE has risen by 24,000 and the employment level has fallen by 23,000.

Far from “ensuring all parts of our country contribute to a more balanced and sustainable economic future” this scheme has created barely no jobs – as we predicted at the time. But with unemployment now at 2.63 million there is no pleasure in saying we told you so.

It is true that between Jan-March 2010 and July-September 2011 (the figures released today) private sector employment levels role by 581,000. But 54% of the rise (314,000 jobs) took place between Jan-March 2010 and April – June 2010, and the election was in May. It is fair to assume that at least a third of the change in private sector job levels took place in April 2010, and given the Government wasn’t formed until the 12th of May, it’s hard to see how the Prime Minister can take responsibility for jobs change over that month, before any of his policies had been agreed.

A far fairer and more accurate assessment would be to look at change in employment levels from April – June 2010 (the actual period in which the election took place, rather than the three months before it) to now. That shows that 267,000 private sector jobs have been created, and 305,000 public sector posts have been lost.

On balance, you can see why the Prime Minister has chosen to move his starting date backwards.

This assessment has always been questionable. The costs of Government borrowing could be affected as much by the Eurozone crisis and the poor availability of investment opportunities elsewhere in the UK’s private sector (as a result of poor growth expecatations in the future) as by a bond market endorsement of the Chancellor’s austerity plan. And at any rate poor UK growth is looking increasingly likely, as Duncan has set out, to unsettle the ratings agencies. But presume for a second that a significant government stimulus did lead to a small increase in the rates we pay for our debt, what do the OBR say would happen?

The answer is provided on page 179 of the OBR’s most recent economic and fiscal outlook. It contains a scenario analysis of the economic impacts the UK would be likely to experience should there be significant variation in the interest rates that the Government has to pay on future borrowing and some existing debt.

The OBR consider how the economy would be affected if ‘the central forecast of gilt rates were to suffer a shock’, examining the implications of  increases of 50, 100 and 150 basis points (0.5, 1 and 1.5 per cent increases in the rates paid on Government debt), which would make Government borrowing more expensive. This analysis is significant – it essentially considers what would happen if the worst case scenario the Chancellor is continually reminding us of (an increase in the cost of Government debt) were to come to pass.

For this reason, the results are politically interesting – the OBR conclude that:

These illustrative shocks to gilt rates have a relatively small impact on the chances of meeting the mandate and supplementary target. This is because an increase in rates only applies to new debt issuance, and the UK has a relatively long average debt maturity for conventional gilts of 13½ years, and because new issuance is projected to fall as borrowing declines. Therefore over a short horizon, such as our five-year forecasting period, the impact of a shock to the average nominal rate on gilts is relatively small.

In other words, an increase in the cost of new Government borrowing would have a relatively small impact on the overall cost of servicing our national debt, because most of it is already held over a long-term period at agreed interest rates that can’t be changed. And – although this is unstated -  if greater borrowing was to stimulate the economy and allow it to grow more quickly, the overall costs of servicing Government debt could fall as we’d be be able to borrow less and pay off what we owe more quickly.

But this reading of the situation would depend on there being scope for the speed at which our economy is growing to increase in response to a stimulus package – and as widespread coverage at the time suggested, in the OBR’s assessment the amount of spare capacity in the economy has reduced, meaning that they believe the downturn has caused more lasting economic damage than they previously assessed. But again, closer reading of their forecast provides a more nuanced view.

The OBR assessment considers whether there is evidence of a significant increase in the structural rate of unemployment or of employment moving from the most productive sectors of the economy to poorer performing areas, concluding on both counts that these changes are unlikely to have taken place. This leaves one key potential driver of  poor economic performance (and higher than expected lost capacity): limited access to credit. The OBR conclude that:

“Analysis suggests that an impaired financial sector can lead to low productivity growth and that downturns associated with significant disruption to the financial sector are often characterised by large and persistent output losses”

This is hardly a rosy picture but it does suggest that if access to credit could be improved, potential economic output could also increase.

And it is also vital not to overstate the OBR’s assessment of lost economic capacity – even if there is less scope for the economy to grow than we previously thought (by no means an uncontested fact – as the OBR say there are ‘enormous uncertainties’ around any such assessment) that does not mean that there is no potential to boost growth now. Even the OBR’s arguably conservative view is that we still have an output gap of 2.5 per cent – there is plenty of potential for growth rates to increase over the years ahead (and there could be even more if access to credit could be improved).

So the OBR forecast shows there is definite scope for increased demand to boost growth; and that even if – in the worst case scenario – increased government stimulus was to lead to a small increase in the interest rates we pay on our national debt (a contentious point in itself) the impact on the overall costs of government borrowing would not be significant. Plan B is possible – the OBR say so.

Now is a great time to apply for one of the tens of thousands of Christmas jobs which are being advertised. Temporary work gives you an idea of the kind of career you might want, looks good on your CV and also gives you something to talk about in job interviews. It can even lead to more permanent employment.

These comments appear to indicate that Chris Grayling thinks many unemployed people might hesistate to apply for jobs, or are not aware that being in work looks good on their CV. But he needn’t have worried – miraculously 80,000 people had already taken action before he dispensed his advice. It’s therefore unfortunate that 62,000 of them (77%) will find they are unsuccessful.

It may not strike everyone as the best time to start looking for work. There are 5.6 unemployed people for every vacancy nationally and some areas of the country there are as many as 25 people out of work for every available position. The vacancy level has barlely recovered since the recession. Solving Britain’s unemployment crisis will require more than issuing patronising comments to those desperate to find jobs.

Given this challenging outlook it is perhaps no surprise that debate about the causes of our economic stagnation is raging. While the Government maintains that the Eurozone is to blame the evidence is fairly convincing that our problems significantly pre-date its difficulties.  But the argument doesn’t stop there – the second question is whether the Government’s spending cuts can legitimately be blamed for our current mess.

My answer is that they are at least part of the problem. It would of course be absolutely wrong to place all of the blame for our deteriorating economic circumstances on the Government’s programme of spending reductions. High inflation, driven not just by rising VAT but also by high import prices (the result a rise in global commodity prices, a weak pound and possibly the long-run loss of domestic capacity to make the products we are still importing from overseas) has played its part. And ongoing problems with access to credit are also undoubtedly causing difficulties. But it would also be misleading to deny that spending reductions are themselves limiting growth and hindering our capacity to boost demand in response to greater than anticipated economic weakness.

What is the evidence that backs up this case? Firstly, the OBR forecast recognised that cuts would limit output (for example, the OBR’s June 2010 Budget forecast assumed that the increase in the standard rate of VAT from 17.5 per cent to 20 per cent would reduce the level of real GDP in 2011/12 by around 0.3 per cent). This is unsurprising – even the IMF recognise that fiscal contractions increase unemployment and that as a result of global austerity and the financial crisis ‘fiscal consolidation is now likely to be more contractionary (that is, to reduce short-run income more) than was the case in past episodes.’

But it also appears that the cuts are having impacts beyond those the OBR’s March forecast anticipated. The economy has performed more poorly than they foresaw, yes against inflation but also against public sector job losses (111,000 lost in the first quarter against an OBR projected 20,000 over the entire year, leading CIPD to call for a moratorium in public sector job cuts), claimant unemployment (already 37,000 (2.4 per cent) above the OBR forecast for Q3) and earnings (forecast to be 2 per cent in Q3 but currently running at 1.8).  Over the last ten months independent economists have also become far less positive about the role that domestic demand will have for growth, with it now forecast to subtract 0.4 per cent from the economy – in contrast the OBR forecast anticipated private consumption and business investment growing throughout this year.

So it is perfectly feasible that the OBR could have underestimated the impact of spending reductions on the economy and that cuts are leading to falls in consumer and business confidence, reductions in real household incomes (as the public sector wage freeze, tax credit cuts, benefit reductions, higher unemployment and the VAT increase bite) and levels of job loss that were beyond expectations at the start of the Government’s austerity drive.

But even if you don’t accept that poorer than expected economic performance is anything to do with spending reductions, it is beyond doubt that sticking to their plan to reduce the deficit over the course of one parliament (and to have debt as a proportion of GDP falling by 2015/16) is hampering the Government’s ability to respond to it. As Samuel Brittan has recently written in the FT:

These [austerity] programmes are likely to fail in their own budget-balancing terms because of their kickback effects on growth…What the economy is short of is demand

The growing recognition of our demand problem has led many across the political specturm to call variously for the austerity programme to be slowed (The Economist), for immediate stimulus measures to be taken (the ITEM club) or for the OBR to be given responsibility for determining the pace of deficit reduction based on the economy’s strength (IPPR).  And ideas for what the stimulus could include are also many – for the Government to support direct lending from the Bank of England to small businesses (George Magnus), a two year introduction of 100 per cent capital allowances for manufacturers (EEF) and  cutting VAT to 5 per cent in tourism and construction (FSB). Whatever your position on specific ideas the facts are that there is an increasingly broad consensus around the need for the Government’s current plans to be revised to support short-term growth and economic recovery.

Everyone hopes that the Q3 GDP figures are positive – although with the consensus of independent forecasts now that the economy will only grow by 1 per cent over the entire of 2011 they seem unlikely to be strong. But whatever the latest growth figures the facts are that they could be better if the Government changed course.

This is a human tragedy. Every month that growth remains weak unemployment will rise, wages rises will remain muted and more of our future productive capacity will be lost. Every over zealous cut leads to unnecessary job losses and reductions in vital services and support – poorer education for young people, fewer investments in regional infrastructure and less help for victims of domestic violence.  Only those who truly believe that the Government really has no choice in cutting as far and as fast as it has chosen to do can possibly think that we are heading in the right direction.

• The number of women aged 16 and over in the population rose by 194,000 from 25,494,000 to 25,688,000
• The number of women aged 16 and over in work rose by 25,000 from 13,489,000 to 13,523,00
• The working age female employment rate (16-64) fell by 0.1 per cent from 65.5 to 65.4
• The number of women aged 16 and over unemployed rose by 77,000 from 992,000 to 1,069,000 – the highest level since 1988
• The unemployment rate for women aged 16 and over rose by 0.5 per cent from 6.8 per cent to 7.3 per cent – the highest rate since 1994
• The number of women in part-time work who want a full-time job rose by 99,000.

Who knows which time point the PM has used to come up with his 50,000 increase. But wherever you measure from the key issue is that while there are more women in jobs, there are far more women aged 16 and over in the population, far more women facing unemployment and women’s chances of being in work have fallen. The unemployment level is the highest it has been for 23 years. The UK is facing an unemployment crisis and to pretend otherwise is to simply to deny reality.

It is clear that we are seeing the effect of the international economic crisis on the UK labour market.

The premise is presumably that levels of  job creation and job loss in the UK are being driven by falls in confidence resulting from the ongoing  Eurozone crisis and slowing global demand. This is simply incorrect. Today’s figures relate to June, July and August 2011. This is a period that followed nine months of economic stagnation and the start of the sharpest cuts in public spending in decades. Unemployment is a lagging indicator – the data are now reflecting the consequences of our stagnant and depressed economy.

What is the evidence? Firstly, in Q2 2011 the public sector lost 110,000 jobs. Over the last year public sector employment has fallen by 240,000. The data are starkly clear: public sector cuts are driving rising unemployment. And as public sector spending is cut workers in the private sector also lose out directly – the staff of BAE are acutely  aware of the impact that defence cuts will have for their livelihoods – as well through reduced spending in their local economies. The North East, an area of high public sector employment, currently has an unemployment rate of 11.1%, and across the country on the year we have now lost rather than gained jobs with employment levels down 47,000 annually.

The poor jobs data is also a result of falling household spending which accounts for around 60% of GDP and is being squeezed by high inflation, a consequence in part of a 2.5% rise in VAT, and also by wage freezes (in the public sector and parts of the private sector), low pay rises (an outcome of weak economic growth) and Government backed cuts in tax credits and benefit levels, as well as by high unemployment.  Household spending is consequently at its lowest level since the second quarter of 2010. This is having a direct impact on job losses in retail (down 38,000 over Q2 by the workforce jobs measure) as well as depressing demand across the economy: household consumption made a negative contribution to GDP growth of -0.5 in Q2. It is true that our exports are failing to make a significant economic contribution and that world trade has slackened, but the evidence also shows that Government austerity is making a significant contribution to the living standards squeeze and to our faltering economy.

And of course there is a direct link between levels of output and levels of unemployment. Our economy has grown by 0.1% over the last 9 months for which data are available, leaving the Chancellor facing a £50bn growth gap in his deficit reduction plan. Earlier this year many economists wondered about ‘growthless jobs‘ – recognising that rising employment at a time of slow or no growth was difficult to explain. We now have the answer – our economy is generating neither and the impacts of the slow down are starting to show in the labour market, with millions of households up and down the country facing increased uncertainty over their future employment prospects.

What’s more, the scale of the economic slow down is not inevitable. Of course business investment, consumer and business confidence and international trade are all impacted by the darkening global picture. But it is also the case that austerity is making things far worse. The Government has actively chosen to attempt to reduce the deficit over the course of one parliament and to do so by placing the focus on public spending cuts. This is directly leading to job cuts and reduced household spending, and more bad news is to come. The latest data show that Government spending in Q2 still made a positive contribution to growth (indeed without it our economy would have shrunk in the last quarter), as the cuts speed up their economic impacts will increase.

The Government’s strategy is unlikely to work – the costs of higher unemployment and foregone tax revenues are significant and the growth gap is already opening up – but it is simply wrong to argue that its implementation is inevitable. The Minister for Employment is presiding over an employment crisis. It is time to stop making excuses and take some action.

The IFS acknowledge that Universal Credit will substantially reduce child poverty. It will make work pay for the first time, tackling in-work poverty and lift over one million people, including 450,000 children, out of poverty. Our wide-ranging reforms will have a dynamic impact on some of the poorest families, encouraging people into work, many for the first time, and improving the life chances of children at an early age.

They are partly right. The IFS do acknowledege Universal Credit (UC) will have some positive concequences. But the press release accompanying their report is titled ‘Universal Credit not enough to prevent a decade of rising poverty’ – suggesting they question its overall impact.

The IFS have ‘compared the scenario in which Universal Credit is not introduced with the scenario in which Universal Credit is fully in place in 2014′. This shows UC will lower relative child poverty by 450,000. But before UC is even introduced (in 2013) the IFS also expect a further 200,000 children to move into relative poverty. And between 2015-2020 they expect child poverty levels to rise further, despite UC’s existence. Furthermore, the report concludes that the Coalition’s tax and benefit reforms to date will increase relative child poverty by 300,000 by 2013. There is therefore no suggestion in the report that UC is the answer to reducing child poverty rises – its impacts do not even offset the cuts that the Government has already introduced.

The remaining question is therefore whether Universal Credit can be expected to have any ‘behavioural impacts’ beyond those the IFS have modelled (i.e. significant moves into work among the parents of children who would be, under the IFS model, in poverty). The Government have published little analysis of what they believe these impacts could be, but in their White Paper on UC DWP do state that ” we anticipate that there will be savings from the dynamic labour supply effects, with Universal Credit reducing the number of workless households by as much as 300,000″ further recognising, in carefully worded language, that they “believe that there is no reason why this increase should not be brought about within two to three years of implementation .”

So, if UC led the number of workless households to fall by 300,000 by 2016, as the DWP expect, would the IFS’s analysis substantially change? There are currently 3.88 million UK households with at least one member aged 16 to 64 where no-one is currently working, and 1.84 million children live in such a household. If that level fell by 300,000 it would clearly have some impact on child poverty rates. But there is much we don’t know about the Government’s figure: how many of the households have children? How many children does each households have? And is the presumption that all of the 300,000 will move into work that is paid enough, and provides enough hours, to move the household out of poverty (once incomes are equivalised for household size)?  As there is no published modelling we don’t know, but some quick analysis gives a few indications:

• ONS statistics show that 27% of workless households have children in them, a percentage that, if applied to the DWP’s 300,000, would leave 81,000 households with children.
• In addition of all working-age adults in work we know that 28% are in poverty.
• Deduct this percentage to the 81,000 and you are left with a speculative total of 58,320 households with children in them who will, according to the DWP’s stated assumptions, move into work that pays them enough to leave poverty.
• Assume that each household has 1.9 children – that gives you 110,808  children leaving poverty.

So, it seems a fair assumption that even the most optimistic analysis of UC’s impacts only suggests that around an additional 111,000 children are set to be lifted out of poverty – a change that would still leave poverty levels in 2020 significantly above 3 million.

Even worse, the reality is that the Government’s analysis of UC’s potential impacts is already likely to be significantly overstated. The key determinant of labour market prospects over the next decade will be the number of jobs that are being created – a measure that is currently heading down with employment rates not forecast to even recover to pre-recession levels for many years. In addition many believe that the most likely impact of UC will be that some people will reduce their hours, and some will be able to work for a few hours when previously they could not.  Neither outcome has significant impacts on poverty rates.

And it is also worth remembering that the IFS research is based on the same figures and assumptions that are used for modelling the public finance figures – so it seems a little odd for the DWP to criticise IFS for using the Government’s own chosen method of attempting to assess long-run trends in employment and public spending.

The irrefutable conclusion is that the IFS’s analysis is correct -  if current policies remain in place 24% of children in the UK will be in poverty by 2020.

The statistic is referenced in this report, and originally comes from this article. The methodology used is explained here, which reveals that the source of the data is the Harmonised European Time Use Survey. The UK data in this survey is described here: it is from the UK Time Use Survey, a household survey that was carried out 11 years ago.

A few key points about the survey:

• it is not recent, it was produced in 2000, a point at which the labour market was booming and Jobcentre Plus was not fully rolled out across the country;
• it is not a survey of JSA claimants, the unemployed people in the sample are those who classify themselves as unemployed according to the ILO definition (many of whom will not be claiming JSA);
• this analysis of the survey also shows that unemployed people spend an average of 22 minutes a day volunteering, 23 minutes a day on childcare and an average of 16 minutes a day in education and that employed people spend an average of no time at all on jobseeking;
• the same analysis shows that unemployed people spend an average of 36 minutes a day in work and an average of 7 minutes a day traveling to work – indicating, in the words of the researcher, that ‘some caution is required in interpreting the results’.

Policy Exchange are clearly well within their rights to argue that some unemployed people do not look hard enough for work, and that the Jobcentre regime is too lax. I disagree with them: people claiming JSA have to visit a Jobcentre to sign on every two weeks, at which point they have to demonstrate they have taken action to comply with a specified jobseeker’s agreement.  If they refuse job offers, refuse to apply for jobs (which can be up to an hour and a half’s travel time away), or fail in some other way to comply with their agreement, they can be sanctioned, losing their benefits for at least 13 weeks. Those who are simply suspected of not doing enough can be required, at any point in their claim, to undertake 30 hours a week of ‘mandatory work activity‘, as well as continuing to engage in jobsearch activity on top of their forced community work placement. Living on JSA is also very difficult – it is only £67.50 a week. As Richard has shown, the UK social security system is one of the least generous in the developed world.

But whatever my difference of opinion with Policy Exchange, I worry that their use of statistics is serving to unfairly misrepresent unemployed people (although I know their motives are genuine – we all want to see more people in jobs). But in a week when Ed Milliband announced that Labour would reward those who show ‘responsibility’ by working (thereby implying that the irresponsible are actively choosing to avoid employment) and The Telegraph reported that the ‘workshy [are] to go to the back of the queue: coalition ministers want to stop those who are hard-working being disadvantaged when social housing is allocated’  unemployed people do not need to be vilified further. Unemployment has not risen by over 800,000 in the last three years because those out of work suddenly became less motivated – it’s high and rising because there aren’t enough jobs. Presenting those who are out of work as lazy is simply unfair – and is not substantiated by Policy Exchange’s data.

But our key finding is that over the last decade the public sector has been responsible for the vast majority of net female jobs growth (84%), whereas for men it has only created 39% of net new jobs. Not only do women look set to lose a lot of work, but it’s far from clear where they will find new jobs.

The poorer rate of private sector jobs growth over the decade is clearly partly a result of the global recession. However, the sharp gender divide shows the extent to which women’s employment rates have been linked to new public sector employment opportunities. In some regions the position is even starker. In the East and West Midlands, and in the South East, private sector net job creation for women was negative.

The proportion of all employed women, and men, working in the public sector has risen over the decade – from 31% to 34% for women and from 16% to 17% for men. No doubt these figures are now set to fall – with a great deal of human pain in the process. Whether those who lose their jobs will find more work is another question: our analysis also sets out the extent of the ongoing fall in manufacturing employment and the hit that retail jobs took during the recession. The harsh reality is that at the moment it really is hard to see where the new jobs are going to come from.

As the issue seems likely to boomerang back into public debate before long, I thought I would set out the arguments that I deployed when making the case for it to be kept. There are probably many others – please let me know!

While we don’t yet know if the 50p tax is raising money the Treasury forecasts, which are based on a model which takes account of some taxpayers taking avoidance measures, estimate that by 2014/15 it will raise a cumulative £12.6 billion. This is not an insignificant sum, equivalent in fact to more than the entire annual cost (by 2014/15) of the Government’s social security and tax credit cuts. This cash is badly needed. If it’s being collected then losing it will likely lead to further cuts, and if it’s not coming into the Treasury then presumably greater anti-avoidance measures are needed to close down the loopholes.

Some argue that people will not simply avoid rates, instead they will leave the country or stop creating as much wealth. But there is no evidence of large-scale migration from the UK as a result of higher tax rates, despite lots of people being keen to discuss their intentions few seem to follow through on the upheaval of moving their entire families abroad where, as Alan Manning points out, changes in exchange rates are likely to affect their incomes far more than tax rates.

Similarly, the argument that a higher marginal tax rate will reduce job and wealth creation doesn’t stack up: most of the 1% of workers (328,000) paying the tax work in finance or are in senior posts in large corporates, very few are small businesses (who will be classified as limited companies and so have lower tax rates in any case) and in many cases the effective tax rates of eligible workers will (as the TUC showed in The Missing Billions (pdf))  be lower as a result of the high level of personal tax avoidance in the UK.  The idea that those who do invest in jobs and growth in the UK are driven by whether or not a small number of their employees will have to pay a 50% tax rates on earnings above £150,000 is also misguided: as the Government’s own evidence shows inward investment is dependent upon a huge range of factors including support for R&D, the strength of the UK’s universities, the skill base of the population and the likelihood of long-term returns in the chosen investment industry. The potential tax rates for corporate CEOs don’t feature as a determining factor.

As Alan Manning further pointed out in the FT (£) it also seems odd to assert that marginal tax rates, rather than incomes earned, affect incentives to work. Those earning over £150,000 (many of whom will have earnings significantly above this level) are still very well remunerated, even at a 50% tax rate.  It’s also interesting to note that the Government’s plans for Universal Credit rest solely upon the idea that marginal deduction rates of 65% will provide significant work incentives for unemployed people claiming benefits. I don’t buy the logic of this argument – but it does seem odd for Ministers to be simultaneously suggesting that people earning £200k a year will work less for an additional reward of £25,000 (50% of the £50,000 above the first £150,000 of their earnings) compared to £30,000 (their additional income at a 40% tax rate), while unemployed workers on minimum wage will apparently be highly motivated to move into full-time work by an income of around an additional £100 net a week.  Perhaps, although Ministers on a mission to transform the labour market with UC may not believe it, motivation is significantly more complex and based on more than marginal returns.

Manning also highlights the separation between performance and rewards at the top of society: put simply the existence of a significant relationship between effort and rate of return is undermined by the growing divergence between executive pay and performance. Recent research for the High Pay Commission (pdf) showed that in the past ten years, the average annual bonus for FTSE 350 directors went up by 187% while the average year-end share price declined by 71%. This suggests that while the amount of effort being put in has shown little change, rewards have rocketed. Presumably earning a little less will not, in these circumstances, therefore have a significant impact on performance – for those on the top salaries evidence suggests there simply isn’t a significant link.

And finally there is, of course, a strong case for progressive taxation where the richest pay a higher proportion of their incomes in tax than those who are worst off. Those who are the best off have higher overall incomes so (particularly at the moment when public spending it tight) it is fairer that they pay more. This is not the politics of envy, it is recognition that we all need to make a fair contribution to the social goods upon which all our livelihoods rely (the roads, hospitals and police forces which markets need to function) and and that individual effort is not the only factor responsible for determining what we earn – our skills, the opportunities we have as we grow up and also pure luck also play a significant part.

When the political right ask whether this view justifies any inequalities at all, best to return to philosophy. Rawls (hat tip to my colleague Richard Exell for refreshing my political theory) is right that permissible social and economic inequalities are those which ‘benefit the least disadvantaged the most’ – so some inequality is necessary to ensure motivation and reward hard work and prevent overly high taxes limiting productivity (and therefore output for all of us, including the worst off). But, for all of the reasons outlined above, we’re a long way from that point just now. The UK could be significantly more equal before the worst off start to lose.

And there is also a strong economic case for greater equality. As the TUC set out in this research (pdf) by Howard Reed while the conventional economic view asserts that inequality is a price a country has to pay to achieve economic success, a comparison of the performance of equal and unequal countries does not back this up. There is also evidence that some redistribution enhances economic performance – as health and educational outcomes improve and social mobility rises, better enabling society to make use of everyone’s skills and talents.

The bottom line is that most people in the UK (78%) think the gap between the rich and poor is too high. It is. The 50p tax rate is a small way to make it better, while making our country both fairer and more economically efficient. The fight is on to keep it.

Leaving aside the fact that there is little evidence that enterprise zones will work (and that the Government’s own job creation targets for them are extremely low), his sentiments will be shared by many – the importance for our future economic capacity, and for the future livelihoods of BAE’s workers, of enabling those facing redundancy to move back not simply into employment, but employment which makes best use of their skills and pays them a fair wage, is self-evident.

But the facts are stark. Despite much talk about re-balancing manufacturing has still failed to buck the trend of the last 30 years and continues to show net job losses rather than gains, with employment levels down 11,000 over the last quarter and by around 1.5 million over the last decade. Furthermore, work from IPPR has highlighted that only the most optimistic of forecasters anticipate any rise at all in manufacturing employment over the years ahead with higher output forecasts (for example from the EEF) accompanied by a recognition that employment levels are likely to continue to fall.

There are multiple reasons for this likely trend, but key is that the high-tech manufacturing sectors where the UK may be able to steal the march on competitors is less employment intensive than traditional forms of manufacturing employment and that emerging economies with low labour costs now have the comparative advantage when it comes to manufacturing many goods we previously produced. While significant state support for manufacturing, in the form of smart industrial policy and increased access to investment capital, has clear potential to help the key point is that even if the sector recovers some of its lost ground, the likelihood (without extensive policy change) of manufacturing employment even returning to levels seen in the early 2000s is, in the assessments of many forecasters, remote.

Why are these jobs so important? As well as ensuring a diverse balance of employment opportunities and industries within the UK’s economy, manufacturing  jobs generally pay closer to median (and often well above) than minimum wages as well as having lower pay differentials within companies than is the case in many other sectors.

Good wages boost demand in local economies and good companies invest more, provide workers with access to training, are far more likely to offer well-paid apprenticeships and boost employment levels more widely through their supply chains. Good work is also good for health (pdf): bad work is not. And more widely, with the number of jobs where workers are paid at less than a third of the median  having doubled over the last 20 years, and growing wage inequalities and concentrations of wealth acknowledged (in research published by the IMF) to have contributed to the financial crisis, our economy needs more good jobs more than ever before.

But if current trends suggest manufacturing is unlikely to see significant jobs growth, and the public sector (another source of middle income skilled employment for many over the last decade) in retrenchment, where are the good jobs going to come from? IPPR conclude that if current trends persist the employment recovery will be slow and that “what jobs growth does occur, therefore, is likely to be found in non-financial business services and in other parts of the service sector, such as adult social care”. Some of these jobs will be good, many will not. And on current projections there won’t be anywhere near enough of them to go around.

The potential consequences for working people are clear. As analysis undertaken by the Work Foundation suggests, the stark truth is that the reality for many workers affected by today’s devastating announcements may, unless we can achieve deep -seated change in the structure of our labour market, be challenging. Tracking workers following the closure of the MG Rover plant at Longbridge, the Work Foundation study found that: “many of the ex-MG Rover workers are now in jobs that pay less, and that are worse than their jobs at the MG Rover plant…The evidence suggests that this will have an adverse impact on general well-being as well as physical and mental health.”

So while local Conservative MPs, and Labour politicians, bemoan the lack of decent work, no one yet has a plan for how on earth to get more of it. Enabling jobs growth in sectors which generate better jobs, and acting to make existing work better, will need radical solutions: a comprehensive and significant industrial strategy providing state support for the sectors where we know better jobs can be created, active labour market programmes which learn from the best in the world, stronger requirements upon employers to provide training and to pay fairly, significant corporate governance reforms to secure fairer pay distributions within firms, better rights at work and yes, stronger unions.

At a time of squeezed public finances when unemployment is above 2.5 million and rising this may seem fantastical. But if we don’t at least honestly spell out the scale of the challenge, as well as the potential economic returns of significant labour market change, we will have even less chance of achieving it.