It again shows that Wales has leadership which is standing up for ordinary working people, while the UK Government continues to plough ahead with unfair public spending cuts and lets the banking sector off the hook. In contrast strong social partnership between the Wales TUC, the business sector, public sector employers and the Welsh Government is saving jobs and services in the face of UK Government cuts.

First Minister of Wales Carwyn Jones AM said:

“Some parts of the financial services industry bear a share of responsibility for our current economic difficulties. I am not anti-banking and I am not negative towards the responsible financial services industry. On the contrary, finance is an important sector of our economy and I want to work with the sector to bring more finance jobs to Wales. But I think a Robin Hood Tax – a tax on financial transactions – set at the right level, is perfectly reasonable and offers an important practical way for the finance industry to demonstrate its contribution to society.

Social responsibility is well understood in Wales and I am confident that people across the country, and across the political spectrum, will endorse this tax.”

The Wales TUC welcomes Carwyn’s support for the Robin Hood tax at a time when the UK Government continues to plough ahead with unfair public spending cuts and let the banking sector off the hook for the financial crisis. It again shows that Wales has leadership which is standing up for ordinary working people while the UK Government continues to plough ahead with unfair public spending cuts and lets the banking sector off the hook. Signing the UK up would boost the Robin Hood Tax and raise around £35bn a year to combat poverty, invest in green jobs and help pay off the deficit.

The key findings of ‘Living on the Edge’ are as follows:

• The value of NJC earnings adjusted for inflation is now at a shocking 10% below its 1996 level
• This is the result of a combination of low or below inflation increases since 1996, a pay freeze since April 2010 and the employers’ failure to pay up on the Chancellor’s promised £250 for those earning below £21,000
• The value of earnings has fallen by 13% since 2010 alone
• 38% of part-time and 8% of full-time workers earned less than the Living Wage of £7.20 in 2011
• 280,000 part-time workers earn less than £6.63 pence an hour
• 160,000 full-time workers earn below £8.72 an hour
• Hourly earnings for all full-time and part-time workers throughout the pay scale are lower than the rest of the public sector
• Three quarters of full-time workers earn less than their private sector equivalents too
• In contrast, mid-point basic pay for chief executives of district councils rose by 50% between 1998 and 2007 and by 75% for upper and single tier councils
•  A further 6% increase in 2008 saw CE’s of districts enjoy a rise of 27% over 10 years and those in upper  and single tier councils a pay increase of more than 50%
• Outside of London 84% of the lowest paid council workers live in the council area in which they work and 50% in London – a much higher proportion than for the rest of the public or private sectors
• More of the highest paid live and work in the same council area than in other sectors too
• 440,000 workers are in the lowest quarter of earnings and many are dependent on in-work benefits to survive
• The only ‘local government’ households on  lowest quartile pay where net earnings are above the poverty line are those with a single adult working full-time and a couple household with two earners
• For all equivalent households with a dependant, net earnings are at or below the poverty line

Presented with the above findings, few would guess that they depict the pay profile of local government workers – except perhaps for Chief Executives. In contrast to the popular image of the over-paid and over-pensioned pen pusher, ‘Living on the Edge’ tells a tale of the real poverty faced by many UNISON members working on the front-line . The same people – mostly women – who are increasingly covering posts left vacant by the myriad redundancies falling on councils. The same people who regularly work unpaid overtime to finish the job. The same people who told us in a 2011 survey that they are reducing spending on food shopping, home maintenance, holidays and going out. The same people who once kept local economies going with their spending power.

Even more shocking is the fact that the findings in ‘Living on the Edge’ describe only part of the squeeze on our members’ pay and conditions. Encouraged by the NJC employers, some councils are cutting pay even further at local level. Others are halting pay progression and many are stopping unsocial hours payments to already poorly paid care workers and others. Car allowances for social workers, home care workers and environmental health officers have been slashed in a majority of councils and others are also charging for parking at work.

‘Living on the Edge’ also issues a challenge to the Coalition’s misplaced belief that public sector pay exceeds private sector pay and needs to be brought down to its level. It also shows that earnings cannot be ‘regionalised’   – ie reduced further in the North – without central government incurring the costs of increased in-work benefits as more of our members are pushed into poverty.

What will it take to win some respect for our members? The ‘hands off’ approach taken by CLG to all matters of pay and remuneration (other –of course – than wanting to increase LGPS contributions) has to end. Government needs to recognise that further cuts of the kind inflicted so far cannot be passed on any longer to a workforce stretched beyond belief and decency. The Local Government Employers need to know that loyalty and motivation are fast disappearing  and working for the council is no longer a positive choice but is becoming an act of last resort. And without our members’ earnings, local economies will sink further into crisis.

It’s all been said before of course and so far no-one has listened. If there is no pay offer on the table tomorrow and the LGPS becomes more expensive with worse benefits, who knows what will happen? One thing is certain, it won’t be pleasant – for anyone.

The liberals (who appear to be led by the French-German political hybrid Merkozy) value sound money, balanced budgets whatever the economic weather, stringent austerity and cuts in workers’ rights and wages. They believe growth will follow, presumably after we touch rock bottom and the only way left is up. The neo-liberals, on the other hand, at least recognise that this is an unpalatable path to tread. They believe that growth and public sector austerity can go hand in hand, and want to unleash the animal spirits of the markets by deregulating, liberalising and cuts in workers’ rights and wages (they’re not that divided, you’ll notice, about what to do with us!) 

For Cameron, this is partly another example of this week’s positioning exercise (David Laws’ intervention on Newsnight yesterday, far from indicating splits in the coalition over austerity and growth, was exactly on message), and part of what is leading groups like the G20 to adopt the right words on jobs being the top priority, growth being vital and so on. But the recipe for action is still cuts in public services and reduced unit labour costs (at every level except the boardroom, of course!), with added emphasis on deregulation, liberalisation and privatisation.

Around Europe, the question has been posed: why doesn’t a crisis of capitalism (the Financial Times’ description, rather than the TUC’s!) lead to electoral resurgence for the left? Comparisons with the welfare states which were fashioned by electorates who voted left after the depression of the 1930s are a bit wide of the mark as they ignore the decade or more of right-wing victories that preceded the leftward shift (and the war, of course). But what does seem to be happening is that, as austerity has produced its inevitable result in a return to recession, electorates are, having rejected social democratic leaderships in office at the time of the latest financial crisis (eg Portugal, Spain and the UK) are now returning either to a slightly more leftwing version of social democracy (the Danish election result, the French socialist platform for the Presidency) or indeed parties much further to the left (currently outpacing traditional social democrats in Greece and the Netherlands for instance).

The question for the left is whether the apparent conversion to growth instead of austerity on the part of some centre-right politicians (even if it is in reality austerity in growth’s clothing) squeezes alternative approaches out of the political discourse altogether, or whether we can use the language that centre-right politicians have been forced to adopt by electoral concerns about the economy and the future to push for a real change fo direction that would actually create growth, such as higher wages, fairer distribution of income and public investment to stimulate (green) growth?

We tend to think of the early 2000s as a time of relative wealth: house prices were rising, credit flowed easily, the government introduced a generous tax credit scheme and people generally felt better off. But these masked the reality of what was going on.

Listen now

(BBC iPlayer)

There was almost no wage growth for middle earners and below during the five years leading up to 2008 and yet the economy grew by 11% in that period. The overall share of the national income which goes into wages, as opposed to profits, has been decreasing since the mid-1970s.

Less of the economic pie is going into the pockets of ordinary workers. And of course, this means that a disproportionate amount of the economic wealth has been going to those at the top.

In his Analysis broadcast, Duncan asks why wages stopped rising in the years before the crash and what was the driving force for the squeeze?

Listen now

(BBC iPlayer)

The German-led governments of northern Europe are acting like the payday loan sharks that Stella Creasy MP is campaigning against, preying on precisely the poorest on the European estate, who are least able to pay them back. The troika – the ECB, Commission and IMF – are the thuggish enforcers sent to tell the recalcitrant Greeks to slash and burn their welfare state and indeed their entire economy. And where Greece goes, even France may follow (after Ireland, Italy, Portugal and Spain, who are all in the same boat as Greece, but not yet the bit that’s sinking fastest.)

Stephen King points out that if Greece and the other peripheral economies are to escape their debtor status, Angela Merkel’s German government will have to abandon its increasingly smug creditor status too. For every lender, there has to be a borrower, but if that borrower isn’t earning enough to pay the debts, then the creditor is in trouble too.

The Greek economy shrank by 7% last year, and will carry on shrinking as unemployment is forced up and wages forced down. In the US, that’s what led to the sub-prime crisis and, shortly afterwards, a global financial and economic crisis.

What would help? I fear that last year’s solution – eurobonds that would have spread the debt and given Greece a longer term path to recovery and repayment – may now be too late, although it’s still a sound policy and worth trying.  The German trade union movement (DGB) is calling for a new Marshall Plan for southern Europe, using the huge surpluses built up by the rich to invest in jobs and growth.

It’s not yet too late to grow Greece back to financial health. But a generation of young Greeks (and Spaniards, where youth unemployment is also touching 50%) is teetering on the brink of being sacrificed on the altar of austerity.

“London is not a world financial centre because of tax breaks.”

But his main message – and mine too, because at the start I was in conciliatory mood, was that people from the financial sector who see faults in the current design of the EU’s proposal – like the British Government – should be helping to design it better rather than just attacking it. Or, he could have added, trying to walk away in the hopes that it will never happen, or that it won’t touch trading in London, because in both cases, it so will.

However, I am getting really tired of hearing well-heeled and well-remunerated bankers telling me they’re against a 0.05% FTT because of the poor pensioners who will have to pay it out of their pension funds. As one panellist pointed out, the hedge fund that runs their personal pension is always keen to say how much of the Stamp Duty is being passed on, but they are strangely silent when it comes to the management fees that pay for the inflated salaries, bonuses and all the rest of the finery that was, as usual, on show in the lavish offices of the top City firm that provided the venue.

Some insiders suggest that the administrative costs of pension funds now run to as much as 40% – so for every £1 paid in to the fund, 40p is taken in charges and administration. That’s 800 times the amount of a Robin Hood Tax payment on the same sum.

This month’s labour market vblog focuses on the rise of ‘under-employment’ which will be a key trend to watch in 2012. A sustainable recovery will depend on not just the growth in headline employment but one the type of work created.

Prior to the election David Cameron pledged no top down organisation to the NHS and on his billboards stated that he’d “cut the deficit, not the NHS”. Instead, borrowing is up, services are being cut and top-down reforms are being imposed on the NHS against the will of the general public and health professionals. This has not gone unnoticed by voters, those that think David Cameron hasn’t delivered on his pre-election assurances over the NHS outnumber those that believe he has by three to one.

So, as with many things in politics, it all boils down to a matter of trust. Cameron promised one thing on our National Health Service and then seems to do the complete opposite, so why would the general public believe his reassurances about his health reforms?

The YouGov polling shows that the even Conservative Party supporters trust health professionals more than the prime minster and his health secretary. A whopping six times as many people trust health professionals than the Prime Minister and Lansley over the health reforms. But so far the Government’s response has been to rubbish the views of the people working in the NHS, caring for the British public. Healthcare professionals have been accused of being self-serving, of seeking revenge over pensions and of not understanding the reforms.  Ministers have traded on anti-union rhetoric to the debate when reacting to the decision of the BMA to call for the withdrawal of the bill. When in reality this is a centuries old professional body making a brave stand against a bill that they believe will be detrimental to patient care. The Prime Minster and the Health Secretary might not value their views, but the general public do and so do voters too.

The list of medical and royal colleges, unions, other health bodies, patient groups and charities which oppose the bill is growing daily, the latest being 150 members of the  Royal College of Paediatricians concerned about the damage these reforms will do to health of children. It absolutely stands to reason that the people who work day in day out in the NHS are being listened to taken very seriously by the public.

This week MPs will have an opportunity to vote for the publication of the Department of Health’s Risk Register. This document will show an assessment of the potential risks of the Government’s plans. So far not even MPs or Peers have seen it, despite a ruling in November from the Information Commissioner that it should be published and shared. Imagine the uproar if patients were given a new medical drug where the possible side effects were unpublished. It would be incredible if MPs voted to remain in ignorance before the Bill became law.

So far 75 MPs including 13 Lib Dem MPs, have signed an Early Day Motion 2659 to call for its immediate publication. Please lobby your MP today and tomorrow do add their name too. If the government is confident about its reforms then it should publish the Department of Health Risk Register and this week.

Today’s poll shows the British public have full confidence in health professionals when it comes to the future of the NHS. The Prime Minister should too and drop his unworkable and unloved Bill before it’s too late.

How has this happened? ‘Work Experience’ started out with a limited number of places, and was launched as part of the ‘Get Britain Working ‘ programme in early 2011. At that point DWP stated that the aim of the programme was to ‘help maximise the number of young people moving into employment and provide young people with quality work experience’. Initially, placements were only available in 14 areas across the country and were limited to young people aged 18-21. Placements are not technically compulsory, but once a young person has indicated that they want to undertake a work experience placement if they pull out their benefits will be docked.

Reports on the substance of these placements suggest that they are far from the ‘quality work experience’ that the Department purportedly aspires for them to be. No qualitative evaluation of the scheme is currently available, although ACEVO focus groups (pdf) with young participants suggest that several feel ‘exploited’. Employers participating in the scheme face no requirements to provide training, no limits on the number of placements provided per site, do not have to provide a guaranteed job interview at the end of the placement and are not actively monitored to ensure that existing workers are not being denied overtime (or in the worst case scenario being made redundant) as a result of the unpaid work being undertaken.  In addition, reports suggest that the vast majority of placements are in the retail sector – hardly providing a range of experience for young people who are likely to have far more varied employment aspirations.

Early outcome data from this initiative was published in November 2011. It found that after 13 weeks on the programme, 49% of participants were still claiming benefits. But over the same period, the normal rate of departure from JSA for young people was higher, with an average of 47% of young people across the JSA caseload still claiming at this point. If anything this early data suggests the scheme is making it slightly harder for young people to find work, as spending eight hours a day undertaking unpaid work may be making it more difficult for them to focus on applying for jobs in the open labour market. This wouldn’t be surprising, the DWP’s own evaluations of workfare schemes in other countries have found the same effect, also concluding that:

There is little evidence that workfare increases the likelihood of finding work.

But despite these indications that the scheme is not operating as planned, the introduction of the ‘Youth Contract’ saw the number of places available on work experience significantly increase, with the Department now committed to sourcing at least 100,000 placements a year. Whether this will be possible given the increased PR risk for participating employers remains to be seen. Sainsbury’s, TKMaxx and Waterstones have reportedly already pulled out, and as the bad publicity continues is seems inevitable that more will follow.

‘Work Experience’ is not the only source of unpaid work that is now integrated into our welfare to work system. Mandatory Work Activity, a compulsory four week work experience scheme for jobseekers who are meeting the terms of their Jobseekers Agreement (the requirement placed upon JSA claimants to actively look for work and to demonstrate to Jobcentre Advisers that they are undertaking jobsearch and applying for vacancies) but are perceived by advisers ‘not to be doing enough to look for work’, is now also operational. Placements are purportedly of ‘community benefit’.

When this scheme was introduced, the Social Security Advisory Committee (SSAC) (declared interest – I am a member) formally referred the regulations for consultation, and published this report on their likely impacts – which recommended that the programme should not proceed. The Government rejected the Committee’s main conclusions, and noted the Committee’s concerns, including the lack of available information on what type of work the placements would involve, the intensive nature of the placements which was likely to leave those with, for example, childcare responsibilities struggling to participate (and therefore at higher risk of having their benefits stopped), the risk of employers using rolling placements to cover what would otherwise be real (paid)  job vacancies and the lack of checks to prevent this risk. In response to the report the Government agreed to ‘robust monitoring of placements’ covering issues including access to training and placement quality. The Government also stated that the intention of the scheme was that only a ‘small number’ of jobseekers would be referred to it.

The most recent data on this scheme suggests that all is not well. So far just over 24,000 people have been referred, hardly a ‘small’ number. No ‘robust monitoring data’ appears to be available on scheme quality or on placement type, other than a Guardian report that ‘community benefit’ placements are now taking place in the retail sector. No data are available on the outcomes the scheme has led to, including on the number of participants who have found work.  In particular the recent data release didn’t trace the source of these statistics, presumably released directly from a Ministerial office to the press, which suggest that significant numbers of those referred stop claiming. If this is true it’s extremely concerning – it likely means that SSAC’s concern that those facing additional travel expenses or barriers to participation, such as childcare, may drop out of the benefits system as a result of the scheme (either as a result of being sanctioned as they are unable to participate or because they decide they simply can’t meet the terms of the unpaid work requirement) may be being realised.

These are the two most significant sources of unpaid work currently in the system, but there are more. The Work Programme, which most unemployed people are referred to after a year (nine months for young people) allows providers to refer jobseekers to any form of provision they think appropriate, which could in theory involve unlimited unpaid work experience. And for those who are still out of work after the Work Programme has attempted to support them the Community Action Programme for the very long-term unemployed (those out of work for over two years) is currently being piloted and involves unpaid work of up to 26 weeks. In addition, today’s papers suggest that the Work Related Activity that those claiming Employment and Support Allowance (ESA) are required to undertake could shortly be extended to require unlimited unpaid work.

This increasing prevalence of unpaid work is a significant worry, because put simply there is no evidence at all that it will work as a means to increase job outcomes. That’s not to say that proper work experience isn’t beneficial, just that the particular brand currently on offer if falling well short of the mark for many participants. The consensus of expert opinion and academic research is that unpaid work achieves at best very little and at worst makes paid employment for claimants less likely while simultaneously reducing the hours of existing staff and limiting the number of paid vacancies in the jobs market. Requiring unemployed people to work for their benefits may be publicly popular, but as a means to reduce worklessness it’s unlikely to be successful – which will have far wider economic costs in the longer term.

For this reason, the OECD Economic Survey of Germany is an important document. The OECD is correct point out that Germany faces a cyclical return to slower growth. Moreover, Germany’s export-led model faces obvious problems if many of the countries to whom it exports face deficit reduction programmes and consequently falling demand. But I think there are serious flaws among the OECD’s prescriptions for Germany. The wrong policy mix won’t help Germany meet its challenges: it will only make matters worse.

The OECD is right to say that Germany must transform its growth model to thrive as a knowledge-based economy. Increasing the labour participation of women and older workers is also a point well made (as is improving the supply of childcare), although this is not the main issue affecting domestic demand. To boost demand at home, Germany must stop suppressing its wages. A minimum wage for those at the bottom end is necessary. Regarding those earning above the minimum wage, the jury is out on whether German unions deliberately moderate wage demands in return for job security or whether wage suppression is a demonstration that unions are not as strong as many think.

In tandem with boosting wages at home is a more general acceptance that, as  a player in the global economy, Germany must import as well as export. That requires an acceptance in Berlin that world economic imbalances between surplus countries – including China and Germany – and deficit countries – including the US and much of Europe - are not sustainable in the longer term.

But my main concern with the OECD report comes in the quote from its Secretary General, Angel Gurria. Mr Gurria says: “Many other countries are looking at the German mix of labour market reforms, social partners’ constructive flexiblity and sound fiscal policy”. It is not labour market reforms, that old chestnut, that has made Germany Europe’s strongest economy in the last sixty years. The main reasons for that strength are Germany’s record of skills investment, its powerful mittelstand of medium sized companies, and its Social Market Model, that does involve constructive flexibility, but that also gives works council representatives, usually trade unionists, a powerful place in determining company decisions, supporting corporate growth while also defending their members. Germany has also had successive governments, Social Democrat and Christian Democrat, who have been prepared to make strategic interventions in support of key industrial sectors, rather than adopting an attitude that says the market rules and the devil take the hindmost.

These issues are explored in the TUC policy paper, ‘German Lessons’. I hope Vince Cable has read his copy. I don’t agree with some of what he says, but I was very impressed with his call for a long-term plan for industry, as reported in the FT earlier this week. Winning this argument with the Treasury is another matter, of course, but Vince hit many of the right notes in  his letter to the Prime Minister and the DPM. As in Germany, we need to get the policy mix right, but Vince seems to acknowledge the scale of the problem and that’s a good place to start.

The TUC measure is not however a measure of unemployment. It is based on a definition adopted by the US Bureau of Labor Statistics (BLS) called “U6” which provides a measure of labour market slack. This includes those unemployed by ILO definitions, but adds some people who are classified as economically inactive by ILO definitions (not in work or ILO unemployed) who say they want a job and people who are working part time but who say they would like to work full time.

The TUC has produced a fascinating chart that shows how the two measures have moved over time, starting in April 1993, the first quarter such estimates can be provided from UK data.  This suggests a strong structural element in the wider measure – in other words, high levels of labour market slack have been a semi-permanent feature of the UK labour market over the past 20 years and are not just a creation of the recession.  Recent trends show ILO unemployment increasing much faster than the wider U6 measure.

The TUC analysis has had to use UK data, not all of which quite corresponds with US data and concepts. The biggest difference is that the US measures only includes the inactive who want to work if they have looked for work in the past year and could start a job in the week of the survey. The TUC uses the only readily available figure available, the total number of inactive who say they want a job. However, a closer match with the American “U6” definition would significantly reduce this total and therefore the overall estimate of labour market slack in the UK.

When discussing these issues some commentators also refer to the number of involuntary temporary workers – people in temporary work who said they would like a permanent job. While these people’s labour market position is by no means as secure as those in a permanent full-time jobs they are not included in the US U6 definition or in the TUC total, as they are not strictly speaking an indicator of labour market slack – people are working at the time of the survey even if they would prefer a more secure job.

More plausibly taken into account are the large number of part time workers who said they would like a full time job.  The US measure includes all such part time workers, and so does the TUC. However, a stricter measure of labour market slack would try and measure the difference in hours that people are actually working against the hours they would prefer. Average hours actually worked by part time workers in the UK in their main job are about 40 per cent of average actual hours worked by full time workers.

These measures of labour market slack are useful not just to highlight the jobs challenge facing any government, but also to give analysts and policy makers a better idea of just how much labour is readily available to sustain a recovery.  In recent years both the Office of Budget Responsibility and the Bank of England have looked at wider labour market slack measures for exactly this reason. The TUC measure is not a perfect match for the U6 indicator, but it can be refined and developed. Even more useful would be the adoption of a similar measure by the Office for National Statistics based on the U6 definition used by the US Bureau of Labor Statistics and published alongside the ILO unemployment measure.

With 6.3 million people across the economy without any or enough work this is a vital debate to start. Our jobs market will not be on the mend until both levels of under-employment and unemployment are on their way back to pre-recession levels, a significant challenge given there are over one million more people out of work than on the eve of the downturn and close to the same number more again (around 800,000) in involuntary part-time employment.  While some work is undoubtedly better than no job at all, moving from full-time to part-time hours (on a most likely lower hourly rate) will prove a significant shock to family budgets. And when people can only find a very few hours of work a week their household incomes will differ very little from those of people who have no work at all.

So when Ministers claim there are plenty of jobs to go around they are simply wrong. With the ratio of jobs to unemployed jobseekers 1:5.8, with only 439,000 vacancies available at any one time (down around 240,000 from the start of the downturn) the level of competition in the labour market, particularly when the larger group of economically inactive and under-employed workers is considered, is clearly fierce. That’s why stories of hundreds of people applying for handfuls of jobs are now common place.

There have been a few minor queries around our analysis. Our approximation of the American U6 measure, as Full Fact have pointed out, included both discouraged and economically inactive workers who would like a job as seperate groups. Technically a few of those in the former group (around 68,000) will also show up in the latter – not all discouraged workers will have given up all hope of finding employment.  On the other hand, we don’t have a measure for under employment of part-time workers who don’t want full-time work (ONS doesn’t regularly produce such a series). But it is likely that among the 6.4 million part-time workers who tell the surveys that they don’t want a full-time job a substantial number will be seeking to increase their hours (not least the 200,000 couple households who are set to be hit by the Government’s requirement that they find more paid hours to qualify for Working Tax Credit) although not by as much as a full-time position would require.

So there is no perfect means to assess under employment using the ONS’s existing labour market measures, which is perhaps why the ING/Sky assessment of 6.9 million, or over one in five working people, is several hundred thousand higher than our analysis. But what our study does show is that a true assessment of the state of the UK’s jobs market requires far wider measures of labour market weakeness to be taken into account than simply the headline unemployment rate, and that the jobs challenge we face is even more significant than many may have previously realised.

We hope the debate on the scale of under-employment in the UK continues – and over the weeks ahead will be hosting a number of posts from authors with an interest in the subject.  We’re glad we’ve been able to make a contribution to boosting public awareness of the state of the labour market, and to highlighting the vital importance of politicians across the spectrum treating job creation as a policy priority.

But QE is far from perfect as a means to support the recovery, with increasing evidence that bank lending remains depressed despite the additional balance sheet boost that QE is providing.  This has led many, including Monetary Policy Member Dr Adam Posen, to call for a new type of QE to be developed, which would involve the Bank of England providing direct support to small and medium sized businesses, rather than, as is currently the case, buying Government bonds directly from banks and large financial institutions. And, with no economists entirely sure what the effects of the intervention are, there is also increasing evidence that while QE has boosted confidence and growth it may in the process have pushed up inflation (by boosting demand for assets which would not otherwise have been so highly priced) which would affect those who are already the poorest the most.

Consequently, QE has potential impacts on members of both defined contribution (DC) and defined benefit (DB) pension schemes. For defined benefit schemes, low gilt yields will result in larger pension scheme deficits.. It could also result in employers having to spend more money on their pension scheme than planned, diverting money from other aspects of their business including job expansion and investment. In a worst case scenario, low returns on investments could result in a reduction in pension scheme benefits or even closure of DB schemes. For defined contribution schemes, QE could also raise annuity rates resulting in a lower pension for scheme members. Members having to buy annuities at this time will not be able to change their annuity at a later stage should annuity rates improve.

The announcement of the third round of quantitative easing follows the findings of the Mercer Pension Risk Survey which showed that the combined DB scheme deficit for FTSE 350 companies at 31 January already stood at £83 billion (calculated on a 85 per cent scheme funded ratio basis). By way of comparison, the Pension Protection Fund / Pension Regulator’s latest Purple Book recently published shows that the total deficit on an estimated full buy-out basis for all DB schemes in deficit stood at £470.7 billion as at 31 March 2011. And the Pension Protection Fund’s latest 7800 Index  which covers 6,432  DB schemes  estimated that the aggregate deficit of all schemes in deficit (5,388) at the end of January 2012 was £289.9 billion measured on a section 179 basis (ie. the premium that would have to be paid to an insurance company to take on the payment of PPF levels of compensation).

But, despite these increasingly well documented downsides, the reality remains that it simply isn’t in the interest of pension funds or pensioners for the economy to shrink, which would substantially increase downward pressures on fund values, on employers’ capacity to keep schemes open and on the living standards of today’s and future pensioners. While rising gilt yields might superficially be good for pension funds in a stagnating economy they would also risk significant negative impacts on the cost of borrowing and on our wider economic health. So, particularly given the lack of an alternative government strategy to boost demand, QE may be a necessary, but not pain free measure to support growth. The real worry is that on its own, it’s unlikely to be enough – we can only hope the Chancellor takes the opportunity of his forthcoming Budget statement to change the Government’s wider economic course.

But the main news is the medium-term forecasts, and these are much less reassuring. These were last published in November and they weren’t all that brilliant, but today’s are worse. The table below presents both sets, the final line is taken from the Office for Budget Responsibility’s November Economic and Fiscal Outlook, which now looks somewhat optimistic:

This may be the beginning of the end to the regulatory and fiscal arbitrage that the finance sector has been practicing (and – in full on blackmail mode – threatening to practice) for years, picking off government after government and demanding a lax environment everywhere in which to make their bloated profits and bonuses.

This week, France’s President Sarkozy pressed ahead with an admittedly rather minimalist unilateral financial transactions tax. His Government was one of nine that called on the Danish G0vernment, the current holders of the EU Presidency, to press ahead with a European FTT. In both cases, the finance sector has claimed that the measures will drive them abroad (like that was a bad thing, given how much damage they’ve done to their host economies, but let that pass!) But where will they go? Because now the US President has unveiled what is likely to be his election campaign budget – and it contains a new $61bn tax on financial institutions over the next decade, in an effort to recover the costs of the financial bailout.

Unions in the US are backing politicians who are starting to get tough with the finance industry, although there is a long way to go. AFLCIO President Rich Trumka says the Obama budget proposal “puts us on the right path towards building a solid foundation for our economic future.” And it would be far more effective if the world’s leaders (who aren’t quite acting together yet – the British Government continues to act like the finance sector’s lapdog) could act together through bodies like the G20.

Using official UK government data, the TUC analysis has replicated the six measures of US unemployment and found that using the broadest measure of joblessness, U6 or ‘total’ unemployment in the UK is currently over 6.3 million. The highest it has been since records began in April 1993, when it was 6.1 million.

Total Unemployment compared to ILO unemployment

(Data in thousands)

While ILO unemployment (2.95 million in April 1993) was higher in the early 1990s than today, under-employment,  people working part-time because they cannot find full time jobs is higher today  at (1.3 million) than at any point since April 1993, when it stood at 802,000.

The analysis also shows that under-employment, people doing temporary or part-time jobs because they cannot find permanent or full-time work has risen to a record 1.9 million.

Total Unemployment

(Data in thousands) 

The record levels of under-employment today show that the jobs crisis is far worse than the headline figures suggests, while involuntary part-time and temporary jobs are better than no work at all in most cases, these tend to be low-paid, insecure, have little or no career prospects and so not a sustainable way to solve the UK’s labour market problems.

The TUC is calling on the government to acknowledge the scale of the jobs crisis, rather than simply repeat the ill-informed claim that there are plenty of jobs out there and blaming the unemployed. It wants ministers to take action to get vital investment into the private sector so that it starts creating jobs, stop putting hundreds of thousands of public servants on the dole and boost job schemes to get younger people back into work.

 Source: ONS

Descriptions of the six measures of US unemployment (U1-U6)
U1: Persons unemployed for 15 weeks or longer (These figures are not included in U6 unemployment).
U2: Job losers and persons who completed temporary jobs. (The TUC has used redundancy figures as the nearest UK equivalent. These figures are not included in U6 unemployment.)
U3: Total unemployed (official unemployment rate)
U4: Total unemployed plus discouraged workers
U5: Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labour market. (The UK equivalent of ‘marginally attached’ are the ‘want work’ figures – those who say they would like a regular paid job, but who do not meet the internationally agreed definition of unemployment because they have not been looking for work in the last four weeks and/or they were unable to start working within two weeks.)
U6: Total unemployed, plus all persons marginally attached to the labour market, plus total employed part time for economic reasons

Source: www.bls.gov/webapps/legacy/cpsatab15.htm
You can download a full table of U1-U6 unemployment in the UK from April 1993 to October 2011