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Sunday, March 23, 2014

Vince Cable explains why the coalition are on the right track on the economy

Over on the Liberal England blog, Jonathan Calder highlights Vince Cable's mastery of the economy brief in his contribution to the debate on the budget. You can read the whole speech by clicking on the link but I thought it worth highlighting some key points from it:

1. Growth is up, unemployment down and inflation down. Labour are accusing us of a “millionaires’ tax cut”, but when they were in government they argued consistently that any increase in the top rate of tax above 40% would be counterproductive and damaging to the economy.

2. Under Labour the total bankers’ bonus pool was something in the order of £11.3 billion, and it was £11.5 billion the following year when the Labour Government brought in a bankers’ bonus tax. According to the Centre for Economics and Business Research, the bankers’ bonus pool was £1.6 billion last year. In the current year, it is estimated to be £1.3 billion. That is one-tenth of the size of the bonus pool on which the original tax was placed. So how are Labour going to get £3 billion in tax out of a £1.5 billion bonus pool?

 3. The immediate after-effects of the banking collapse were to reduce output in this country by 7.5%, which is more than in the great depression. Not surprisingly, that has affected living standards in a radical way. It has impaired our capacity to recover from the damage inflicted on the banking system.

 4. We now have the lowest unemployment of any major country except Germany—lower than France and Sweden. We are now seeing the success of employment policy in the fact that we have had an enormous growth in employment, with 1.25 million net of public sector job losses and a gross increase of 1.75 million. Roughly five private sector jobs have been created for every one lost in the public sector. These are predominantly, in fact overwhelmingly, full-time jobs. Labour’s argument has been, “Well, okay, there are lots of jobs but they are part time,” but last year, in 2013, there were 460,000 new jobs, of which 430,000—95%—were full-time jobs. The total adult population in work, is now at its highest level ever—higher even than in the United States, which is famed for a flexible labour market.

5. Last year, overwhelmingly the largest number—well over 90%—of jobs went to British workers.

 6. Youth unemployment is currently at about 20%, but that includes many full-time students. The key trend is that youth unemployment is now declining rapidly. It is certainly less now than the level we inherited, and we have a whole set of policies designed to deal with it in a systematic way.

7. Labour have put forward the idea of a youth guarantee. The problem that that presents is this: how can a job be guaranteed other than through the public sector? Of course guaranteeing a public sector job takes people off the dole, but it also creates a permanent need for subsidy and support.

8. The Government has created a route that allows people who are not going into full-time higher education to develop the preconditions for proper apprenticeships through traineeships, basic academic requirements and work experience, and then find their way into true apprenticeship training, which has been an enormous success: it has doubled since we came to office. The measures announced in the Budget statement yesterday will enable a further 100,000 people under 24 to be given apprenticeship training, and the quality improvements that we have made are driving up demand and supply at the same time. This is a much better way of dealing with young people who are out of work than creating artificial jobs.

 9. A third of the total number who are classified as “youth unemployed” are, in fact, engaged in full-time study. One of the big changes for which the coalition

10. The structural deficit has fallen from about 5.4% of GDP to 2.7%. We are nearly halfway, but we have to continue the job, and the next Government will have to continue the job.

11. The Office for Budget Responsibility has found that business investment increased by 7% last year, and CBI projections for this year are higher than that. Business investment is beginning to take serious shape

12. The extension of investment allowances will substantially increase the incentives for small and medium-sized companies, particularly those in the manufacturing sector.

 13. Tthe Government are establishing institutions, particularly the business bank, which are developing new flows and types of finance—internet-based lending, asset-based finance, invoice finance—in areas that hitherto were deficient, as well as supporting the establishment of new banks. About 20 new banks have been licensed over the last year, and that deals with the issue of bank competition that should have been dealt with when the last Government were in power and we had the Cruickshank report. The net lending trend should become much more positive, but there is no underestimating the enormous damage that was done to the British economy as a result of the collapse of the banks, over which the last Government had responsibility for many years yet did absolutely nothing.

 14. In the period after 1997 we saw the share of the British economy accounted for by manufacturing shrink from 20% to 10%, a decline that was even more rapid than in the mid-1980s, when policies were considered to be unfriendly to manufacturing. We lost 1.6 million jobs in that period.

15. Help for energy intensive industries cannot be brought in immediately as we need to obtain state aid clearance from the European Commission.

16. The priority of the Government is manufacturing, investment and the savings that lie behind investment, and exports through the expansion of export credit so as to establish long-term growth and the productivity that that entails.

17. There are still serious constraints in terms of skilled labour. There are still problems in opening up business finance. We have to invest much more in science and innovation, although we are doing that. However, the themes that run through yesterday’s Budget of support for investment, for savings and for exports are absolutely right and they will take this country to the right place.
What is most impressive is that he does not duck the difficult questions - the lending performance of the big banks, for instance.

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