Adam Smith Institute

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The horror unleashed

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the-horror-unleashed

The Guardian piece on unemployment has received much attention (ahem… causing much panic) over the last day. The article describes a “hidden cost” of over one million lost jobs as a result of the cuts and brings into question Osborne’s claims about the transparency of his briefing. Although I’m far from convinced by the forecast quoted in the article, especially as the exact source and methodology of the study are unknown (how exactly did they come up with these numbers?), let us assume them to be accurate for the time being.

Then here’s a thought:

The source clearly states that despite the 1.3 million jobs lost in the public sector, the private sector will create an additional 2.5 million, therefore we actually end up with a net increase in employment. While the Guardian never questions the figures on the lost jobs, the second piece of data is brushed away. Note that both numbers are from the same source, thus if one is treated as accurate, I believe the second one, at the very least, should be addressed more fully. The article argues that there is “not a hope in hell's chance” the private sector can generate so much growth, yet doesn’t mention any substantial evidence proving this point.

Furthermore, the Guardian writes “… the private sector will be affected both through the loss of government contracts and from the knock-on impact of lower public spending”. What they forget are the additional benefits to businesses included in the new budget: in conjunction with the spending cuts, we will also see decreases in corporate tax rates that will most definitely boost employment.

Historical cases support this claim. For example, the Ireland corporate tax cut in the 80’s improved the economic environment and increased income (from 30% below the EU average to 40% above the average today). Benefits to businesses attract investment, increase employment and boost per capita income. For some reason the Guardian fails to note the beneficial effects of the emergency budget that will make up for the lost jobs – were they to occur.