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UK — Immediate spending cuts would threaten the recovery, says CIPD

19 April 2010

With the latest official unemployment figures due to be released this week, the Chartered Institute of Personnel and Development (CIPD) today publishes an assessment of the policies for economic recovery and jobs contained in the General Election manifestos of the three main UK political parties.

The findings are outlined by CIPD's Chief Economic Adviser, Dr John Philpott "the opposition Conservative and Liberal Democrat parties should acknowledge the underlying strength of the UK labour market prior to and during the recession and the degree to which current government policy has helped curb substantially the rise in unemployment. The Labour Party meanwhile should accept that its record on jobs in government is blemished by a persistently high rate of 'economic inactivity', far too many young people not in employment, education or training, and over-reliance on migrant workers."

"As for specific policy proposals, the CIPD agrees with Labour and the Liberal Democrats that it would be unwise to take action to cut the fiscal deficit in 2010-11 while the economy remains weak and is concerned that the Conservative plan to push ahead immediately with 6 billion Pounds of spending cuts would threaten the economic recovery and increase the risk of higher unemployment."

"By contrast, CIPD supports the Conservative proposal to reverse much of Labour's planned hike in employers' National Insurance contributions (NICs) in 2011. Although it is overly simplistic of both the Conservatives and Liberal Democrats to refer to the hike as just a 'tax on jobs', the CIPD opposes the planned hike on the grounds that it may have an unhelpful effect on the labour market at an early stage in what is likely to be a weak, 'jobs light' recovery."

"The CIPD estimates that the post-Election squeeze on public spending will be far greater than any of the main political parties is at present prepared to admit. A 10% reduction in the 5.8 million core public sector workforce is probable, the prospect of 500,000 public sector jobs being shed in the next five years dwarfing anything implicit in the Election manifestos. Moreover, it is misleading to suggest that the pain of job loss could be eased by some combination of pay cuts or short-time working. This strategy has been successful in the private sector during the recession as a means of avoiding redundancies during a cyclical downturn in the economy but is not an effective response where long-term structural change is involved."

"An economy with almost 30 million people in work and in which tens of thousands of jobs are lost and created every year should be able to cope with a period of large scale public sector downsizing without this resulting in higher unemployment. However, a favourable outcome depends on a return to health of the wider economy and increased demand for labour from the private sector. The CIPD supports all the political parties in their enthusiasm for generating jobs in the low carbon, digital and creative sectors, though the suggestion that any particular policy will result in any given number of jobs should be considered purely speculative. What will ultimately matter is the overall effectiveness of macroeconomic policy and measures designed to boost enterprise, skills and employability."

"The election manifestos understandably focus in particular on the problem of high youth unemployment. It remains far from clear, however, whether any of the policies on offer will genuinely boost the long-term employment and earnings prospects of young jobless people as opposed to simply providing short-term palliative relief while jobs remain scarce, as has been typical of such measures in the past. In this respect the CIPD is also concerned by the Liberal Democrat manifesto proposal to pay the same rate of National Minimum Wage to all workers aged 16 and over (apart from apprentices). It makes little sense to spend taxpayers' money providing young people with short-term work experience or training placements while at the same time making it more expensive for employers to hire them in the normal way."

"All the main election manifestos support some mechanism for determining either how many or what type of economic migrants from outside the EU should be able to work in the UK. The CIPD supports a sensible managed migration system but believes that the only truly effective way to reduce employer's dependence on migrant workers is to improve the supply of home grown talent, in particular by making sure young people and other jobseekers are both employable and willing to work. Unless and until such improvement is made any tough curbs on immigration that amount to more than a gesture to voters will result in recruitment difficulties and higher pay inflation as employers struggle to fill vacancies."



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