How Brown's stimulus will destroy jobs
Fraser Nelson 1:04pmSo what will the Brown stimulus actually do? Suspiciously, we’ve never been told. In America, Obama has shown the public what they’ll get for their money – how his stimulus would boost employment and the economy. Seeing as no one in Britain has done this exercise, we at The Spectator commissioned Oxford Economics, perhaps the best economic modelers in the country, to have a look. It ran the Brown stimulus, which we define as the various measures taken in the 2008 Pre-Budget Report, through their computers – and the resultant graphs are fascinating. Here's the first:
So, in year one, there’s an effect – but we pay for it everafter. This year, the stimulus package is expected to stem the fall in GDP by 0.4 percentage points. So, for example, rather than a 3.2% fall we’d have a 2.8% fall. But next year, when the VAT goes back up and there’s less capita spending, this would reduce GDP growth (or exacerbate GDP shrinkage) by 0.3 points. In 2011, nothing. Then the National Insurance rises and tax hikes for the higher earners kick in – these restrain GDP growth by 0.3% in 2012 and 0.1% in 2013.
And what does this mean for jobs? Oxford Economics produces a separate analysis for employment growth, below.
Shrinkage in employment this year would be 0.1 percentage points less than otherwise. Apart from 2011, where there is zero impact, it’s all bad after that. Unsurprisingly. Weigh down the economy with extra taxes, and you are destroying jobs – or, more accurately, hampering a job recovery.
Brown claimed in his Observer interview that the stimulus would save (or “create”) 100,000 jobs. I asked Oxford Economics if they could express the jobs impact in thousands, not percent. The result is below – with the caveat that these are ball park figures, because you never know where your starting point is.
So the Brown “stimulus” saves 35,000 jobs this year – remember, this is against a backdrop of unemployment doubling to 2.2m so we are dealing with tiny figures. After that, the VAT rises next year will cost 30,000 jobs. Then the really bad news starts, as the tax rises kick in – and employers are charged extra National Insurance. All told, 91,000 fewer in 2012, and 84,000 fewer in 2013. As Oxford Economics says, this “partly reflects the feed through of weaker GDP growth, but also reflects the higher cost to business of employing people (higher NICs)”.
All three graphs point to one depressing conclusion: the taxes needed to paid for this stimulus do more harm to our economy than the temporary good done this year. This is what the British public are getting for their money. No wonder Brown didn’t rush to produce an analysis of his own.
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HJ
January 29th, 2009 1:31pm Report this commentWell, it has always been obvious to everyone except Gordon Brown that increasing employers' NI contributions - a tax on jobs - will reduce employment.
But then all he cares about is that most voters don't realise this.
Publius
January 29th, 2009 1:42pm Report this commentHowever, it all squares rather nicely with Brown's cynical political plans. Store up the worst until after the next election, which he expects to lose. And then blame the mess that follows on the Tories. Narrow political calculation is the alpha and the omega with Brown. He is the antithesis of a statesman.
Tiberius
January 29th, 2009 1:48pm Report this commentI bet the VAT reduction to 15% will be extended for next year. After all, what's a second tranche of £12b in additional borrowings between friends if it buts a few headlines and votes?
Also, I suppose this gives Cameron ammunition to deal with Brown's "do nothing" charge - that sometimes being a "doing nothing" chicken is preferable to being a headless one.
oldtimer
January 29th, 2009 1:57pm Report this commentWhat else can you expect from a headless chicken?
Lt merely reinforces my take on his seven deadly sins:
#1 Theft - the pension fund tax.
#2 Incompetence - bungled tax credits, bank rescue, gold sales.
#3 Waste - stupid VAT reduction.
#4 Irresponsibility - failed bank regulatory system.
#5 Deception - fiddled data for inflation and national debt.
#6 Hubris - "no more boom and bust", "best placed country to weather the downturn".
#7 Unelected - to the office of PM.
Ed B
January 29th, 2009 2:13pm Report this commentEvidence, as if it were needed, of a scorched earth policy in the McLostmarbles bunker.
The Conservatives had better be very careful with expectations management over the next 18 months. This is shaping up to be 1980/81 redux.
Prodicus
January 29th, 2009 2:16pm Report this commentAll part of scorched earth.
Ian C
January 29th, 2009 2:19pm Report this commentFraser,
You should get them to do the same exercise on Obama's Democratic Party shopping list passed yesterday by a partisan Congress.
If this frightens you then the American version will qualify as a Horror Story that the world will have to live on repeat-play for decades - once again.
idle
January 29th, 2009 2:30pm Report this commentTop quality idea to commission Ox Econ for this research, and very interesting, if utterly gloomy, results.
John
January 29th, 2009 2:37pm Report this comment"Oxford Economics, perhaps the best economic modelers in the country"
In 2007, they forecast that house prices would rise 40% by 2012.
Patrickinken
January 29th, 2009 2:44pm Report this commentIsn't it dispiriting that this sort of analysis is not included as a matter of course in the Treasury's Pre-Budget report.
oldrightie
January 29th, 2009 3:04pm Report this commentThe world has changed and will continue to change. People, particularly in Britain, will HAVE to learn to live with austerity. A consequence of unsustainable population growth world wide and in The UK. Not a message this Labour shower dare convey but the elephant is definitely in the room.
Well two actually, Austerity and Gordon Brown.
Rai
January 29th, 2009 3:24pm Report this commentThis needs to be disseminated to as large an audience as possible. Great work.
Englishman Abroad
January 29th, 2009 3:37pm Report this commentPatrickinken
January 29th, 2009 2:44pm
"Isn't it dispiriting that this sort of analysis is not included as a matter of course in the Treasury's Pre-Budget report."
That is a really excellent point.
Can someone please get the message to Team Dave and his Office of Budget Responsibility.
John Page
January 29th, 2009 4:41pm Report this commentWhy didn't the official Opposition commission this?
Bob Frost
January 29th, 2009 4:49pm Report this commenthttp://pecuniarities.com/wp-content/uploads/2009/01/calvineconomics.jpg
Ken
January 29th, 2009 5:11pm Report this commentA very strong reason why Conservatives should avoid winning the next election. Let the listing Liebour vessel and Capt McRuin sink firmly into their self-destructing quagmire, and so deep and disastrously that never again will overgrown student Marxists and pseudo social engineers return to power. Liebour must lie down forever. The Left will have to form some other party before it tries to regain public office.
kinglear
January 29th, 2009 5:15pm Report this commentSoro has an excellent article in the FT today, making the point that what makes markets and growth is cash in people's hands - not extra taxes. So giving some now only to take it back is counter-productive
TrevorsDen
January 29th, 2009 5:23pm Report this commentWhatever happens - no mater how dire - Brown will say its still a lot better than it would have been but for his wonderful actions.
Emil
January 29th, 2009 6:12pm Report this commentIf only those scientific boffins who worked out how the Italian Job Gold might have been recovered could do a similar exercise over our idiot former chancellor's bargain basement gold sale.
mitch
January 29th, 2009 6:47pm Report this commentFor all the good his "stimulus will do" he may as well have burned the cash.
Andy Leeds
January 29th, 2009 7:01pm Report this commentThe only way to kill Labour is to have it buried at a cross roads at midnight with a stake driven through its rotten heart.
Mark Heenan
January 29th, 2009 8:04pm Report this commentInteresting how these measures have their most damaging effects in 2012 and 2013. Any chance this may be because this would be the most sensitive time in terms of a Cameron government getting itself re-elected?
Tim
January 29th, 2009 9:08pm Report this commentSo the Obamessiah is going to save the world?
Tom Freeman
January 29th, 2009 10:28pm Report this commentI'd appreciate a bit of clarification on the comparators used here.
"next year, when the VAT goes back up and there’s less capita spending, this would reduce GDP growth (or exacerbate GDP shrinkage) by 0.3 points."
Does this mean that the rise in VAT (etc) in 2010 will slow GDP growth by 0.3 points relative to what would happen if VAT were to stay at 15% in that year too? Or is it relative to what would have happened if the VAT cut-then-rise were not happening at all?
I suspect that it may be the former - in which case this isn't much of a scare story: you might as well cheer the stimulus effect this year of the fact that the planned NI rise isn't happening yet...
Will the details of this research be published?
Aless
January 29th, 2009 10:59pm Report this commentBrown basically paid £billions for the right to say "Do nothing Tories".
I think "Labour isn't working" was better value for money
Dr Dan H.
January 30th, 2009 11:52am Report this commentBasically, what Gordon is doing is pushing the effects of the recession off into the future, into the time when a likely Tory administration will be in power.
Chris Carter
January 30th, 2009 1:21pm Report this commentWhy haven't the Tories done this analysis?
Are they so pathetic?
Verity
January 30th, 2009 5:25pm Report this commentKen - This is what I have been saying for some time. For God's sake, don't win the next election! The benefits of losing are twofold:
One, as you noted so well, if the socialists get back in, the disaster currently up to their necks will mercifully close over their heads and kill them off forever.
Two, if the Tories lose, hopefully, they would jettison liberal lefty One Worlder, destructive, anti-business green agenda-ed David Cameron and get a solid Conservative leader with muscle who would lead the Tories storming through after a vote of No Confidence.
Colin
February 1st, 2009 5:33pm Report this commentIt's very hard to judge whether Brown is as thick as a brick or quite intelligent but extremely devious. Perhaps he is the former and his advisers the latter. Whatever, he has to go at the next election. My guess is that the advisers are planning serious inflation to get out of the dilemma noted here. Win-win for everyone except the middle class.
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