Fraser Nelson

How Brown’s stimulus will destroy jobs

How Brown's stimulus will destroy jobs
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So 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.

Written byFraser Nelson

Fraser Nelson is the editor of The Spectator. He is also a columnist with The Daily Telegraph, a member of the advisory board of the Centre for Social Justice and the Centre for Policy Studies.

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