Thursday, 10 December 2009

Uk's Pre-Budget Report viewpoint from CIPD

The CIPD - The Chartered Institute of Personnel and Development which is Europe's largest HR and development professional body with over 135,000 members issued the following Press Release on Wednesday 9th December 09 before the UK's Chancellor of the Exchequer Alistair Darling made his Pre Budget Report.

Measures to reduce risk of 'job loss' recovery must be priority for Pre-Budget Report

Commenting ahead of this week's pre-budget report statement by the Chancellor of the Exchequer, the CIPD's Chief Economic Adviser, Dr John Philpott, says that fiscal policy must remain expansionary until the economic recovery is strong enough to support sustained growth in employment:

"Although the Chancellor should use the pre-budget report to demonstrate he has a credible medium-term plan for cutting the record fiscal deficit, now is not the time for aggressive austerity measures.

"The Chancellor's immediate priority must instead be to bolster economic confidence and offset the risk that a weak and uncertain recovery will trigger a further bout of redundancies in 2010. A 'job-loss' recovery would not only be a kick in the teeth to millions of workers who have accepted shorter hours or pay cuts in the hope of staying in work but might also cause the economy to fall back into recession.

"In order to bolster confidence the Chancellor should consider delaying the restoration of the rate of VAT to 17.5% until 1 April 2010. Mr Darling should also extend the Job Guarantee for long-term claimants of Job Seekers Allowance aged 18-24 - due to take effect in 2010 - to those aged 50 and over. The Chancellor could offset the cost of these measures by introducing a freeze on the public sector pay bill for all non-military personnel. This would be good for the public finances and make the employment consequences of unaffordable pay awards clearer to public sector managers and unions."

CIPD also calls for the Government to:
- Abandon the increase in employers' NICs planned for 2011
- Freeze National Minimum Wage in real terms in October 2010

The CIPD's Chief Economic Adviser, Dr John Philpot later said on the "People Management blog" Good, bad and ugly Darling in pre-budget report

Making his pre-budget report statement to the House of Commons this lunchtime, the chancellor of the exchequer, Alistair Darling, had the air of a reassuring public school headmaster. We’d all been rather overdoing it on the financial razzle and will have to make amends. But other than the kids with the biggest tuck boxes it’ll be a year before anyone gets caned.

It was one of the chancellor’s better despatch box performances. Sober, serious and almost entirely sensible. Yet while the package he delivered has much to commend it, Darling made one or two glaring policy errors that either he or his successor will have to rectify once the general election is out of the way.

On the positive side, the chancellor was absolutely right to introduce a set of measures that have a neutral impact on the public finances in 2010-11. With the economy not even yet officially out of recession, trimming – let alone slashing– the budget next year runs the risk of economic relapse. Things will look better from 2011 onward – albeit probably not the soar-away growth that Darling forecasts – making the necessary medicine of major spending cuts and hefty tax rises a little harder to bear.

The chancellor should also be congratulated on his one-off windfall tax on bankers’ bonuses. This is fair and will provide the treasury with around £0.5 billion if the banks decide to make big payouts to their staff. That sum helps provide support for groups like the young jobless and unemployed over-50s, who are suffering as a consequence of the financial crisis. Darling also announced some useful measures for small businesses – which are also struggling in the aftermath of recession – and is providing some worthwhile
investment in skills that will enable jobs to be created in emerging sectors, notably those linked to low-carbon technologies.

I was less convinced, however, by the chancellor’s plans for dealing with the fiscal deficit after 2011. It was no surprise that the pre-budget report gave little precise detail of where the spending axe will fall, other than admitting that the overall squeeze will be tight – growth in spending falling from 2.2 per cent next year to just 0.8 per cent a year thereafter. But what he did say indicates that he had made some wrong calls.

For example, limiting public-sector pay rises to 1 per cent for two years from 2011 might seem tough, but it is simply not tough enough. What’s needed is a freeze on the public-sector pay bill. Presumably Darling doesn’t want to alienate the public-sector unions this side of an election. But they won’t be happy anyway and the government would have shown greater mettle by confronting opposition head on.

Yet bad though that decision is, it is nothing compared with the ugliest aspect of the pre-budget report, the additional 0.5 per cent hike in national insurance contributions (NICs) for both employees and employers. This came almost at the end of Darling’s statement and spoiled what would otherwise have been a satisfactory package in the current economic circumstances.

The 0.5 per cent increase in NICs already pencilled in for 2011 was a bad idea – doubling the increase could be a hammer blow to what is likely to be a “jobs-light” recovery. The prospect of an impending increase in employers’ NICs is bound to make organisations think twice about hiring additional staff, even before the hike comes into effect.

While the Chancellor has shown that he recognises the short-run risk to jobs from cutting the fiscal deficit too quickly, he seems to have overlooked the medium-term risk associated with what critics will undoubtedly call his “tax on jobs”. He should reconsider this before his final pre-election budget next spring.

John Philpott is Chief economic adviser, CIPD -Chief economic adviser at the CIPD and visiting professor of economics at the University of Hertfordshire. He has been an adviser to numerous UK and international bodies.

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