Entrenching the North/South Divide: How Osborne’s lunacy will impact upon Manchester
Article published: Monday, October 18th 2010
MULE’s Andy Bowman assesses how the impending cuts to be announced this week by the government will disproportionately affect the North of the country.
Last week the accountancy firm Price-WaterHouse-Cooper (PWC) released a report outlining the regional impact of the ‘fiscal squeeze’ (not as cuddly as it sounds). It estimates that overall 108,000 jobs could be lost in the North West region in the coming years.
Leaving aside the question of whether the current budget deficit is even a problem, reducing a budget deficit involves choices. Specifically, how fast do you do it, and where do you place the burden? The decision appears to be right now and upon public services.
The government intends to improve its balance sheet to the tune of around £40bn next year, rising up to £113bn per year by the end of the current parliament in 2014/15. This will be done by a ratio of 73:27 between spending cuts and new taxes. The latter are the means by which the burden can be placed on the rich; however they will only make up only £29bn of the eventual £113bn. And £13.5bn of this will come from the rise in VAT – the ultimate in ‘regressive taxation’ as it hits the poor hardest. The tax burden placed upon businesses through corporation tax (including bank levies), is going to rise by the smallest level of all – creeping ahead at a snail like £0.5bn per year while the main rate of corporation tax is set to be gradually lowered from 28 – 24%.
The economic logic that you shouldn’t reduce people’s spending power during a recession apparently only applies to the big businesses which fund the Conservative party, not the public sector workers which fund Labour.
According to PWC’s estimates the cuts will mean up to 500,000 public sector job losses nationwide, with a knock-on effect of the loss of half a million private sector jobs. This will entail a lowered rate of economic growth.
Yet as much as Cameron might say we’re all in this together, the impact across the country is not going to be even. The economies of the North of England and the devolved regions of Scotland, Wales and Northern Ireland rely more than the South on government spending and so will be worse affected. Indeed Unison last month claimed that the North West would be worst affected by the Comprehensive Spending Review, having already faced major cuts to local authorities.
According to PWC however the prognosis is not as bad for the North West. Rather the devolved regions and the North East will fare worst of all; nevertheless the wide economic gap between ourselves and the South is going to be widened further. The cuts will shave 6% off the North West region’s Gross Value Added and the devolved regions and North East will lose 7-9%, whereas London and the South East will lose only 4%. The effect on employment levels is mirrored – a greater proportion of jobs are going to be lost in the North than in the South. The report also points out that there will be variation within regions as well as between them, and that existing inequalities are likely to widen. Due to its relatively strong economic position we can assume that Manchester will suffer less than its regional neighbours.
PWC cast doubt on the idea that the new Regional Growth Fund and Local Enterprise Partnerships which are replacing New Labour’s Regional Development Agencies will have the necessary resources or capacity to meaningfully offset the impact of the cuts – they will after all have a budget 25% of the size of the regional development agency budget.
So where does PWC see hope? For a start more ‘flexible labour markets’ could mop up unemployment. Decoded: unemployed public sector workers can say goodbye to jobs offering reasonable wages, working conditions and job security, to take low paid and insecure employment as temping agency staff. Greater Manchester Chamber of Commerce and other regional business organisations back the move, asking for the cutting of ‘red tape’ and reform of employment legislation to facilitate this. Alongside the temping agencies, there will be new ‘opportunities’ for the private sector in ‘supporting’ the ‘public sector transformation.’ Decoded: as local government instigates a fire-sale of its services to raise short-term cash, private companies can buy them cheap, and sell the services back to us.
Greater Manchester Councils have already teamed up to devise ways in which they can collectively cut their spending by 25%, or £578m over the next three years, primarily through the sharing of services across the region. The fact that local government will have the funding taps turned off by central government – and consequently be forced to pool resources in to make savings – appears an interesting way to pursue an agenda of decentralization and empowerment of local communities.
Andy Bowman
More: Manchester
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[…] cuts – with poorer families to be hardest by rises in regressive taxes like VAT. As MULE has already reported these cuts will also disproportinately affect the North of the country, which is far more reliant […]
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