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 You are in: Special Report: 1998: 11/98: Pre-Budget Speech  
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Pre-Budget Speech Monday, 2 November, 1998, 08:42 GMT
'Don't cut spending'
John Monks: Next year could see 300,000 job losses
TUC General Secretary John Monks writes for BBC News Online

Everyone in politics knows that 'it's the economy, stupid'. With new job losses announced each day and ever gloomier reports from the forecasters the government may be wishing the opposite was true, but the pre-budget report will inevitably focus attention once again on how the government intends to respond to the undoubted economic difficulties we face. We know already some of its themes - employability, making work pay and the new government mantra - productivity.

But others will not let the government entirely set the agenda. The government's assessment of the state of the economy and the health of the public finances will be subject to intense scrutiny. The chancellor is likely to halve his projection for economic growth in 1999 to around 1% - in line with the average of independent economic analysts - and predict a recovery in the following year.

The chancellor is likely to blame his difficulties on the projected decline in world economic growth and low levels of productivity. Both are undoubtedly part of the of the explanation but the real reason for slower growth in 1999 is domestic policy: in particular, the rises in short-term interest rates and the tightening of fiscal policy which have taken place over the past 18 months.

If economic growth does indeed slow towards 1% in 1999, after growing by 3.5% in 1997, there will be a large number of job losses. Manufacturing has already been hit, and will continue to bear the greatest burden. But it will not stop there. As many as 250,000 to 300,000 jobs could be lost next year with unemployment rising above the two million mark.

Higher unemployment, lower consumption and falling profits are bound to reduce government revenues and put some pressure on the public finances. But this is no black hole and is nothing the government should worry about. The public finances are currently in a healthy state and a rising deficit in 1999 is easily affordable - the UK has one of the lowest debt to income ratios in the industrialised world.

There is therefore no need for the chancellor to cut his spending totals. Labour's voters backed the party in order to see more spent on health and education, and there is no reason why they should be disappointed. Indeed the mild reflationary boost provided by increased spending on public services will fall in exactly the right place in the economic cycle. Increased government spending will have the double benefit of providing much needed public services and also help protect jobs.

But on its own this public spending is unlikely to secure a robust recovery for the new millennium. The looser fiscal stance which is expected to be adopted next year will help stabilise growth, but interest rates need to fall substantially if we are to avoid real economic dangers next year.

The publication of the pre-budget report is of course in itself welcome - the more we can learn of government thinking on the economy the better. But this year it needs to do more and convince the Bank of England that inflation is yesterday's problem. Now the priority is heading off too steep a fall in growth and the inevitable rise in unemployment that goes with it.

Links to more Pre-Budget Speech stories are at the foot of the page.


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