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Most of you will have read a book or seen a film in which the same story is repeated a number of times but from the perspective of different characters. I was reminded of this earlier in the week when reading Chancellor of the Exchequer, George Osborne’s, Autumn Statement report alongside the latest economic and fiscal forecast from the independent Office for Budget Responsibility (OBR). Make sure you don’t read one without the other, since the OBR tome not only makes for much more sombre reading but also pours cold water on some of the policy measures outlined by Mr Osborne.

For all the talk about the UK being a safe haven in a difficult global economy, the OBR reckons that by 2013 we will have the worst fiscal deficit and debt situation in the world, a marked deterioration on the situation the government inherited last year. This is because flat-lining economic growth has more than wiped out the effect of cuts in public spending and tax hikes. Rather than being secure, the UK’s triple-A credit rating is now under serious threat of a downgrade, perhaps as soon as the end of this year.

When it comes to jobs, the OBR concludes that the UK has an underlying structural unemployment rate of 5.3 per cent (around 1.5 million) but will experience unemployment of 8.7 per cent (2.8 million) by the end of 2012. The jobless figure will stay above 6.2 per cent until 2016, it predicts, because the economy lacks the demand for goods and services necessary to offer work to all our idle hands.

The current jobs crisis is therefore due to a serious demand deficit – curbing workers employment rights in the hope of encouraging employers to hire staff they don’t need, as set out in the Autumn Statement, won’t make a blind bit of difference to this. And neither, as the OBR also notes, will the government’s plan to subsidise employers to recruit young jobless people. All this will do is give jobs to those young people helped by the subsidy at the expense of people who are not subsidised, young and old alike. The net impact on unemployment is zero.

Indeed the overall negative effect of government policy on the labour market is set to be even more depressing than previously thought, the OBR raising its estimate of public sector job losses as a result of cuts in public spending from 400,000 to over 700,000. And this is itself not the full story. While the latest OBR projection better reflects what public sector employers tell the CIPD they expect to happen to jobs in the coming years, the estimated cut of 710,000 excludes the effect of austerity measures introduced in 2010-11, particularly the freeze in public sector recruitment announced immediately after the 2010 general election by the Chancellor and his then lieutenant at HM Treasury the former Liberal Democrat minister David Laws. According to the Office for National Statistics the level of public sector employment fell by almost 140,000 in that period. Assuming the OBR projection proves correct, the total cull of public sector jobs by 2017 will thus be 850,000, almost 15 per cent of the public sector workforce at the start of 2010.

The loss of public sector jobs on such a mass scale in less than a decade is not unprecedented in UK economic history. A similar cull occurred in the 1990s and was easily absorbed without any associated rise in unemployment. At that time, net private sector job creation more than offset a loss of 800,000 public sector jobs and reduced the share of public sector employment in total employment from 23 per cent to 19 per cent.

Back then, however, the labour market was being boosted by a strongly rising economic tide. Alas there is little prospect of a similarly benign outcome in today’s far more straightened times. Even so, along with the OBR, I expect the private sector to eventually ride to the rescue. But it won’t do so in the next couple of years. At best we’re stuck with unemployment above 2 million for the next five years, with no hope of a return to the pre-crisis level of joblessness in this decade.

John Philpott is Chief Economic Adviser at the CIPD

Comments [0] Recent postingsIt’s just over a year since the Chancellor of the Exchequer outlined the detail of his Comprehensive Spending Review to Parliament. The impact of the spending squeeze following the review, and the tax increases that sit alongside it in the Coalition’s fiscal deficit reduction plan, is now being felt against the backdrop of mounting weakness in the global economy.

Those of you who follow my occasional musings on this subject will understand why I’m not surprised that an overly tight fiscal policy is having a serious negative impact on the labour market, as the recent horrific jobless figures showed. Consequently, I’m also not surprised that public debate is full of ideas for combating rising unemployment and boosting long-term job creation, with lobbyists and commentators keen to influence the Chancellor as he ponders the latest ‘plan for growth’, due to be announced next month.

Some suggestions have been sensible, others less so. But while all ideas deserve consideration, they should only be taken seriously if backed by clear supporting evidence or, at the very least, grounded in an empirically based theoretical framework. Worryingly, however, many of the ‘solutions’ on offer owe more to ideology than evidence, although this also comes as no surprise to me.

As I wrote in my new year PM blog last January, “I suspect that as 2011 unfolds there will be growing frustration that the rate of private sector job creation is inadequate to offset mounting public sector job cuts, and a related tendency for the business lobby to use this to support calls for a watering down of employment rights. Such calls should be resisted. If there is a jobs shortfall this year it will be the inevitable result of slow economic growth against a backdrop of reduced public spending and higher taxation. Any shortfall should not be attributed to structural problems in the labour market, including the impact of employment regulation. There may be legitimate arguments for or against improved rights for workers. But it would be opportunistic and unreasonable to use difficulties in the macro economy to justify reducing existing employment rights”.

Almost a year later, I am even more firmly of this belief. The vast weight of available evidence indicates that the UK has a well functioning labour market which is currently suffering from a serious, and worsening, level of demand. Our labour market is very lightly regulated by the standards of developed economies and the structural problems that do remain, especially those that stem from inadequate education and skills provision, are unlikely to be solved by a dose of employment de-regulation.

In particular, the argument that the way to get Britain back to work is to water down rights to maternity and paternity leave, to limit the right to request flexible working, and to make it easier to dismiss workers without good cause is highly questionable. None of these things will make any meaningful difference to unemployment in a demand-starved economy and could harm the long-term prospects of UK plc by fostering precisely the kind of harsh workplace conditions that deter staff from ‘going the extra mile’ for their employers.

What’s frustrating is that rationality is barely getting a look in on this subject at present. The smart money is on the government being heavily influenced by a yet unpublished report the Prime Minister has commissioned on employment regulation. The report’s author, venture capitalist Adrian Beecroft, is an Oxford-educated physicist and generous benefactor of the University’s Beecroft Institute of Particle Astrophysics and Cosmology. This proves that Beecroft knows a lot more about rocket science than I do, and offers hope that his review of the ostensibly easier subject of what to do about employment rights might be refreshingly scientific in tone. But, judging by media speculation about the content of Beecrofts’s report, I wouldn’t bet on it.

At the very least, those who continually make the case for employment deregulation should tell us exactly what this might achieve, over what time scale, and how it would avoid any negative economic and social side effects. I eagerly await the report’s conclusions – all Beecroft needs to do is apply sensible economics. It’s not rocket science.
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Having recently spoken to BBC Radio 4’s Money Box programme on the subject of what a very prolonged period of economic austerity, akin to the Japanese "lost decade" of the 1990s, might mean for pay packets in this country, I’m left feeling a bit like Mystic Meg. Economists don’t have a clear idea of what the world will look like a year from now, let alone 10 years. But that never stops us from speculating. So, crystal ball at the ready, here goes.

According to the Office for National Statistics, the median annual earnings of full-time employees were £25,879 in April 2010 (roughly £500 a week or £12.50 an hour for an average working week). This was just over £7,000 higher than the corresponding figure for 2000, an increase on the decade of 37 per cent (16 per cent in real terms having adjusted for consumer price inflation (CPI)). Can we expect something similar in the decade to 2020? I very much doubt it.

The 2000s was a decade of mostly strong economic growth, low unemployment and low inflation, which enabled decent improvements in earnings in both nominal and real terms, ruined at the end by a deep and prolonged recession, high unemployment and stubbornly high inflation. At best, the first half of the current decade will witness a continuation of the tougher conditions experienced since the onset of recession. While lean times continue, with high or rising unemployment maintaining downward pressure on pay settlements in the private sector and government clamping down very hard in the public sector, it’s unlikely that average earnings will rise faster than the current rate of around 2 per cent a year.

If this situation were to persist throughout the period to 2020, one might therefore expect to see median annual earnings increase to a little over £30,000. While this would be roughly £5,000 higher in nominal terms than in 2010, it would be unchanged in real terms even if, over the decade, annual CPI inflation averages out in line with the Bank of England’s 2 per cent target rate.

However, my expectation (or at least hope!) is that things will turn out better than this, with the pain of the first half of the decade giving way to some relief in the second half, as the rate of economic growth improves and unemployment starts to fall. Consequently, I expect earnings growth to average around 3 per cent a year for the decade as a whole, enabling median annual earnings to rise to roughly £34,000. This (again assuming CPI inflation averages 2 per cent a year) would represent a rise in median earnings of 10 per cent in real terms.

The outcome would not be anywhere as good as that enjoyed in the 2000s but perhaps not too bad for a decade that will have witnessed the so-called "age of austerity". Even so, what most people will be ultimately concerned about is their real disposable earnings (ie, after tax). We know that the personal tax burden will increase for at least the first half of the decade as part of the government’s plan to eliminate the structural fiscal deficit, so even my reasonably upbeat scenario almost certainly delivers a rise in real disposable earnings of less than 10 per cent.

Moreover, what people actually experience in the coming decade will depend very much on their relative position in the pay league. For example, in the decade to 2010, annual earnings for full-time employees situated at the bottom tenth of the pay distribution increased by 36 per cent to reach £14,000. This was in line with the increase at the median. But the pay of those situated at the top tenth of the distribution increased by 44 per cent (to about £51,620) and rates of increase were much faster still for people higher up the distribution.

It seems likely that this trend will continue, with employers prepared to pay a premium to individuals whose occupational skills or personal abilities (the "X factor") are in high demand relative to the available supply. While even those in the top rank of the pay league might not do as well in this decade as the last, on past experience they will nonetheless fare much better than those further down the pay pecking order. This ought to spark a major political debate about growing pay inequality and the relative tax burden in Britain. But I suspect that, perversely, most outrage will come from those who think that even maintaining the 50 per cent income tax rate for top earners threatens the end of civilisation as we know it. We might, as we're constantly told, “all be in this together” but clearly some of us are more in it than others.

John Philpott is chief economic adviser at the CIPD

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Watching parts of our major cities descend into near anarchy in recent days has made me angry. Not because I want to lock up the worst of the rioters and throw away the key, tempting though that is. Nor because I agree with the prime minister that what we have witnessed is indeed a symptom of a sick society. No, I am angry because of the multiple and avoidable economic and social policy failures that have, over several decades, sowed the roots of this appalling display of violence and wanton criminality.

During the recession of the early 1990s I spent almost a year in Tottenham, scene of the initial riot last Saturday, as interim director of the Campaign for Work. As a working class Londoner, born in the late 1950s and bred in the inner city at a time when the welfare state was in its pomp and full employment taken for granted, observing the damage wrought by subsequent urban decline and mass unemployment was heart wrenching. The roots of this decline are obvious, while its eventual consequences – in the shape of this week’s appalling riots – were probably inevitable.

The Thatcherite austerity of the 1980s ripped the economic heart out of already relatively deprived communities, which have, ever since, been left largely dependent on income from state benefits and whatever limited resources were pumped in by various public agencies to keep the lid on the resulting social distress.

However, public investment on its own has always been insufficient to restore vibrancy to depressed local economies. Therefore, even in the boom years prior to the recession of the late 2000s, drug-dealing and related petty crime was at least as lucrative as the types of legitimate work available to poorly educated, inner city young people, many of whom were themselves brought up in families where nobody had worked in a regular job for years.

Yet, rather than tackle this head-on through a combination of tough policies on welfare, schooling and policing, the authorities have constantly turned a blind eye to criminality and career joblessness to avoid sparking social unrest. The underlying problem was therefore left to fester and gradually allowed to get worse, with gun and knife crime also becoming commonplace. But while this implicit policy of sanctioned neglect was just about feasible in a period of general prosperity, its flaws were always likely to be exposed once a serious recession reduced income levels in poor communities and dragged into the mire people who had previously managed to avoid the temptation to engage in crime or anti-social behaviour.

Although it’s virtually impossible to predict what specific event might spark riots such as those seen of late, I find it unsurprising that they have occurred against a backdrop of economic stagnation, sharply rising inflation and high unemployment. While much of the looting that has taken place has involved theft of expensive luxury goods, rioters also ransacked grocery shops to stock up on food. It’s no coincidence that the last time the UK experienced a similar spate of riots was in the darkest economic days of the 1980s.

I agree with those commentators who reject the suggestion that the riots are a response to the Cameron-Clegg government's austerity measures, since the impact of public spending cuts is yet to be felt with any force, though government policy is partly responsible for the anaemic economic growth we are currently experiencing. However, this offers little consolation, since it means that the full impact is still to come.

But please don’t tell me that there is rioting on the streets of our major cities simply because a minority of people suddenly decided to engage in mass lawlessness. The causes, both economic and social, go much deeper than this and are likely to persist so long as we fail to tackle them head on.

John Philpott is chief economic adviser at the CIPD

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My heart rose at breakfast this morning. I heard George Osborne, the chancellor of the exchequer, admit that “knowing what we know now, we regret the decision”. Sadly, the thrill was short-lived – Mr Osborne wasn’t talking about his tax and spending plans but instead the prime minister’s decision to appoint former News of the World editor Andy Coulson as Downing Street’s press chief. The disappointment was soon to be compounded by the official preliminary estimate of second quarter 2011 gross domestic product (GDP), published by the Office for National Statistics (ONS), which highlighted precisely why the chancellor should be regretting his economic policy stance.

According to the ONS, the economy grew by only 0.2 per cent in the second quarter of the year. Amazingly, this was spun as "encouraging news" by government ministers because some forecasters had suggested things might have been even worse. But quarterly economic growth of anything less than 0.5 per cent would have been poor at this stage of the recovery from recession – the CIPD expected 0.3 per cent – so, far from being encouraging, 0.2 per cent is actually desperately poor.

Don’t pay undue heed to excuses about preliminary statistical measurement or the special "one off factors" highlighted by the ONS which may have depressed economic growth in the spring, such as the after-effects of the Japanese tsunami and the royal wedding (an event we were originally told would boost the economy). The emerging underlying path of GDP growth and forward looking indicators show that the UK economy is being starved of the demand needed to raise output substantially, create enough jobs to cut unemployment and prevent a further deterioration in the fiscal deficit. With the effectiveness of a further bout of quantitative easing far from clear, and even the most growth-friendly supply-side measures unlikely to work properly in a demand vacuum, it’s imperative that the coalition government alters a fiscal policy stance the economy simply can’t bear at present.

It’s becoming increasingly clear that, as the CIPD warned, the coalition government was far too optimistic last year when it set course on a very rapid path to fiscal deficit reduction. Sticking to that course as demand weakens risks crippling the economy for years to come and will make the task of deficit reduction even harder. Ministers should reset the fiscal policy sat nav before it’s too late, in the first instance by reversing last January’s misguided hike in VAT. The argument that a fiscal policy reset would diminish the UK’s credibility in financial markets and itself damage growth prospects has some merit but is overdone. By far the greater threat to credibility is to carry on with a policy that is obviously hurting but shows little sign of working.

John Philpott, chief economic adviser, CIPD

Comments [3] It was a day that will live long in the collective memory of our nation. With spring in the air, the clearly happy smiling couple were cheered to the rafters by a throng of enthusiastic well wishers gathered in Parliament square and along Whitehall. It seems like only a week ago. Yet remarkably its already a year since David Cameron and Nick Clegg stood in the rose garden at 10 Downing Street to seal their historic political partnership.

As with any relationship there have been a few early tiffs, with the first anniversary especially tetchy. Dave promised Nick a referendum on changing the voting system but told everyone else to stick with the tried and tested, which upset Nick’s mates no end. But while Nick’s trust in Dave’s fidelity is a tad less strong than it once was, he’s prepared to forgive and forget in order to put the national family finances in shape.

Unfortunately for Nick, however, the gloss of the 2010 photo shoot has worn off somewhat. Unlike Dave, who looks as smooth and chipper as ever, Nick appears to not only have lost some of his attractive lustre but also quite a large number of former supporters. And judging by the latest economic data, he’ll need more than a cosmetic makeover to win them back any time soon.

The economy, which was growing quite rapidly this time last year, is today no bigger than it was when Dave and Nick tied the knot. The unemployment rate is also the same, which is at least kind of good news, but since the jobless total lags behind changes in the rate of economic growth a flat–lining economy doesn’t bode well for the rest of 2011. Indeed, considering these data have been barely influenced by the tax hikes and cuts in public spending Dave and Nick have made since joining forces, things could yet turn out a lot worse still.

No wonder then that the CIPD’s last quarterly Employee Outlook survey, published on 5 May, makes such grim reading. Approaching 2 in 5 (37 per cent) of the 2000 UK employees surveyed by pollsters YouGov say that their standard of living has dropped in the past six months. This squares with official data showing a dip in real disposable household incomes as not just higher taxes but also rampant price inflation eats into pay packets, which for most people are little if any bigger than they were before the recession.

Job satisfaction meanwhile is down to its lowest level since the CIPD started to take the temperature of feeling across UK workplaces in spring 2009. Especially worrying for bosses trying to steer staff through tough times, employee morale has plummeted to a record low for the survey, as has trust in senior leaders.

Dave and Nick can of course argue that all this was inevitable and they had no alternative but to come together to lead us all through unavoidable tough times. And equally true, no one knows what would have happened had the Prime Minister and his deputy not wooed each other after last year’s General Election stalemate. Either way, however, with economic and social tension almost certain to intensify in the coming months the likelihood is that this political marriage has yet to encounter its most rocky patch. Dave and Nick might still live happily ever after, but don’t count on it.
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John Philpott, chief economic adviser, CIPD

I’ve just finished watching the chancellor of the Exchequer George Osborne make his second budget speech to the House of Commons. Although by introducing a fiscally neutral budget, the chancellor reiterated that he will stick to his fiscal Plan A whatever the short-term pain this will cause, the positive tone of Mr Osborne’s initiative-packed statement, with its very business-friendly "plan for growth", matched the sunny spring weather in Westminster.

Indeed, so enthusiastic was the chancellor that at times he literally coughed out his words as his voice grew ever more hoarse. I found the timbre of Mr Osborne’s croaky delivery oddly reminiscent of his Tory predecessor Nigel (now Lord) Lawson, whose name the chancellor mentioned in his speech in tandem with that of 18th century economist Adam Smith, which is always a sign that the budget is thought by its author to be historically groundbreaking.

Whether this proves to be the case remains to be seen. But budgets are best assessed in relation to their overall short-term and long-term impact on household finances, company profits and job prospects. On this score, this year’s budget amounts to a mix of pluses and minuses wrapped up in a cloak of uncertainty.

There was good news for households looking for some relief from the impact of high fuel prices – fuel duty is being cut immediately by 1p a litre while a planned 5p hike has been scrapped. Most businesses should be feeling chipper on hearing that the main rate of corporation tax is being reduced by 2 per cent to 26 per cent next month and eventually to 23 per cent by 2014 (though in the case of banks this is offset by an increased levy payment) and probably ecstatic at the prospect of less regulation.

Employers detest nothing more than red tape and, despite the fact the UK has one of the least regulated and most flexible labour markets in the developed world, the coalition’s Plan for Growth (published alongside the budget) in effect promises to both cut regulation (especially for very small firms and start-ups) and attack the causes of regulation (mostly by bashing EU bureaucrats).

However, those tempted to conclude that the budget is all sweetness and light will be sadly disappointed. A fiscally neutral budget is exactly what it says on the tin – it makes no net difference to the amount of spending power the chancellor adds to, or as in this case, subtracts from the economy. In other words, anything Mr Osborne has seemingly given away with one hand he will have taken back with another (it normally takes a day or two for the number-crunchers at the independent Institute for Fiscal Studies to work out who are the relative winners and losers). As for the net negative impact on spending, the forecast from the Office for Budget Responsibility (OBR), which now accompanies the budget, shows that for all Mr Osborne’s talk of economic growth, things will get worse before they start to get better.

The OBR has cut its forecast for economic growth in 2011 from 2.1 per cent to 1.7 per cent. Unemployment is now expected to rise by around 100,000 this year before peaking at 8.2 per cent (2.6 million), while price inflation will easily outstrip average pay increases until 2013. These forecasts have moved closer to the economic outlook for 2011 published by the CIPD following Mr Osborne’s first budget last year, but still look very optimistic for 2012 onward. They may well have to be revised further downward in due course.

In particular, the OBR and the chancellor remain upbeat that investment and exports will drive the economy forward and more than compensate for the triple squeeze on domestic spending caused by continued tight credit conditions, cuts in public spending plus tax hikes, and the impact of the current spike in price inflation on real incomes. This view looked optimistic but plausible when the chancellor published his first budget. In today’s climate of mounting domestic and global economic uncertainty, it looks more optimistic and less plausible, regardless of the warm words of support the budget is likely to receive from the business lobby. The UK might, in due course, witness what Mr Osborne calls the "march of the makers" but their initial steps will almost certainly be tentative.

Set alongside the OBR figures, Mr Osborne’s ‘pain today, growth tomorrow’ budget reads like a long-term fitness plan for an economy whose immediate pressing need is for more sensitive intensive care than the chancellor is prepared to provide. If the economy remains robust enough in the short-term to take full advantage of the chancellor’s battery of mostly sensible micro-measures, this year’s budget might in time come to be viewed as a milestone on the road to supply-side reform. But the risk remains that by applying too much short-run fiscal pain to a still ailing economy the chancellor will, at best, reduce the effectiveness of his long-term plan for growth and, at worst, inflict chronic damage that might take a decade or more to recover from.

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Six weeks in and the coalition government has made such a stuttering start to the year that even Colin Firth is envious. Economic growth has stalled, inflation and tax rises are hitting living standards, and hardly a day goes by without an announcement of large-scale council job cuts. As yesterday morning’s CIPD/KPMG Labour Market Outlook survey report notes, the overall public sector jobs cull is gathering pace, while private sector employers are less optimistic about the jobs outlook than they were last autumn. Yet, despite all this, the government continues to put politics before policy, dogmatically sticking to an inflexible plan for deficit reduction and hoping that political gimmicks will divert attention from what the CBI has rightly said is the absence of a coherent strategy for growth and jobs.

First up was deputy prime minister Nick Clegg and his clarion call to ‘alarm clock Britain’, praising those hardy souls who get out of bed at the crack of dawn to do an honest day’s work rather than hang around until the dole office opens. Unfortunately Mr Clegg failed to notice that the start of the year saw the sharpest rise in unemployment since the end of the recession, with the result that far fewer people actually have jobs to go to.

Not that David Cameron has fared much better. His ‘Big Society’ ambitions have been questioned by many of the voluntary sector bodies he wants to place in the vanguard of social change. It seems that effective community initiative goes hand in hand with properly targeted public spending; state and society are far more closely intertwined than Big Society enthusiasts believe. The prime minister should take heed of the social impact of spending cuts announced last week by Manchester City Council, which go so far as to shut all but one municipal public convenience. Without public subsidy, it seems, we won’t even be able to sustain the 'bog society’ in future.

Most depressing of all, however, was the publication of what ministers have labelled the ‘employer's charter’, alongside a consultation on changes to the employment tribunals system and an increase in the length of time staff have to work before having the right to challenge an employer on grounds of unfair dismissal. I was far from surprised by this move – my previous blog at the start of the year warned that workers’ rights would be used as a scapegoat to explain away muted private-sector job creation in the coming months. But the coalition government’s move nonetheless leaves a nasty taste in the mouth.

I will return in future blogs to the subject of why watering down employment rights is not the way to go if we want the UK to be a high employment, high productivity, and high happiness society. But aside from the economics, anybody in HR or the wider employer community who openly advocates a more ‘hire and fire’ workplace should acknowledge that this runs counter to talk of employee engagement, good work and high performance working.

Do we really want to reinforce the lack of trust in senior management and intense job insecurity that still pervades so many British workplaces? The UK doesn’t need an employer’s charter but a ‘workplace charter’ that seeks to foster engagement rather than further instil a damaging sense of ‘them and us’. The employment relations scene in 2011 is likely to be difficult enough without measures that seek to turn back the clock to 1981. Perhaps Valentine’s Day would have been a good time for the government to reach out to workers as well as bosses.

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What a riotous start to 2011! I’m too old to remember when midnight on New Year’s Day was truly raucous but, thanks to inmates at Ford open prison, we have a sense of what it must have been like: drink, drugs, bonfires, lots of shouting and screaming, plus television coverage long after Jools Holland and his celebrity chums were safely tucked up in bed. If this is, as some commentators claim, the first manifestation of the effect of this year’s mega cuts in public spending then there won’t be many quiet moments in the months ahead.

Those hoping for 2011 to start with a rather more positive kind of swing will have been enlivened by the sight of Lord Michael Heseltine (aka “Tarzan”) once again traipsing through the political jungle. I must confess I’ve always admired Heseltine, who strikes me as the very best kind of Tory heavyweight. Talent and hard work, rather than social privilege, earned him financial and political success but he nonetheless represents the “one nation” tradition within Conservatism and, unlike many self-made wealthy Tories, was never an ardent Thatcherite. It’s a shame that he didn’t succeed Mrs Thatcher as prime minister in 1990, having been the final instrument of her downfall.

Having served under Thatcher’s actual successor (John Major) in the 1990s, Heseltine adopted a far lower public profile in the New Labour years but has now re-emerged to spearhead part of the coalition government’s drive to boost growth and jobs in English regions. Lord Heseltine is chairing a panel to consider bids from development projects looking for financial support from a newly established £1.4 billion regional growth fund. The Tory peer is widely thought to be ideal for this task, having been at the forefront of urban regeneration policy when a minister in the 1980s and closely familiar with the economic and social challenges faced by localities in need of renewal.

However, what has drawn my attention to Lord Heseltine in recent days is not the detail of his current task but rather the broader content of an interview he gave to the Times newspaper, quotations from which were published on 29 December. Lord Heseltine displays a refreshingly sensible perspective on current barriers to economic growth and job creation, particularly with regard to the often cited bogeyman of employment regulation. He doesn’t see an urgent need for reform of employment law and is quoted by the Times as saying that regulatory and employment law issues “matter much less than the conventional wisdom. Of course there are things at the edges. At the moment the single biggest factor is confidence.”

Why is Lord Heseltine’s comment on this subject significant? Because I suspect that as 2011 unfolds there will be growing frustration that the rate of private-sector job creation is inadequate to offset mounting public-sector job cuts, and a related tendency for the business lobby to use this to support calls for a watering down of employment rights. Such calls should be resisted. If there is a jobs shortfall this year it will be the inevitable result of slow economic growth against a backdrop of reduced public spending and higher taxation. Any shortfall should not be attributed to structural problems in the labour market, including the effect of employment regulation. There may be legitimate arguments for or against improved rights for workers. But it would be opportunistic and unreasonable to use difficulties in the macro economy to justify reducing existing employment rights. Those in any doubt about this are advised to listen to Tarzan’s call.

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I walked through Parliament Square early yesterday afternoon, just before MPs began to debate the coalition government’s controversial proposal to raise student tuition fees. There was at that time little sign of student protestors. The scene instead was one of curious tourists watching the massed ranks of heavily armed police, some on horseback, as though this were an authoritarian alternative to the changing of the guard up the road at Buckingham Palace. No matter how deplorable the subsequent violent behaviour of a minority of demonstrators, there is something menacing about the forces of the state preparing for battle outside the principal institution of our democracy. Let’s hope this isn’t the taste of things to come.

I surveyed the depressing scene en route to participating in a timely lunchtime debate at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA), entitled: Is 50 per cent too much? Access to higher education in an age of austerity. While preparing my contribution, it struck me that one of the ironies of the tuition fees debate is that opponents fear the coalition government’s preferred approach will restrict access to higher education, but proponents argue that the policy will, at the very least, maintain the existing quantity and quality of higher education at lower cost to the public purse. Yet whichever side of the debate is right - discussion of the merit of the government’s position, a graduate tax, or sticking with the status quo – all of it is predicated on the assumption that high or rising participation in higher education is an appropriate policy objective.

The assumption reflects the conventional ‘common room’ wisdom, shared by policy makers, academics and students alike, that we need a large supply of graduates in order to promote both economic and social progress. The alternative popular ‘saloon bar’ wisdom (that there are nowadays more university students and graduates than the country either needs or, in tough times, can afford) is dismissed with hardly a second thought. But should it? I must admit that my personal inclination is to support the common room over the saloon bar on this matter. But in doing so I think it’s helpful to put conventional wisdom to the test.

Take, for example, the argument that demand for graduate skills will tend to outstrip supply in a growing knowledge-based economy, and thus that failure to match growth in investment in graduate skills will see UK living standards fall relative to countries that are expanding higher education. As a general rule this argument is quite strong but there is also evidence to support the counter argument that some of the increase in demand for UK graduates in recent decades merely reflects a re-labelling of previously non-graduate jobs as graduate jobs by employers in response to increased student numbers. As a result, a proportion of graduates are found to be ‘overqualified’ for the jobs they are doing, which calls into question the return to investment in graduate skills, whatever the precise funding mechanism.

A related argument in favour of expanding higher education is that graduates earn more over their lifetime than people with A-levels or equivalent qualifications who could have entered higher education but took an alternative route into the workforce. Once again, while this argument holds at face value, the average post-tax lifetime graduate premium of around £100,000 might not adequately measure the return to all graduate qualifications. For some prospective students, the potential relative financial return to graduate and non-graduate employment might be minimal, while it is also possible that non-graduate routes to work - such as work-based apprenticeships - might provide superior soft employability skills of the kind many employers suggest are lacking in graduates.

Question marks over the case for mass higher education doesn’t necessarily provide sufficient justification to put the brakes on expansion but they do strengthen the need for good quality advice and guidance to prospective students, a matter on which everybody seems to be in general agreement and a seriously under-acknowledged positive aspect of the coalition government’s approach. This seems to me the best way to both ensure that entry to higher education is a considered rather than simply automatic choice, and that the distribution of students across higher education institutions and courses is based on a clear assessment of the financial and non-financial rewards on offer. What level of participation such a rational choice-based system will result in is difficult to determine in the abstract – it could be more or fewer students and graduates than we have today. But it is likely to produce an optimal outcome.

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