Josh Ryan-Collins is senior researcher on monetary reform at the New Economics Foundation

As the economy slides towards recession, the Bank of England today announced today it was creating a further £50bn worth of ‘quantitative easing’ (QE).

If you read articles on the topic in the media, you will see statements like “the Bank is ‘printing’ money” or the Bank  will “pump a further £50 billion in to the economy”.  Both these statements are misleading.

QE actually involves the Bank of England buying financial assets – usually government bonds – belonging to institutional investors and sitting in Banks. The Bank buys these assets with newly created central bank reserves.  These reserves can only be held by banks – they do not and cannot go to businesses the real economy.

As explained in nef’s Where Does Money Come From?, central bank reserves are used by commercial banks to settle payments with each other.

By ‘pumping’ more reserves in to the intra-bank clearing system the idea is that banks will feel more confident about making loans to the real economy because they will know that other banks are in a stronger position to settle with them.

In addition, by buying up ultra-safe government bonds in vast quantities and thus pushing down the yield (the interest received on holding) on these assets, the central bank hopes to encourage investors to buy higher yielding corporate bonds – which again provides money for real businesses.

QE may reduce long-term interest rates, but there is little evidence it has stimulated commercial banks to start lending more to businesses, in particular small businesses, or soften the conditions banks are attaching to loans.

In fact the most recent figures published by the Bank show that net lending – the amount of loans minus the amount repaid – to small businesses has contracted by six per cent in the year to November 2011. And this despite the banks being given small business lending targets by the government through ‘Project Merlin’.  Not much wizardry there then.

The hard truth is that commercial banks are still in a process of ‘de-leveraging’, more keen on getting their loans repaid and building up their capital base than making new loans to productive businesses in what is perceived to be a risky real economy.

Evidence suggests the additional funds provided by QE are more likely to be used by banks to create more speculative credit, not least commodity speculation,  that provides shorter term returns.  As a result, the money supply in the real economy is contracting just at the point where new investment is most needed.

But there are alternatives. The central bank, working with the government, could find ways of channelling newly created central bank money more directly in to the economy.

In a pamphlet released today, economist Richard Werner, who coined the term quantitative easing whilst commentating on the Japanese economy in the 1990s, and Green Party leader Caroline Lucas, argue that the Bank of England needs to rethink its strategy.

They suggest a massive ‘green quantitative easing’ program, involving the creation of a new entity – or a beefed up green investment bank perhaps – that could issue corporate equity or bonds purchased by the Bank of England and then use the funds to embark on a £70 billion green QE program for solar PV and energy efficiency in homes.

According to the calculations in the report, this would create 200,000 jobs and save households up to £250 per annum in reduced electricity bills. On top of this, green QE could finance the £16 billion green deal energy efficiency program for homes the government is planning, creating 65,000 jobs in insulation and construction by 2015.

If the Bank of England objected to buying corporate instead of government assets, the Treasury could guarantee them much as Obama’s administration guaranteed green loans in the United States to help kick-start the economy following the financial crisis.

Pension funds should also be happy to buy up such assets given the long term (25 year) secure returns generated through the Feed-in-Tariff and household repayment of energy efficiency loans by households met through the savings on heating bills.

The government and Bank of England needs to accept the fact that our banking system is not currently longer fit for purpose – assuming the purpose is getting money in to the real, productive economy.  It could take decades to restructure our banks so that they become functional again.

In the meantime, we should abandon ‘orthodox’ QE and find better ways of exploiting the Bank of England’s power of money creation.  Creating hundreds of thousands of jobs, tackling climate change and fuel poverty and improving energy security seems like a reasonable place to start.

See also:

• We’re all economists now, part one – Ben Mitchell, February 4th 2012

• Will quantitative easing work this time? – George Irvin, October 9th 2011

• Quantitative easing: The latest windfall from us all to “country London” – Ranjit Sidhu, October 8th 2011

• Could earnings-based rent-control replace quantitative easing? – Peter Morgan, September 26th 2011

• Osborne set to U-turn on QE – so why not on Plan B? – Shamik Das, September 12th 2011

The National Institute of Economic and Social Research’s latest growth predictions are certainly grim: the think tank projects that the economy will shrink by 0.1 per cent in 2012. That means, fewer jobs, smaller wages, and a harder economic time for most UK citizens.

However, we knew that these would be difficult times. What was meant to act as consolation was that we would be reducing the deficit and ensuring our long-term financial health.

But, as we know from the correlation between growth and the deficit using the Office for Budget Responsibility’s (OBR) own figures, such a contraction will increase the deficit.

Using George’s Marvellous Deficit Calculator, an economic contraction of 0.1 per cent relates to a deficit of 8.4 per cent in 2012/3 - missing Osborne’s initial projection  of 5.5 per cent - half as much again.

It is around one quarter larger than 6.6 per cent deficit projected under the Darling plan by the OBR.

And as Will Straw and Guido Fawkes have pointed out this, he can’t blame the poor performance on the Eurozone crisis as the trade deficit with the continent continues to shrink.

“Contractionary Fiscal Expansion” isn’t working. What we have, some people might say unsuprisingly, is “contractionary fiscal contraction”. The game is up, and it is time for the government to put the economy before its pride and admitted it is so.

See also:

• Positive trade figures undermine Osborne’s claim that Eurozone is to blame for negative growth – Will Straw, February 9th 2012

• Economic Update – February 2012: Double dipped – Tony Dolphin, February 7th 2012

• US grew almost twice as fast as UK in 2011 – Will Straw, January 27th 2012

• The double-dip begins – Tony Dolphin, January 25th 2012

• Hopes of an export and manufacturing-led recovery recede – Tony Dolphin, August 9th 2011

While both Germany and Japan have reported bad news on trade in recent days, the UK’s export performance has picked up. New figures released today undermine George Osborne’s claims that the Eurozone was to blame for the contracting British economy.

Trade figures released this morning by the Office for National Stastics show that the UK’s trade deficit was £1.1 billion in December compared with a deficit of £2.8 billion in November. This is the smallest deficit in nine years.

The deficit in traded goods to the European Union fell from £3.9 billion to £3.4 billion while the deficit in goods to the rest of the world fell from £5.0 billion to £3.7 billion. These changes were primarily driven by a drop in imports but exports were up by £200 million – with an equal contribution to the EU and elsewhere.

Last month’s figures for growth in the fourth quarter of 2011 showed that overall economic activity had fallen by 0.2 per cent. At the time, George Osborne blamed the Eurozone crisis for the decline but figures released by the House of Commons library a few days earlier had shown that over the course of 2011, growth in trade was all that kept Britain growing.

As Guido Fawkes has noted,

“It is a myth that the decline in GDP has anything to do with the €uro-crisis leading to a decline in exports to the €urozone. The barriers to growth are a domestic problem.”

The Bank of England remain sufficiently worried about the economy to announce a further £50 billion of quantitative easing. According to the Telegraph, the ONS indicated today that the positive trade figures and a boost for manufacturing were not enough to change the first GDP estimate for the fourth quarter of 2011, which showed the economy shrank by 0.2 per cent.

But they do make it less likely that Britain has avoided a technical recession by growing in the first quarter of 2011. For once, the OBR may find that their predicted rise in GDP of 0.1 per cent in this quarter is accurate. The chancellor will certainly hope so.

See also:

• Economic Update – February 2012: Double dipped – Tony Dolphin, February 7th 2012

• US grew almost twice as fast as UK in 2011 – Will Straw, January 27th 2012

• The double-dip begins – Tony Dolphin, January 25th 2012

• Hopes of an export and manufacturing-led recovery recede – Tony Dolphin, August 9th 2011

• What an export-led recovery may mean for the world – Nick Dearden, January 25th 2011

Today’s Report on Jobs from the Recruitment and Employment Confederation suggests that the number of people getting jobs increased a little around the New Year. It’s too early to tell if this is a trend or a blip, but it does seem to be a real change.

Each month the REC and KPMG publish the results of a survey of recruitment agencies that asks whether they are seeing more permanent and temporary appointments than in the previous month. The index measures the level of change – over 50 means more than last month, under 50 means fewer.

This is welcome news and follows good Services Purchasing Managers’ Index results published last week, by Markit, the same organisation that carries out the research for the REC and KPMG.

This found that employment growth in services (over three quarters of the economy) was “the strongest since March 2008.”

Both are in line with last month’s Reed Job Index, which found a 9 per cent increase in new jobs from January 2011. These surveys aren’t all equally reliable, but taken together they do suggest a real improvement in the last month or so.

But it’s too early to start celebrating. Firstly, as the REC says, what we have here is a “modest increase” in permanent appointments and there was an even stronger improvement last year, which turned out to be a blip, rather than a trend:

These are figures for appointments; the Report on Jobs also produces an index for employers’ demand for staff, based on vacancies.

I pay more attention to the appointments figures (actually appointing someone is the best test of demand) but you need to take this index into account to get a full picture.

In this index, demand didn’t actually stop increasing, but the rate at which it has been growing has slowed for three months running and is now at its lowest for over two years:

Positive news is scarce right now and most of today’s headlines emphasise the increase in placements. Fair enough, but expect the DWP to repeat its usual line that “there are jobs out there” and that unemployment can be blamed on the attitudes of unemployed people. Today’s report actually provides further evidence that this is wrong.

The REC also produces an index for the availability of permanent and temporary job candidates. Now it is true that this is rising at a slower rate than in previous months, but it clearly shows that the supply of people who want jobs is still growing – indeed, the availability indexes are more clearly in positive territory than the vacancy and placement indexes:

KPMG’s Bernard Brown put it very well:

“Sadly, though, the number of people hoping to fill these vacancies continues to rise and with unemployment benefit claimants up for the tenth month in succession, the competition to be the right candidate in the right place is tougher than ever.”

 The working age population is on an upward trend (over the past forty years it has risen every year except 1993) and for decades governments have been trying to increase the workforce by moving people from disability and other “inactive” benefits to Jobseeker’s Allowance. This means that job growth has to be quite strong just to stop unemployment from going up – we aren’t at that level yet, let alone at the point where we can expect to see it coming down. With 94 per cent of public sector cuts still to come, the clever money is still betting that the number of unemployed people is going to rise this year.

See also:

• The jilted generation demand ‘We want jobs’  – Shiv Malik, January 6th 2012

• Ken stays ahead as Boris doubles-down on blaming young people for youth unemployment – Alex Hern, January 23rd 2012

• 2012: The year ahead for young people – Alex Hern, January 7th 2012

• Unemployment: How Cameron and Clegg are letting the next generation down –Rachel Reeves MP and Stephen Timms MP, December 14th 2011

• Misery on the rise, while demand for jobs is falling  – Richard Exell, June 11th 2011

KPMG has refused to release the full findings of a controversial report which claimed that money spent on wind farms would be better used to encourage the building of nuclear or gas plants.

In November last year Reg Platt reported for Left Foot Forward on the preliminary findings of the report:

The Sunday Times and a Panorama edition reported on a yet to be seen report by KPMG (the launch of which has since been delayed and a press release has been pulled) that will apparently make the economic case for gas up to 2020.

The Guardian’s Damian Carrington quickly exposed the vast ‘wholesale prices’ gap in Panorama’s polemic on energy tariff rises and the cost of wind turbines.

Today, BusinessGreen has revealed that KPMG will never release the full study, due to concerns that it is “ripe for misinterpretation”.

Sorrelle Cooper, a spokeswoman for KPMG, told the site that:

“The assumptions and parameters used in the model – which examined the investment and lifetime costs of different energy generation sources – produced large swings in the financial outcomes.”

“To avoid any misinterpretation we have decided not to publish any findings, although we are discussing our analysis with interested clients and stakeholders in the energy industry.”

Jessica Shankleman, writing for BusinessGreen, adds that:

Cooper admitted there had been mishandling of the release of the report, maintaining that the draft press release had been leaked, although she refused to provide further details on how it had been made public.

However, Cooper stood by KMPG’s methodology, adding that the research team had since come to an agreement with RenewableUK over how the figures were derived.

She also maintained that KPMG had close ties with the green energy industry, was not “anti-wind” and had last week been involved in a major wind farm deal.

But a spokesman from RenewableUK said that while it had met with KPMG since the findings were published, it stood by its original concerns over the report’s methodology.

Regardless of the excuses given by KPMG, it’s hard to take this any other way than them failing to fully support their conclusions, and questions should now be asked of the Sunday Times and Panorama as to why they decided to base stories on an incomplete report in the first place.

The news is a welcome counter to the nimbyism of over one hundred Tory MPs today, who wrote to the prime minister in opposition to wind farms.

As Kevin Meagher argued earlier today on this site:

Wind farms are not to everyone’s visual tastes, but to talk about them ‘destroying the environment’ is so far wide of the mark as to be laughable. By far the most commercially viable form of renewable energy, which can easily be scaled up, wind is vital to Britain’s strategic energy interests.

As Europe’s windiest country, with a suitable onshore topography and hundreds of miles of viable coastline, we would be looking a gift horse in the mouth by not cultivating a free, abundant and truly renewable natural resource.

See also:

• Tabloid attacks on green movement mean we have to raise our game – Reg Platt, November 29th 2011

• Britain is the world leader in wind power – Chris Tarquini, January 21st 2011

• Energy minister: No dramatic increase in onshore wind power – Joss Garman, July 14th 2010

• Tory right turn on Huhne over energy policy – Roland Marcelin-Horne, June 16th 2010

• 100 reasons why “vote blue, go green” won’t work – Will Straw, December 18th 2009

It took less than 24 hours from the resignation of Chris Huhne for the Tories to strike. A hundred and one Tory backbenchers have written to David Cameron calling for an end to public subsidies designed to support Britain’s wind power industry.

They claim that subsidies should be drastically cut and draft planning guidance strengthened to make it easier for objectors to block wind farm schemes.

The letter, organised by Daventry MP, Chris Heaton-Harris, says it is ‘unwise’ to support ‘inefficient and intermittent’ onshore wind power and the forthcoming National Planning Policy Framework (NPPF) should be beefed up to make it easier to oppose wind farm applications.

Quelle surprise! In the main, the Tories are a coalition of climate change sceptics – like former chancellor Nigel Lawson – and rural romantics who see a wind turbine on a hillside or stretch of coastal horizon as butchery of the landscape.

Despite the fact that 60 per cent of voters think it is ‘right’ to ‘subsidise wind farms to encourage more use of wind power’.

It certainly isn’t a rational belief about the efficacy and cost-effectiveness of wind power. Far from being ‘intermittent’ wind turbines operate between 70-80 per cent of the time, currently providing power for the equivalent of 3.3 million homes.

Indeed, as Conservative energy minister Charles Hendry has put it:

“Onshore wind is one of the most cost-effective and developed of all renewable technologies, and has almost zero marginal cost, because once the facilities have been constructed, the cost of the energy – the wind – comes without charge.”

One of the signatories to the backbench letter, West Suffolk’s Matthew Hancock – George Osborne’s former adviser in opposition – said:

“I support renewable energy but we need to do it in a way that gives the most value for money and that does not destroy our natural environment.”

Wind farms are not to everyone’s visual tastes, but to talk about them ‘destroying the environment’ is so far wide of the mark as to be laughable. By far the most commercially viable form of renewable energy, which can easily be scaled up, wind is vital to Britain’s strategic energy interests.

As Europe’s windiest country, with a suitable onshore topography and hundreds of miles of viable coastline, we would be looking a gift horse in the mouth by not cultivating a free, abundant and truly renewable natural resource.

Unfortunately the opposition of Conservative MPs is emotional and myopic. They elevate their aesthetic prejudices to a faux point of principle.

But writing on ConservativeHome yesterday, Tory MP Chris Pincher let the cat out of the bag:

“Ask an estate agent and they will tell you that a wind turbine application to the local planning committee can easily affect the value of homes in the immediate vicinity.“

Despite this rank nimbyism, the concept of having an ‘energy mix’ means there is a role for all forms of generation in meeting our demand for power. This alters given the availability, reliability and cost of a particular energy source as well as our carbon reduction obligations.

As energy regulator, Ofgem, noted recently, Britain faces ‘growing exposure’ to a volatile global gas market where ‘political instability in the Middle East and the impact of Fukushima have helped push up wholesale gas prices for this winter by 40 per cent’.

By turning their noses up at wind power Tory MPs serve to make us more reliant on nuclear and imported energy sources with all the associated price spikes and reliability problems. With the looming crisis in Iran and the continuing uncertainty in Russia and the Middle East, such a policy is an abdication of our national interest.

And also a snub to jobs. Our burgeoning wind power industry already employs 10,000 people at every level from apprentices to experienced engineers.

As Jennifer Webber from RenewableUK puts it:

“The number of jobs is expected to rise to 88,300 by 2021, including the many companies, large and small, involved in the supply chain.”

That is an eight-fold increase in jobs over the next decade.

Creditably, Laura Sands, Tory MP for South Thanet, took to the airwaves yesterday to counter her ill-informed colleagues, arguing that we need to ensure security of supply and limit our reliance on imported fuel in order to secure our future energy needs.

Along with Charles Hendry, she will find that being a Conservative MP with a serious, informed interest in our energy challenge is a lonely – and maddening – place to be.

Chris Huhne may have had his faults, but as energy secretary he managed to keep the crackpots and nimbys on the Tory backbenches at arm’s length. Let us hope his successor, Ed Davey, will do likewise.

See also:

• Britain is the world leader in wind power – Chris Tarquini, January 21st 2011

• Energy minister: No dramatic increase in onshore wind power – Joss Garman, July 14th 2010

• Tory right turn on Huhne over energy policy – Roland Marcelin-Horne, June 16th 2010

• 100 reasons why “vote blue, go green” won’t work – Will Straw, December 18th 2009

• Lansley opposes local wind farm – Will Straw, November 18th 2009

The UK economy may be back in recession, on the technical definition of two consecutive quarters of declining real GDP. UK Gross Domestic Product contracted by 0.2 per cent in the final quarter of 2011 and many economists think that it will contract again in the first quarter of this year.

The chancellor said the drop in output in the final quarter of 2011 ‘was not entirely unexpected’ and this is true in the sense that economists have been predicting it for the last few months.

But just six months ago, there were very few forecasters expecting the UK to return to recession.

It is convenient for the government to blame the deepening euro zone crisis for this development, and it has probably had some effect on consumer and business confidence, and thus on investment spending and hiring.

But exports have been relatively resilient and weak domestic spending is the main problem. This is due to the squeeze placed on household spending power by higher commodity prices, the increase in VAT and the government’s cuts in public sector employment.

Provisional figures show the UK economy contracted by 0.2 per cent in the final quarter of 2011.

As a result, growth for the full year was 0.9 per cent. Growth over the four quarters to the final quarter of 2011 was 0.8 per cent, though this figure is flattered by comparison with the final quarter of 2010 when output was hit by bad weather in December. Underlying growth over the last four quarters was probably as low as 0.3 per cent.

Various explanations for this poor performance have been put forward and most economists believe some combination of them is to blame. They include: the fact that recoveries from recessions caused by the bursting of asset bubbles tend to be weak, the effect of high food and energy prices on households’ spending power, the euro zone crisis and the speed with which the government is choosing to cut its deficit.

What happens next appears to depend primarily on developments in the eurozone. At best, growth in the UK economy during 2012 will be a little better than in 2011 (i.e. better than 0.3 per cent over the year to the fourth quarter) as lower inflation eases the squeeze on households.

At worst, a deepening of the euro zone crisis could lead to a renewed credit crunch and reversal of recent increases in business confidence, turning what could be a mild recession (if it is a recession at all) into something more serious.

These increases in business confidence – in manufacturing and in the service sector – are intriguing. Despite a collapse in consumer confidence and no let up in the gloom coming out of Europe, they suggest companies have started 2012 in a more optimistic frame of mind. This is certainly not consistent with the notion of the economy being in recession.

1. GDP declined by 0.2 per cent in the fourth quarter: Preliminary figures show real GDP was down 0.2 per cent in the final quarter of 2011. Output of production industries contracted by 1.2 per cent, construction was down 0.5 per cent and service sector output was unchanged.

Few details are available but it is likely that destocking by manufacturing companies was the main factor behind the fall in GDP. Over the last year, excluding the bounce back from last December’s bad weather, growth has been just 0.3 per cent.

2. Retail sales volumes have improved as inflation has eased: The volume of retail sales increased by 1.1 per cent in the final quarter of 2011 (making it unlikely that lower consumer spending was a factor contributing to the fall in GDP), while the value of sales was up 1.7 per cent.

Despite low wage inflation and rising unemployment, households are still willing to increase their spending on the high street and the internet.

The increase in prices – 0.6 per cent – in the final quarter was lower than recent experience, so this extra spending converted into the strongest quarterly growth in sales volumes since the second quarter of 2010.

3. Consumer confidence is at a near record low: Consumer confidence is at near record low levels, reflecting worries about rising unemployment and the euro zone crisis and a deteriorating outlook for the housing market. On previous occasions when confidence has been this low, the economy has been in recession.

4. Business surveys improve in January: Contrasting with the gloom among consumers, business confidence started 2012 on a more buoyant note. The purchasing managers’ survey of manufacturing recorded a jump in confidence, output and new orders in January, lifting the overall index to 52.1, which suggests the sector is expanding again.

The latest CBI monthly survey showed a similar picture. Meanwhile, the service sector index rose to 56.0 – a ten-month high. In the past, confidence around these levels has been consistent with the economy growing at around its trend rate – about 0.6 per cent a quarter.

5. Manufacturing output is weak: Manufacturing output fell by 0.2 per cent in November and was 0.6 per cent lower than a year earlier. The trend in output has been flat to lower for several months. Performance has become mixed across sub-sectors, with output down in seven and up in six over the last year.

6. Modest increase in employment: Employment in the latest three months, to November 2011, was 18,000 higher than in the previous three months and 26,000 higher than a year earlier. However, the number of employees fell by 93,000 over the last year, while the number saying they were self-employed increased by 138,000.

It is not clear whether some of this increase in self-employment represents hidden unemployment. There are also over 1.3 million people working part-time because they cannot find a full-time job.

7. Unemployment reaches 17-year high: On the Labour Force Survey (LFS) measure, unemployment is now 2.68 million – the highest level since the three months ending in August 1994 – and the unemployment rate is 8.4 per cent – the highest since the three months to November 1995.

Over the last quarter unemployment increased by 118,000. The claimant count measure has gone up for ten consecutive months, though in recent months the scale of the increase has been falling and in December it was just 1,200.

8. Price inflation eased to 4.2 per cent: Consumer price inflation fell back from 4.8 per cent in November to 4.2 per cent in December (and from 5.2 per cent to 4.8 per cent on the retail price measure).

There will be a further big fall in January when last year’s increase in VAT drops out of the calculation and cuts energy charges will help push inflation even lower in coming months. By the end of 2012 consumer price inflation could be below its two per cent target rate.

9. Wage inflation stuck close to 2 per cent: Average earnings increased by 1.9 per cent and regular pay was also up 1.9 per cent over the year to the three months ending in November 2011. Regular pay in financial and business services was up 3.5 per cent, while pay in other sectors only increased by around 1.5 per cent.

10. Government borrowing is below last year’s path: In the first nine months of the 2011/12 fiscal year, public sector net borrowing (excluding financial interventions) was £103.3 billion, down from £114.6 billion a year earlier. It appears that borrowing for the whole year is set to come in lower than in 2010/11 despite weak economic growth.

This is the result of discretionary fiscal tightening by the government, but higher price inflation will have helped. The OBR’s latest forecast for borrowing in the full year 2011/12 is £127 billion; this may be undershot.

11. Interest rates remain at 0.5 per cent; QE at £275 billion: The Monetary Policy Committee left interest rates at 0.5 per cent in January and the scale of quantitative easing at £275 billion. With the economy possibly back in recession and inflation now falling, there is speculation that the MPC will increase the scale of quantitative easing, perhaps as soon as at its February meeting.

12. Government bond yields close to historical lows: The 10-year UK government bond yield rose a little in January, but remains not far from 2%. This reflects the poor outlook for growth and the improving outlook for inflation, Bank of England buying of bonds to implement quantitative easing, and the ever-receding prospects of higher interest rates in the UK.

13. Sterling little changed in January: There was little movement in any of the main exchange rates during January.

See also:

• We’re all economists now, part two - Ben Mitchell, February 5th 2012

• We’re all economists now, part one - Ben Mitchell, February 4th 2012

• Look Left – Wonga’s student ‘scam’ comes unstuck - Shamik Das, January 13th 2012

• Economic update – January 2012: Outlook not all bad - Tony Dolphin, January 9th 2012

• “We are spiralling into a prolonged and ghastly depression”: The economy in 2012 - Ann Pettifor, January 6th 2012

David Miliband, speaking on the Today Programme this morning, is right to draw attention to the youth unemployment emergency as one of the most pressing issues facing the UK writes Tess Lanning, research fellow at the Institute for Public Policy Research (IPPR)

Launching the final report of the commission on youth unemployment that the former Labour cabinet minister chairs, Mr Miliband importantly drew a distinction between the current lack of demand for young people’s labour, and the deeper, structural problems in the nature of the education system and the labour market that mean youth unemployment has not fallen below half a million since the 1980s.

The dramatic social and economic changes of the 1980s saw the transition from learning to earning become longer and riskier. Deindustrialisation led to a decline in the availability of routes into skilled work for young people, such as apprenticeships, making it more difficult to move straight from school into work.

Good jobs in manufacturing (albeit mainly for young men) have been replaced by low skilled jobs in the service sectors, many of which by their nature – casual, insecure – lead to a more protracted transition and offer few opportunities for progression.

The drop in demand for labour after the global financial crisis exacerbated these long term trends leading to high unemployment among university graduates as well as school leavers.

First in are often first out, and as a result young people were hit harder and faster than more experienced workers.

The pace of redundancies has slowed, but the deteriorating outlook for demand, reduced business confidence due to austerity at home and turmoil in Europe, and a reluctance to recruit new workers have all contributed to the continued upward curve in youth unemployment. Indeed the unsung difference between how European countries have fared since the downturn is not growth levels but unemployment.

Youth unemployment is most alarming in the Mediterranean states such as Spain, where over half of all young people are unemployed. But other northern European countries have long had lower rates of youth unemployment than the UK, and in Germany the proportion of young people out of work has actually fallen since the economic downturn.

The ‘chaotic’ landscape of support for those who do not choose the academic route is partly responsible for this difference, as Miliband’s commission argues.

The strong apprenticeship systems in the German-speaking countries and high quality vocational education in the Scandinavian countries play an important role in preparing young people for work and responsible adulthood, as well as providing them with broad qualifications that support mobility and progression in the labour market.

In contrast, most of the recent increases in apprenticeship numbers in England have occurred for older workers in the low-skilled sectors where concerns about quality are most acute.

The structural youth unemployment problem will remain unless employers’ enthusiasm for hiring and training the next generation of workers improves. Forthcoming research by IPPR calls for a radical new approach to skills and the labour market designed to raise employer commitment to skills and training.

The lesson from other northern European countries – where many firms train more, and to a higher standard, than comparable British firms and sectors – is that this requires far more than education or welfare reform.

Raising both the quantity and quality of jobs and apprenticeships available to young people requires a return to an active industrial policy, with a combination of hard and soft measures to help firms to rethink the low road competitive strategies that underpin weak demand for skills.

Until this is addressed the country’s increasingly well-qualified crop of young people will continue to compete for limited opportunities, with school leavers most likely to lose out.

While the short term priority must be to ensure a return to growth and rising demand for labour, we also need to think hard about those young people who won’t necessarily be lifted by a rising tide, or those whose prospects may have been permanently scarred by the recession.

The commission’s call for the public sector to fill the socialisation gap, offering more high quality apprenticeships and job guarantees for young people unemployed for more than two years, offers a useful starting point.

See also:

• Ken stays ahead as Boris doubles-down on blaming young people for youth unemployment – Alex Hern, January 23rd 2012

• 2012: The year ahead for young people – Alex Hern, January 7th 2012

• Unemployment: How Cameron and Clegg are letting the next generation down – Rachel Reeves MP and Stephen Timms MP, December 14th 2011

• Million young unemployed figure highlights enormity of the situation hitting our youth – Rory Weal, November 16th 2011

• Clegg under fire over voter registration, party funding and youth unemployment – Shamik Das, November 15th 2011

The three major credit ratings agencies have told the Financial Times that an independent Scotland would not be able to count on receiving a triple-A status, echoing doubts raised last month, but adding fuel to concerns that the agencies have too much unaccountable power.

Chris Giles, the FT’s economics editor, writes:

The three leading credit rating agencies - Standard & Poor’s, Moody’s and Fitch - indicated an independent Scotland would not automatically inherit the UK’s top-notch rating.

Scotland could expect to receive an investment grade rating, but some notches below triple A, one agency told the FT privately.

The agencies declined to comment publicly on the precise ratings Scotland could achieve because they do not undertake unsolicited ratings and the Scottish government has not yet sought a draft opinion.

Last month, Martin Wolf wrote for the paper that:

A newly independent small country with sizeable fiscal deficits, high public debt and reliance on a declining resource for 12 per cent of its fiscal revenue, could not enjoy a triple A rating.

The ratings agencies seem to be aware of the impropriety of commenting on such a hot-button political issue, however.

As the FT’s Alphaville blog points out, their excuse that “they do not undertake unsolicited ratings” doesn’t hold true:

[Unsolicited ratings] would be the way they are solicited for Italy, France… actually, the entire eurozone… the US and presumably most other sovereigns?

They have good reason to be so coy, however, with the Party of European Socialists being just the latest group to call for much tighter regulation to ensure that “democratic standards” of society are maintained.

As Left Foot Forward reported last month:

The president of the Party of European Socialists, Sergei Stanishev, of the Bulgarian Socialist Party, said:

A dozen anonymous analysists with no shred of legitimacy and a proven track record of gross inefficiency, effectively decided on Friday to make life much harder for millions of Europeans… This is an international scam that has to stop.

Either we accept the domination of CRAs and we continue to weaken our societies, or we rebuild democratic standards in our society.

The debate around Scottish independence needs to be held with every party being in full possession of the facts – but if the ratings agencies step in, they risk sounding less like they’re giving advice and more like they’re making threats. They seem to understand this fact, but all sides in the debate should be wary of making political capital out of unaccountable power.

See also:

• Polls apart? The news for the SNP might not be as good as it looks – Ed Jacobs, February 6th 2012

• Swinney on Scotland currency – more questions than he answers? – Ed Jacobs, February 2nd 2012

• Salmond’s Scottish referendum is a textbook example of a leading question – Alex Hern, January 27th 2012

• Salmond has questions to answer, because the evidence doesn’t support him – William Bain MP, January 24th 2012

• Questions multiply over financial status of an independent Scotland – Alex Hern, January 20th 2012

Figures posted in the USA last week show the US economy is moving forward, with a growth in private sector employment - up by 257,000 – and unemployment declining by 0.8 per cent since August last year – the lowest point since February 2009. The number of jobless workers dropped to 12.8 million, down from December’s 13.1 million.

However, the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 5.5 million, about 42.9 percent of the unemployed.

Chart 1:

The figures were seized upon by AFL-CIO president Rich Trumka who said:

“The seeds of sustainable job growth are clearly present – if Republicans in Congress do not succeed in weakening the recovery.”

The figures can be seen in stark contrast to the UK where swingeing austerity is causing the economy to flat line - and looking like it could go into reverse. In the USA the figures are being seen as a vindication of president Obama’s agenda for job creation and avoidance of swingeing austerity measures.

Nonetheless a number of US economists have warned that the jury was still out and the USA’s “day of reckoning’ may still come - but, Economic Policy Institute economist Heidi Shierholz said the figures show:

“A labour market where all the moving parts seemed to be moving in a solidly good direction.”

Manufacturing saw an increase of 50,000 jobs, mostly in durable goods, construction added 21,000 jobs. There were 10,000 new jobs in the mining industry, professional and business services put on 70,000 jobs, leisure and hospitality industry added 44,000 jobs and health care jobs grew by 31,000.

The unemployment rates for adult men (7.7 percent) and African Americans (13.6 percent) declined in January. The unemployment rates for adult women (7.7 percent), teenagers (23.2 percent), whites (7.4 percent) and Hispanics (10.5 percent) were little changed.

One sector the USA uses as a barometer is the car industry.

Three years ago, the US car industry was in real trouble. Chrysler faced the possibility of running out of money and General Motors were on the ropes. Both received government help and took ‘road trips through bankruptcy.’ Chrysler merged with Italy’s Fiat. The impact has been significant. Chrysler added a third shift and 1800 jobs at its Rockford, Illinois site last year.

In another key development, according to the Wall Street Journal, Fiat is now said to be reconsidering its development plans in Europe and considering shifting some production to the USA.

Trading profit, which Fiat regards as its key performance indicator, more than doubled to €765 million ($1 billion) in its fourth quarter while revenue rose almost as steeply, to €19.6 billion from €9.45 billion, both largely due to Chrysler.

The head of United Autoworkers, Bob King, whose union has accepted long term agreements focused on job security rather than big pay deals, praised Obama’s commitment to the US automobile industry.

“The president has demonstrated his commitment to creating an economy ‘built to last’ by restructuring the US auto industry for the 21st century, while Republican opponents were willing to let it die and see millions of jobs lost.”

This last point refers to comments by Republican candidates such as front-runner Mitt Romney who had argued that carmakers should have gone straight into bankruptcy, without receiving government support.

As Obama, visiting the recent Washington Car Show, said:

“It’s good to remember that the fact that there were some folks who were willing to let this industry die.”

See also:

• USA: The state of the unions – Tony Burke, January 30th 2012

• Obama puts manufacturing top of the agenda – time for Cameron to do the same? – Tony Burke, January 27th 2012

• Obama’s State of the Union address: Response and reactions – Alex Hern, January 25th 2012

• We need to save manufacturing, but manufacturing won’t save us – Daniel Elton, January 13th 2012

• Manufacturing’s recovery ends before it starts – Tony Burke, January 10th 2012