Labour has spent years now worrying about how to gain credibility on economic policy. Meanwhile, the Conservatives and Liberal Democrats are making a good job of losing it. The UK now appears to be back in recession. Ahead lies the risk that the economy will go backwards this year and put deficit-cutting plans further into doubt. Labour, however, cannot simply wait and hope to gain a durable reward from the government’s travails.
The preliminary estimate of GDP growth in the first quarter this year shows national income falling 0.2 per cent rather than rising slightly as many had expected. Put together with the 0.3 per cent fall in Q4 2011, that equals a recession on the conventional definition. Compared with the first quarter last year, the UK economy is flat. Of course it could be said that, since output is still way below the level before the financial crisis, we never emerged from the deep recession. But these figures just out suggest that the economy is not even gradually climbing back to former heights. Any momentum appears to have been lost. It was lost when George Osborne started comparing the UK to Greece and talking up ‘austerity’. In the sobering judgement of the Office for National Statistics Economic Bulletin: ‘The stuttering nature of growth following the recession means that the economy is weaker relative to its pre-recession peak than at the corresponding stage of the depression in the early 1930s. It is also well below where it would have been if it had followed the path of either of the recessions in the early 1980s and early 1990s.’ That was not inevitable. The recovery stalled in 2010.
The GDP figure is a first estimate. The ONS calculates it by using hard data where it can and relying on survey evidence and forecasting to complete the picture. An important swing factor is the construction sector, which makes up 7.6 per cent of GDP and can be subject to significant revisions. The ONS believes output from construction fell three per cent in Q1. However, it notes that construction output would have to have improved by 40 per cent in March for the sector to have grown in the quarter. It is possible there could be an upward revision, which might move the Q1 GDP growth estimate to nearer flat. Elsewhere in the economy, the services sector grew slowly and industrial production fell slightly in the quarter.
Whether or not the recession is confirmed, the UK economy is not in a great state. Eurozone travails may dent economic confidence further if European leaders do not act decisively, and we will need to await election results, particularly in France, for the next phase of economic policymaking. Europe does give us a lesson in what happens when nations pursue austerity – spending cuts and tax rises – without growth: they get drawn into an austerity death spiral where fiscal retrenchment hits growth, which hits tax revenue, which leads to further spending cuts and tax rises, which lead to recession. The fiscal orthodoxy does not even have a political mandate in much of Europe, which means it cannot deliver. Back in the UK, Conservatives and Liberal Democrats talk occasionally about promoting growth, but don’t actually do anything meaningful about it.
The temptation for Labour is to repeat our mantra that the government is cutting too far and too fast. Actually, that’s not a bad start because we are right. We have to do more, however, because even a Tory double-dip recession will not be enough to restore economic credibility for Labour. Underlying the poor figures are people out of work or, as the latest employment figures showed, forced to take part-time jobs because they cannot find full-time work. At the same time, most people’s living standards are being eroded by inflation. Labour’s message must be convincing here and our theme should be ‘investing in our future’. We still need to gain credibility with markets too. There is a good opportunity now because investors are worrying about growth. They fear that countries will be burdened with public debt for many more years to come unless their economies pick up. There is a great prize of credibility for political leaders who can convincingly show how they will control and cut deficits while committing steadfastly to promoting growth. This is not just an opportunity for Labour – it is a national duty.
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Stephen Beer is senior fund manager and UK strategist at the Central Finance Board of the Methodist Church, and author of the Fabian Society pamphlet ‘The Credibility Deficit’. This article represents his personal opinion.
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Labour alternative plans are too vague at the moment and need to be refreshed with a much clearer focus on growth.
This should centre on increased infrastructure investment which Osborne has paid lip service to, but has failed to implement. The fall in construction activity being very clear evidence of this. The government should at the very least restore its cuts in the housebuilding programme and create sufficient financial incentives for pension funds to move investments from (for example) overseas equities into domestic infrastructure. It should cut employers’ NI and fund a reduction in business rates for businesses offering apprenticeships.
Putting the nation back to work in solving the housing crisis is the right thing to do in these circumstances.
This After Spending His First Few Questions At PMQ’s Yesterday, Focusing On The Double-Dip Recession, Miliband Scored One of His Best Hits Over Cameron.
Focusing On The Economy Of Course Won’t Be Enough To Restore Economic Credibility for Labour, But It’s a Good Start.
We do not gain credibility on economic matter by dodging the charge that we are responsible for the mess that we’re in, as Ed Balls did on one of the news programmes yesterday ( no doubt under orders from the other Ed ). There is a perfectly good answer to this myth which I have been repeatedly making on this site and elsewhere. It runs like this:
Far from being culpable for the economy Labour got the economy broadly right when it was in office.
It gave us an unprecedented ten years of unbroken growth which allowed us to restore our public services (itself a vital underpinning of our continuing economic strength) after years of Tory neglect. Agreed much of the growth was based on borrowing (given the unwillingness of the public to accept higher taxation) but this borrowing and the related fiscal deficit was well within accepted limits by historical and international standards. It only came to an end as a result of a once in a lifetime global financial crisis which hardly anyone saw coming and it was Gordon Brown who led the world in preventing the ensuing recession from becoming a 1930’s style depression.
Moreover, events since the Tory-led Coalition took over have proved that Ed Balls was right to criticise the government for cutting too far and too fast and not putting sufficient resources into growth. All this has been validated by leading economists like Paul Krugman, David Blanchflower, Robert Skidelsky and Anatole Kaletsky.
Unless Labour denies responsibility for the economic crisis broadly in this way wherever and whenever the charge is made against us (and this will be very often right up to the next election) I’m afraid that we will never gain economic credibility, no matter how convincing our policies for the future might be..