The United Kingdom economic recovery is underway. The first official estimate for the second quarter of this year shows gross domestic product rising by 0.8 per cent. That means that the economy is now larger than just before the financial crisis. Growth is occurring across the economy, not only in the predominant services sector but also in the industrial and construction sectors. When we look at survey data we can see that businesses are confident about the future and employers are beginning to report skills shortages in some areas. Yet income per person remains depressed and wage growth is running behind inflation. For many people in this country, economic recovery has yet to be experienced in any meaningful sense.
Ed Balls outlined Labour’s answers to this challenge in a speech yesterday in Bedford. His speech brought together our main economic policies to date. Labour will offer more support to people in work, for example by raising the minimum wage and ending exploitative zero-hours contracts. It will introduce a jobs guarantee for young people funded by a bank bonus tax and promote apprenticeships. An infrastructure commission will accelerate investment decisions and power and funding will be devolved from London. Competition will be promoted in markets such as energy and banking. Business rates will be cut, corporation tax kept low and a national investment bank established. All these pledges are made in the context of Labour’s commitment to reducing annual government borrowing, reinforced with new fiscal rules.
Opinion polls show that people believe the economy is in better health than they did a year or more ago, even while they remain concerned about their personal financial circumstances and are yet to be firmly convinced that recovery is in progress. People also seem more inclined to credit the government with successful management of the economy this year than previously. Perhaps that is no surprise since, contrary to all expectations, employment has continued to grow even while wages have gone backwards in real terms. As recovery continues, there may be a shift from spending on labour to spending on capital. That presents the nation with the choice that has been obscured for some time: what kind of economy do we want? In his speech, Ed Balls presented the choice as being between, effectively, Labour’s plans to ensure everyone can be part of a growing economy and the Conservative instinct to cut taxes for those on higher incomes.
A further challenge will be presented by large scale revisions to GDP figures, just before Labour conference. So far, we know that these will significantly revise up the level of GDP because the basis for calculating the measure will change. It also seems likely that the recession will appear shallower than previously thought, though the borrowing figures may be negatively affected. It was always probable that changes to the figures would give a different view of the downturn. The much milder 1990s recession looked worse than it was at the time, for example, but GDP figures were later revised. These new changes will be more wide-ranging even though peoples everyday experience will be unaffected.
As we get nearer to the general election, Labour must convince people that it can be a prudent and wise steward of the economy. The battle for economic credibility has to be fought each day between now and the election. To win it, we need more than good policies. The recognition by the National Policy Forum that spending must be firmly controlled was an encouraging development. Policies must also hold together in a story about our ambitions for the country’s future. The commitment to reforming infrastructure spending together with the focus on young people and training should help provide a framework. Ultimately, economic credibility has to run through the way each shadow cabinet minister talks about his or her department and its future spending.
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Stephen Beer is Acting Chief Investment Officer at the Central Finance Board of the Methodist Church. This article represents his personal opinion. He blogs at www.stephenbeer.com
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Photo: Images Money
If we need to continue with Tory levels of cuts that clearly is like saying Labour’s proposals (at the last election) for substantially less cuts, was wrong. It walks away from the argument that the Tory’s vicious cuts have actually delayed the recovery substantially compared to the USA, German and France. The fact that we may now be growing at the fastest rate is like saying a runner who has been lapped several times is now catching up a bit. The point is we are a long way behind because of Tory austerity – and our proposals are for “more Tory austerity”. Production per capita is still about 6% behind the peak levels of 2008 – only immigration has boosted growth. The Tories have nothing like meet the targets they set 4 years ago, especially in terms of paying down the deficit. While they are set to ease their own targets, we are seeking to come to power committed to even bigger cuts that the Tories would implement.
What cuts? You mean the redistribution of public spending priorities. Government spending has gone up every year in both cash and real terms. There have been no overall cuts.
So who is getting all the extra: http://www.independent.co.uk/news/uk/politics/local-council-budgets-slashed-nearly-a-third-9645320.html
I am not disputing council support grants have been cut. But this is because the interest bill we are paying is now colossal, now the highest area of government spending after the NHS and Education, and the majority of that is cash straight out of the country. On top of that, despite the fiddling with it so far, welfare spending is also dramatically up, most of that rise predating the election of the current government, and as a result of the 2008 crash. Not helped of course by tax credits which encourage employers to screw down wages in the knowledge that they will be topped up.
The cash for those items had to come from somewhere. You can’t borrow your way out of a debt crisis (Jim Callaghan’s only sensible remark ever), the other option would have been to cut welfare spending in real terms, a bit like the Irish did over their euro crisis where they slashed social security and pensions across the board.
And while I am at it, you should look again at your USA reference. The Federal government did cut spending in real terms. And I wouldn’t use France as a reference, they are a basket case now so that Hollande effect didn’t last long. Actually I am wrong, it is Hollande effect that is making them a basket case. London is now the 7th largest French city it seems, due to no “Berlin Wall” to keep the French in France
The point is we aren’t paying off the debt because without growth – with the economy contracting – you are paying out more and more in benefits. 1 million public sector workers losing their jobs – 660,000 already (400, 000 in Local Government). This just the classic Capitalist response to a recession – cut public spending, reduce taxes and hope that this boosts investment. But it isn’t because the recession is largely world wide, and people can’t afford to buy anything – so bosses won’t invest to build new things. After 6 years the economy has not recovered on a per capita basis – and seems set to take another 3 years to do this. Of course there is a big deficit – it was the £60 – £120 billion it cost to bail out the banks. the alternative was to let the banking system collapse. But the Tories have throttled growth that was starting under Labour – because they have seen it as an opportunity to attack wages, pensions, and the social wage of workers – making cuts they never could have got away with under other circumstances. Pushing a bigger proportion of the national wealth toward share holders. Is Labour really going to join this race to the bottom. the cuts in real pay levels across the board – but especially in the public sector – are unprecedented. Many voters are seeing UKIP as some sort of working class alternative because Labour is still messing around in the middle ground – trying to be slightly to the left of the Tories. Under current polices we will not have growth but another 10 years of bouncing long the bottom.