First of all, my apologies for the incredibly vulgar title. It seemed like an appropriate and vaguely witty play on words at the time.
Welcome, now, to 2013. Look around you at the important bits of the landscape; the economy, the job market, the state of our banking system, daytime TV, Downton Abbey; they don’t look much different, do they? They certainly don’t look much improved.
Alas, stagnation seems to be the flavour of the month with our nation’s favourite couple, Dave & Nick. So they’re attempting something rather excitingly called a ‘relaunch’ this year. With fireworks and streamers and slogans!
Well, they’re not really doing that; we live in the UK. And the reason for their ‘relaunch’ is less exciting than you’d think. It seems less that the Coalition have lots of new, fascinating policies which won’t necessarily focus on the economy quite as doggedly as they have been doing for the past three years, and more that they need to make something up really fast or people are going to realise they’ve done next to nothing to address the one serious priority they put forward after Election Day 2010.
The spending slashers that wanted to cut the government’s target amount to borrow by 60% have actually cut it by less than half of that, 25%. Without wanting to sound partisan, this is more, in cash terms, than the first term of a Labour government would have sought to borrow. On top of that, the real, absolute, total national debt in cash terms has broken the trillion barrier under this government, currently standing at £1.186tn. Defenders of George Osborne (and George Osborne himself, I assume, as he lacks integrity/the ability to admit when he’s wrong) will say that this is not due to bad policy, but the poor performance of the economy, which has driven down tax receipts, cut out swathes of private sector jobs that weren’t originally accounted for as losses and therefore put people on benefits or lower incomes, driving the welfare bill up. This is actually completely true. What’s also true, however, is that the economy is faring so poorly because of the government’s (ahem… bad) policy.
To put it into context, the forecasts the Coalition provided alongside its economic policy were that the economy would have expanded by a net rate of 6% from Election day to now. It has in fact expanded by 0.8%. The main reason for the slow growth (or, when you factor inflation into it, contraction) of the economy is in short that people have been spending less, and banks have been lending less. (That was pretty catchy. Well done, me.)
Since 2010, whilst wages have risen on average by 5%, the cost of living has risen by 9%. That amounts to a real-terms 4% cut in wages, before you factor in things like the reductions in certain income supports, tax credits and the loss of child benefit. What that of course means is that people, particularly those from the lower income bands of society, the ones who are most likely to go out and spend their disposable income, are not doing so, either because they have none to spare or because the tightening of belts is scaring them and they’re being more cautious with their spending to avert a worst-case scenario. On top of this, net lending by banks has fallen by £18mil, meaning small businesses are not getting the startup finance they need to take on new workers or buy large amounts of stock, putting money back into the economy.
Now, the main arguments for economic stimuli, including more quantitative easing, tax cuts for the lowest incomes, increased infrastructure investment and ‘helicopter money’ (giving working and middle class families and individuals a one-off payment each of expirable money for them to immediately go out and spend on services to stimulate growth) are the stagnations above; the economy NEEDS a boost now, to increase growth figures, employment and real incomes, and deficit be damned for a while until we’re in a healthy enough place to deal with it. Karl Rove said upon Bush’s introduction of the staggeringly expensive Medicare Part D program of free and reduced prescriptions for youth, students and seniors that “deficits don’t matter.” The Australian government spent billions of dollars on fiscal stimuli, mostly infrastructure investment at the start of the 2008 financial crisis, and as a result Australia was one of the only developed countries barely affected at all, as the rapid contraction of credit and real cash available on the markets didn’t matter to their economy, at the time flush with cash spent by the government, in the pockets of construction and service firms and spenders.
The one supposedly bulletproof argument used by followers of Osborne and Cameron is that ‘reckless’ spending such as this, and a temporary de-prioritisation of the deficit and the amount we borrow each year, would make the UK seem irresponsible to credit agencies and lenders, and put at risk our prized AAA credit rating, which, if downgraded, would put interest rates on our borrowing up and reduce demand for financial products sold by the UK, as people would supposedly doubt our ability to provide what we promised. Now credit ratings are important; certainly moreso to individuals than they are to countries, but important nonetheless. Mr Osborne has a point in safeguarding our-
Oh. Economists expect at least one of the three main credit agencies to downgrade our AAA rating this year (http://www.guardian.co.uk/business/2012/dec/31/economists-uk-lose-aaa-rating). And as the article above explains, that will have “very little” effect on whether countries and businesses see the UK as a reliable investment for their cash.
So what, exactly, Mr Cameron, Osborne, Clegg, about this economic mid-term review, suggests that you should continue with your current program “well into 2018”? Considering the grades you’ve just received, isn’t it time to look at maybe changing your course?