Celebrating today's GDP figures as a victory for the chancellor would be a like praising the punctuality of the chauffeur who arrives at his destination three hours late.
Celebrating today’s GDP figures as a victory for the chancellor would be a like praising the punctuality of the chauffeur who arrives at his destination three hours late
The British economy is finally back to where it was prior to the onset of the 2008 financial crash. Six long years just to get back to where we were in the first year of Gordon Brown’s tenure as prime minister.
And a large portion of the blame for the financial crash has been laid at the door of Labour’s last PM by the Tory party and their friends in the media.
What’s surprising is how little opprobrium is directed at the current chancellor on the basis that it’s taken the UK far too long to get back to pre-crisis levels of growth.
The assumption from most commentators seems to be that this would always the case, but there is very little reason to think so. Indeed, rather than austerity helping to repair the economy, there’s a strong case that we would have returned to pre-crisis levels of growth some time ago were it not for several wasted years under George Osborne.
We have, after all, reached this point two years after the chancellor’s original forecasts and three years after the US (which embraced Keynesian economic stimulus) reached the same point.
Put the collective amnesia aside for a minute, and try to remember where we were back in May 2010. When George Osborne announced his emergency budget in October 2010, the economy had been growing for four successive quarters. The first quarter after that budget saw the economy contract by -0.2 per cent.
It wasn’t until the end of the first quarter of 2013 that sustained growth came back into the British economy, and it was only at the end of last year that Osborne managed (as the previous government had done in its final year in office) to achieve four straight quarters of economic growth.
But why does it matter if the economy is now growing, you might ask?
The first thing to note is that the headline GDP figure is slightly misleading. The British population has increased substantially since 2008, therefore while overall GDP is slightly up on what it was when the recession hit GDP per capita – GDP divided by the number of people in the country – is still lower than its pre-recession peak. Britain is producing as much as it was before the recession, but as individuals we aren’t – there are simply more of us.
It also matters that George Osborne missed his target of returning GDP to pre-crisis levels by two years because it at least partly explains why people are still significantly poorer than they were in 2010 (£1,600 a year) – GDP has returned to pre-crisis levels but wages are still catching up. Had we had growth sooner, there’s a good chance people wouldn’t still be getting poorer – which they are: inflation is still outpacing average wage growth before bonuses.
This has also had knock-on effects in terms of the public debt. Rather than balancing the books by 2015 the chancellor originally planned, borrowing is set to be £75bn next year. And then there is the much-feted plan to ‘restructure’ the economy: the manufacturing and construction sectors are still way below their pre-recession level, while the service sector storms ahead.
The coalition often smugly claims that allowing Labour back into government would be akin to ‘handing the keys back to the driver who crashed the car’. Sticking with bad car metaphors, to celebrate today’s GDP figures as a victory for the chancellor would be a like praising the punctuality of the chauffeur who arrives at his destination three hours late.
And here’s Britain’s ‘world beating’ GDP growth in context (Hat tip Ben Chu).
Leave a Reply