Interesting G20 Economic Data
Sir Mervyn King
We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.
The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2% strikes me as wholly unrealistic…
I heard that a new report by the Trade Union Congress (TUC) is bemoaning that there are literally swathes of men in the South West who have to - gasp! - take part-time work in order to have any job at all. This is being termed ‘under employment’.
The report lightly smacks of misogyny. It points out that:
…the number of men doing involuntary part-time work has rocketed by 77% to 40,778, while for women the figures are 58,593 - a rise of 47%.
I wonder. How many of the men who are currently ‘under-employed’ were happy to enjoy full-time employment in the past whilst arranging for dear ‘ole wifey to stay at home to look after the kids? And just how many of these men were happy to lord it over a wife who ‘only’ had a part-time job as she simultaneously took care of his children and the household?
Perhaps there are a few more men out there who are learning that juggling a part-time role with family responsibilities is not as easy as it can look. Hopefully there are thousands of partners who are getting more support from fathers who now have no excuse not to pick the kids up from school and cook them an evening meal a few days a week.
In all seriousness. It’s not hard to sympathise with those who are feeling genuine economic hardship after being made redundant, or who are being asked to take a pay cut, who are on benefits, or who are working a part-time role when they would prefer to work full-time - simply from personal experience. However, it’s easy to disagree with the TUC who believe that “proper jobs growth” (because part-time work isn’t a “proper” job?) must be the Government’s top priority.
If there is to be growth at all, it must be sustainable growth. Even the TUC cannot fail to have realised that exalting growth at the expense of everything else is not sustainable. An economy that grows based on massive debt, false accounting or illusionary profits is headed for disaster. At some point, the books must be balanced.
It’s been no secret that there is no longer such a thing as a job for life. More than ever we must take responsibility for our own ongoing professional development. This includes asking current employers to pay for training (and if they don’t agree it’s time to consider changing employer), or perhaps paying for our own training to gain new or advanced skills.
Life is generally not plotted on a steadily upward curve. Occasionally we must take steps back as individuals and not assume that government will have all the answers if the worst happens.
Unless you are a misogynistic dinosaur, taking on a part-time job is no negative thing. Perhaps through it you can learn new skills and make new contacts which in turn could lead to a job that is closer to what you want. And that might take time, but sustainable economies do not grow overnight.
Yesterday’s figures from the Office of National Statistics show that the economy shrank by 0.2% in the first quarter of 2012. Officially a double dip recession, then. It was predictable that Labour would seize on these figures to explain how awful the Coalition Government is and how wrongly they are handling the economy.
But, whoa there nelly. Lets look at this situation again. Lets do the thing which few appear to be willing do. Lets examine the context of these economic figures.
Anybody remember Gordon Brown promising, as Chancellor, “no more boom and bust”? Brown was right to highlight the cyclical pattern of boom and bust under whichever Tory/Labour Government of the day as a problem. But he was wrong to believe his own spin that he could overcome this cycle.
We all know what happened next, though it would be churlish to claim that Labour is responsible for all our economic woes.
The UK economy is tightly interwoven with that of Europe and the US, and increasingly so with China, as well as being reliant upon Middle Eastern oil. Regardless of what the UK does as a Sovereign State, it’s unlikely that we will ever be able to insulate ourselves from all of the variables that lead to the contraction of economies elsewhere which in turn slow our own economic growth.
In this context, Labour can hide from their responsibilities. They can pretend that the current economic woe was an unforeseeable event that no one could have predicted. A great tidal wave of economic devastation which Labour were powerless to prevent.
Enter, Vince Cable, who told Gordon Brown, on 13 November 2003:
…is not the brutal truth that with investment, exports and manufacturing output stagnating or falling, the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level? If the Bank of England is correct in its expectations of a market correction and rising interest rates, what action will the Chancellor take on the problem of consumer debt, which is rapidly rising, with 8 million annual visits from the bailiff?
Cable was not referring to external economies, but pointing to the frailties in our own economy. Gordon Brown - in a classic case of ‘Emperor’s New Clothes - dismissed this idea, and accused Vince Cable of:
[spreading] alarm, without substance, about the state of the British economy
Had Brown taken the hint from Cable - who had actually studied and worked in the field of economics - we might well be in a different place now.
So again, we can’t blame the double-dip in it’s entirety on Labour, but we cannot ignore the demonstrable lack of foresight and understanding of the economy by Gordon Brown as Chancellor as a major factor in constraining our ability to recover.
We are well placed in Reading to weather this economic storm, being as we are a high-tech hub, but also geographically close enough to London to benefit from any halo-effect in terms of jobs.
Locally, the previous Lib Dem-Consevative coalition Council produced the first 0% Council Tax rise seen in Reading, and a responsible overall budget in 2011 that allowed the minority Labour-run Council to keep to a 0% Council Tax raise in 2012.
Liberal Democrats nationally, and locally in Reading, should embrace Labour supporters wanting to compare economic credentials. It’s a cake walk for Lib Dems, to say otherwise is to wilfully ignore the wider context.
Local Labour Councillor, Rachel Eden, claims that the Government “has to be robust”. She quotes Nobel Prize winner, Paul Krugman who complains:
The defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence?
Well, that’s an easy one to put to bed, you might have noticed that the UK credit rating is AAA. It is not possible to get more confidence in the UK than that. And this is whilst the credit rating of the US is a slightly lower AA+. So much for the UK catching a cold when the US sneezes. You would have thought that, being American, Krugman would have remembered that.
Rachel Eden offers her own remedies for the Coalition Government:
…it’s time to change course and return to reform of financial services, investing in infrastructure and giving our young people (and others including older workers) the skills they need in today’s and tomorrow’s economy.
To which my response would be, welcome, Rachel! Come on in, the water’s fine.
You want reform of financial services? That’s great. That reform began in June 2010. The Financial Services Authority will be split up. A new Financial Conduct Authority will “ensure fair, efficient and transparent markets in financial services”.
Additionally, you’ll see that Mervyn King is getting ready to be ushered quietly out of the back door of the Bank of England. New broom sweeps clean, so they say.
You want infrastructure investment? Look no further than Reading station which received nearly £10m for upgrades from central Government in 2011. Sticking with the train theme, what about HST? Isn’t that an infrastructure investment? And Crossrail? 21km of tunnels being dug underneath london. And electrification of 800 miles of railway in the next 5 years?
What about digital infrastructure? The Coalition Government, through Broadband Delivery UK, is investing £530m of funding into super fast broadband for a third of UK homes that would otherwise miss out on it.
Finally, Rachel wants investment to give both our young and old people the skills they need for “today and tomorrow’s economy.” That’s a big ask, frankly, we don’t know what tommorrow’s economy will look like, but I think the Government has taken a pretty good stab so far.
The stand out item in the budget for me was the tax breaks given to the animation and video games industries. Not many people realise that the Tomb Raider and Grand Theft Auto games began life in the UK, and I was glad to learn that the tax relief offered would create an estimated 4,700 jobs in the UK in just the kind of high-tech industry that the UK has always excelled at.
Rachel will know that apprenticeships in Reading increased under the previous coalition Council, and under the Coalition Government adult apprenticeships across the UK went up by 103,000 in the UK overall in the 2010-11 financial year.
Students of all ages benefit from the new rules around students loans that enable part-time students to benefit from tuition fee loans from the Student Loan Company. So, no matter what age you are, those who need to work part-time, or who need to fit education around childcare, get a much fairer deal overall.
Broadly speaking, the Coalition Government is being ‘robust’ in it’s response to the global economic crises, the long term picture is looking good (our AAA rating is the analyst’s view of our long term picture). Financial services reform. Infrastructure investment. Incentives for industry and individuals wanting education.
On a personal level, I detest having to stomach some of the things Liberal Democrats are obliged to support in the Coalition, but there are no short cuts to success. For political reasons Labour are clearly jumping up and down pointing at the flat economy, but the public needs a more nuanced answer to these problems.
We are trying to shift the bias of the economy away from financial services, and this is not a quick-fix kind of problem.
Those who think the Government should not be cutting services and should be doing or spending more are obliged to also explain exactly what else should be done and where they would make public spending cuts in order to fund those promises, or else tell us where additional money will come from to pay for further projects in addition to the investments already being made.
At the same time as spending on infrastructure projects, investing in education and giving tax breaks to business, we need to also be servicing the huge debt that the UK has amassed, which brings me back full circle to the AAA rating, which we only have because the financial markets from which the UK borrows have confidence that we can repay what we borrow. Borrowing huge amounts more will reduce confidence that the UK will be able to repay, which will lead to a reduction in our credit rating and an increase in the interest rate we will be asked to pay to borrow, which is a downward spiral we need to avoid.
If there really is concern about a plan for growth, lets just recall the quick-fix plan for growth the last time the Conservatives held unfettered Governmental office. It was the deregulation of the finacial markets, or the ‘Big Bang’, that sowed the seeds for the over-reliance of the UK on the finance industry which needs to now be corrected.
It’s reasonable to talk about the big picture, but not simply in the context of the run up to an election, and not simply making policy promises without explaining how the UK can afford to keep those promises.