Tag: GDP

10 YEARS AND STILL COUNTING THE COST

 

On the tenth anniversary of the start of the economic crash, I thought it would be good to get an assessment of past and current consequences from people able to make unbiased assessments of the damage inflicted by the bankers’ and regulators’ irresponsibility in the early years of this century for which we mere mortals continue to pay.

The greatest financial crisis since 1929 not only caused major economic disruption, it has also considerably weakened political parties of the centre in Europe and America. People lost faith in politicians who had no idea about the casino practices of young city traders working for bank bosses asleep on the job.

The Institute for Fiscal Studies and the Institute for Government came together recently to assess the current climate in which people are trying to do business whilst still faced with the overhang from the 2007/8 crash. Gross Domestic Product is little better than in 2008. We are 15% poorer than if a 2% growth rate had been maintained since 2008.  The tax burden is now at its highest since 1986.

The bankers’ folly has been paid for substantially through massive cuts in local government grant with the promise of 100% business rate retention now withdrawn. One interesting suggestion made at the seminar I attended was that local government was easy prey for ministers because a lower tier of politicians took the blame. Will elected city region mayors make a difference here? Then there are the benefit reductions. They will have led to eleven billion pounds of savings by 2022.

What about the headwinds? The growing and ageing population will absorb 1% of GDP by 2026 and Brexit could cost over three billion pounds a year according to the Institute for Fiscal Studies Deputy Director Carl Emmerson.

We have had sluggish growth rates since 2008 due to poor productivity. Would easing the 1% public sector pay limit help? It might, the 1% pay rise policy is now causing huge retention problems in prisons, hospitals and teaching. 

The election taught us that the need for continued austerity is under challenge. The low hanging fruit of efficiency savings has long been plucked. The government appears to have no strategy for sorting out the public finances in the long term. A full review is needed with some courageous thinking.

So here we are 10 years after the financial merry-go-round came to a crashing halt. We are still paying for it and some of the old practices are creeping back in.

The crash of 2007/8 was substantially triggered by companies giving mortgages to people who couldn’t afford them. The 2017 equivalent is car loans using the very popular personal contract purchase method. Experts fear many people are using this method to lease cars they can’t afford. Overall £200bn is now owed on credit cards, overdrafts and personal loans. What happens when interest rates rise, which they will have to, someday?

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THE CHANCELLOR IN THE IRON MAIDEN

 

LABOUR’S DILEMMA.

The Chancellor’s economic bondage fetish continues! During the election he bound himself in pledges not to increase income tax, national insurance and VAT by law. Last night at the Mansion House he pledged a new fiscal framework to achieve permanent budget surpluses.

This is a major development in the finances of the nation. In only seven of the last fifty years have governments run a budget surplus. George Osborne is convening the first meeting in 150 years of the commissioners for the reduction of the national debt.

Business is likely to welcome this determination to tackle the national debt but its political implications are profound. Labour has always believed in the need to run deficits during difficult times to boost the economy and support public services. How will they respond to this? If they support it, the prospect of a Labour Party coming to power with ambitious visions for the NHS, housing and social care will be almost impossible. If Labour oppose Osborne, he will say it is evidence Labour are committed to running deficits and never tackling the National Debt currently running at 80% of GDP.

This move shows the Tories are determined to press home their advantage at a time when Labour is engaged in a tepid leadership election to which I will return in later blogs.

EURO HONEYMOON OVER.

It is a good job the Chancellor is able to divert attention from Tory divisions on Europe. I thought the “better off out” brigade now disguised as Conservatives for Britain might have come to have a little more respect for David Cameron after his election victory. Not a bit of it. We are back to the nineties with these Tory backbenchers making impossible demands on banning freedom of movement in the EU so that they can campaign to get Britain out.

MANDELSON ON NORTHERN DEVOLUTION.

Peter Mandelson is hoping to be elected Chancellor of Manchester University shortly and wants that institution to play its part in the Northern Powerhouse.

During the campaign he has made some painful observations about how Labour was completely outflanked on devolution during the last few years.

Labour council leaders across the North were left with no alternative but to go along with the Northern Powerhouse because of a complete absence of an alternative by Labour. They were reluctant to promise to abolish the Local Enterprise Partnerships but their vision of how the North South divide would be narrowed remained opaque. They should have returned to John Prescott’s vision of regional assemblies holding recreated Regional Development Agencies to account. Only this time they should have given them real powers, like Osborne is giving Greater Manchester.

Mandelson says he was hugely frustrated by seeing the Tories seizing the devolution agenda whilst Labour stood back. The former cabinet minister says Labour had the language but not the policies to rebalance the UK economy.

Labour got this wrong but the Tory plan to allow groups of councils to come together, each with a different model isn’t the answer either to the really big question of how England responds to the call for a federal UK.

 

AUTUMN LEAVES AND GREEN ECONOMIC SHOOTS

 

 

 

The last leaves are falling from the trees but George Osborne will be pointing to the green shoots on Thursday in his Autumn Statement.

 

If there is going to be a turning point for this awkward coalition government, this should be it. Apart from that sunny day in the Downing Street rose garden when the two posh boys (as I called them at the time) did the coalition deal, we have lived through unremitting economic gloom. Business investment dried up, the banks went into their shell, wages were frozen, interest rates went to zero. Only inflation seemed to go up.

 

Now at last the economic indicators are looking up and the North of England will be hoping for some sensible decisions from George Osborne to help our part of the world. Although places like Liverpool have shown more resilience than in the past, the North has suffered under the ConLibs particularly in the haemorrhaging of public sector jobs and the popular squeeze on benefits.

 

Unemployment has actually been slightly rising this autumn in the North West and the squeeze on living standards continues as the controversy continues over zero hours contracts. Youth and graduate unemployment remains a real problem in the North and the shortage of new houses remains.

 

So why might this be a turning point for the government. Simply because it looks as if the Chancellor will have all the economic indicators pointing in the right direction for the election in 2015. The news on headline growth and the deficit will be good. Economists are forecasting the following growth figures: 2013 1.6%, 2014 2.3%, 2015 2.5%.

 

Its expected George Osborne will revise down unemployment and inflation figures. There may even be expectations of real wage growth. We’ll then have to wait to see if there is aresponse in terms of business investment.

 

The Chancellor is likely to make much of new figures showing a reduction in public borrowing forecasts, perhaps down to £80bn by 2015/16.

 

Sweeteners for the voters will follow the already announced free school meals and marriage tax breaks. Petrol prices are likely to be held down again and personal tax allowances are likely to rise.

 

The headline measure is likely to be the transfer of “the green crap” that the Prime Minister referred to from energy bills to general taxation.

 

So will Labour be blown out of the water by all this. Ed Balls can no longer entertain us with his flat lining gestures in the Commons. Well not entirely, the living wage issue has been well handled by Mr Ed. The real wage gap from peak remains substantial and GDP per capita in 2015 will be way below the last good Labour year of 2008. Then there is the psychological issue that the Tories fear. If people think the economic pressure is off may they feel they can vote Labour again and get away from all that nasty Tory economic rigour?

 

The Lib Dems will remain associated with Budgets and Autumn Statements right up to the election but we will increasingly hear from them the message that they prevented even more vicious cuts from the Tories and lifted millions out of paying tax which, they claim, was not a Conservative priority.

 

After his statement, the Chancellor will pray that the polls will start turning like the economic indicators. Realistically all the Tories can hope for is to be the largest party in 2015. However if the voters want to punish them for three years of misery and forget Gordon Brown’s administration, then they will hand over a repaired economy to Mr Ed.