Dark Star Economics

ballsandfriendWell, thank god that’s over.

According to Olivier Blanchard, the IMF’s chief economist, the British economy is now clear of its longest and most severe crisis since the 1930s and can look forward to a period of “robust” growth. Indeed, so bright are Britain’s economic prospects that it is set to outperform each of its G7 rivals, including the US and Germany, over the next 12 months.

How different things looked a year ago, when the IMF warned George Osborne that his austerity programme was choking-off recovery. Back then, Osborne was still reeling from the decision of a major ratings agency to strip the UK of its prized AAA credit rating, a key yardstick of Tory economic success.

Today, it is Osborne’s detractors – the “growth-deniers”, as he calls them – that are beginning to feel the heat. In particular, Labour’s shadow chancellor, Ed Balls, will come under increasing pressure as the recovery gathers pace ahead of the 2015 general election.

But Britain’s return to growth poses an awkward question for supporters of independence, too: how plausible is it for nationalists to claim that Scotland is suffering as a result of Westminster cuts when those cuts appear to be delivering jobs, stability and investment?

Extremely plausible, as it turns out. Osborne may be spinning the IMF’s intervention for maximum political advantage, but Britain’s recovery is skin deep at best – and, at worst, the prelude to a decade or more of stagnation, decline and, possibly, yet more crisis.

To begin with, the British economy is still far too heavily leveraged on London and the south east. Staggeringly, between 2010 and 2012, four out of every five private sectors jobs created in the UK were created in London, while, in the north-east of England, the unemployment rate is twice as high as it is south of the Wash (10.3 per cent compared to 5.3 per cent).

This imbalance has been compounded by the failure of successive UK governments to invest in the manufacturing industry, much of which exists beyond the Watford Gap, in northern England and Scotland.

After the 2008 crash, the value of the pound fell by roughly 20 per cent against the Euro and the US dollar, temporarily reducing the cost of British goods. This should have sparked an increase in UK exports (and a corresponding decrease in Britain’s massive balance of payments deficit). But it didn’t, meaning a vital opportunity to revive UK manufacturing – and thereby rebalance the British economy away from London-based financial services – was lost.

Those jobs that have emerged in recent years have been overwhelmingly concentrated in low-wage sectors, such as retail and hospitality. According to a study by the TUC, published last year, 77 per cent of all jobs created since June 2010 are paid at less than £8 an hour – barely in line with the living wage. Little wonder, then, that real average earnings fell by 6 per cent between 2008 and 2013. (This represents an almost unprecedented decline: the recessions of the early 1980s and ‘90s were followed by relatively rapid increases in real wages).

Low-pay economies encourage high levels of private debt. Household debt in the UK currently stands at an eye-watering £1.4trillion – that’s 94 per cent of the UK’s total economic output and nearly £30,000 for every adult in Britain. Much of this debt is tied-up in high-interest mortgages, which makes the situation distressingly similar to that which developed in the run-up to 2008.

Add to all this the fact that at least 60 per cent of the Coalition’s cuts are yet to be implemented and you begin to get an idea of just how optimistic the IMF’s assessment of the British economy really is. In reality, Osborne has nothing to crow about. His one achievement, if that’s the right word, lies in fabricating a ‘recovery’ out of artificially inflated house prices and a burst of debt-fuelled consumer spending.

It’s possible that voters, seeing the decline in their living standards, will look past Osborne’s smoke and mirrors and punish the Conservatives at the next general election. But a more likely scenario is that the headline growth figures (however fraudulent), coupled with the failure of Ed Miliband to convince as a potential prime minister, will give the Tories just enough momentum to inch over the line in 2015.

One thing we shouldn’t be in any doubt about, however, is that, for Scotland, a No vote in September means remaining anchored to an economy that is deeply imbalanced, deeply indebted and increasingly incapable of providing decent, properly paid work for Scottish workers.

Of course, independence will not automatically resolve these problems. There is no guarantee that Scottish politicians will manage the Scottish economy better in the future than British politicians have up until now. It is very difficult, however, to see how they could do any worse.

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  1. hektorsmum says:

    Only one short comment to make and it is that there is a General Election in the near future, once the election is won, back to austerity. I would agree that this “recovery” is nothing of the sort. I am quite sure that Scots Politicians can and have done better for Scotland than any Party who let’s face it are far away from Scotland.

  2. iain fraser says:

    How does the skewing of Scotland to ed and glasgow compare with skewing of uk to London?

  3. Douglas says:

    You can catch a fast train from Malaga in the South of Spain, all the way up through France to London. That’s where it stops.

    And no, Edinburgh Labour party members, the trams were a bad idea. You should have put the money into lobbying for a fast train link from Edinburgh to London. Why not?

    Think of all of those hot dinners you missed out on wi the big boys, you could have been softening your rrrrs and apologizing for your Scotticisms till your heart’s content.

    And think, on the practical level for once, of all you Scottish Labour MPS who could have swapped the high road to London for the fast train: the fastest gravy train in the world…another Scottish achievement to talk about at aa yer Burns Supper doos in Chelsea.

    To fall into the trap of analysing the economy by growth numbers is to fall into the trap of the maniacs of the IMF and the Troika.

    Wealth creation may be important, but wealth redistribution is much more so for social cohesiveness and well-being. This, our grandparents knew. Where are the figures on wealth distribution in Britain and Europe and why do they never make the front pages?

    And the ignorance of our idiot politicians, a bunch of political and historical illiterates who woulnday have lasted five minutes in Glasgow University debating society 30 years ago is truly galling. .A price we will all pay for, watch and wait.

    Athens is burning, Madrid is burning…

    …and now there is panic on the streets of London, though not in the way envisaged by The Smiths…; )

  4. tartanfever says:

    There is a myth that London’s employment rate is similar to the rest of the south of England. This is completely untrue. The last set of figures from the ONS show London’s unemployment rate at 8.2% while Scotland stands at 6.9%. (south east 5.2%, south west 5.9%)

    This gap has been consistent over the last four years (since I started looking at the monthly figures).

    There is not far short of double the number of unemployed people in London than in the whole of Scotland. You should also bear in mind that housing benefit in London is double what it is in Glasgow (for a 1 bed flat) which rises to x4 (for a 4 bed property).

    Next time someone tells you that we are subsidy junkies, I’d point these facts out to them.

    Labour market statistics can be found here (download the PDF and look for page 59 for regional breakdowns)


  5. Gordon says:

    £2bn per week. That is the rate of rise in the national debt. While we have all these low-paid and state-subsidised jobs, nothing is going to the treasury. The national debt will go on rising, the UK will lose even its AA+ rating and the interest rates on the debt will be unmanageable.
    Don’t let Osborne or the MSM kid you that austerity is only temporary. It’s here for the next 20 years. The smaller, more manageable diverse economy of Scotland can be out of this in less than 5. Let’s go for it.

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