Dark Star Economics
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.