The battle for economic credibility
The United Kingdom economic recovery is underway. The first official estimate for the second quarter of this year shows gross domestic product rising by 0.8 per cent. That means that the economy is now larger than just before the financial crisis. Growth is occurring across the economy, not only in the predominant services sector but also in the industrial and construction sectors. When we look at survey data we can see that businesses are confident about the future and employers are beginning to report skills shortages in some areas. Yet income per person remains depressed and wage growth is running behind inflation. For many people in this country, economic recovery has yet to be experienced in any meaningful sense.
Ed Balls outlined Labour’s answers to this challenge in a speech yesterday in Bedford. His speech brought together our main economic policies to date. Labour will offer more support to people in work, for example by raising the minimum wage and ending exploitative zero-hours contracts. It will introduce a jobs guarantee for young people funded by a bank bonus tax and promote apprenticeships. An infrastructure commission will accelerate investment decisions and power and funding will be devolved from London. Competition will be promoted in markets such as energy and banking. Business rates will be cut, corporation tax kept low and a national investment bank established. All these pledges are made in the context of Labour’s commitment to reducing annual government borrowing, reinforced with new fiscal rules.
Opinion polls show that people believe the economy is in better health than they did a year or more ago, even while they remain concerned about their personal financial circumstances and are yet to be firmly convinced that recovery is in progress. People also seem more inclined to credit the government with successful management of the economy this year than previously. Perhaps that is no surprise since, contrary to all expectations, employment has continued to grow even while wages have gone backwards in real terms. As recovery continues, there may be a shift from spending on labour to spending on capital. That presents the nation with the choice that has been obscured for some time: what kind of economy do we want? In his speech, Ed Balls presented the choice as being between, effectively, Labour’s plans to ensure everyone can be part of a growing economy and the Conservative instinct to cut taxes for those on higher incomes.
A further challenge will be presented by large scale revisions to GDP figures, just before Labour conference. So far, we know that these will significantly revise up the level of GDP because the basis for calculating the measure will change. It also seems likely that the recession will appear shallower than previously thought, though the borrowing figures may be negatively affected. It was always probable that changes to the figures would give a different view of the downturn. The much milder 1990s recession looked worse than it was at the time, for example, but GDP figures were later revised. These new changes will be more wide-ranging even though peoples everyday experience will be unaffected.
As we get nearer to the general election, Labour must convince people that it can be a prudent and wise steward of the economy. The battle for economic credibility has to be fought each day between now and the election. To win it, we need more than good policies. The recognition by the National Policy Forum that spending must be firmly controlled was an encouraging development. Policies must also hold together in a story about our ambitions for the country’s future. The commitment to reforming infrastructure spending together with the focus on young people and training should help provide a framework. Ultimately, economic credibility has to run through the way each shadow cabinet minister talks about his or her department and its future spending.
This article was first published by Progress on 31 July 2014.