Looking ahead to the Autumn Statement
Tomorrow’s Autumn Statement will undoubtedly celebrate recent growth in GDP. The Office of Budget Responsibility will likely raise growth predictions. But the economy is still smaller than prior to the 2008 crash.
The recovery remains weak while "rebalancing the economy” is still a pipe-dream. The continuing fall in living standards means that the only beneficiaries so far are the very rich. As well as being deeply unfair, this also calls into question the sustainability of recovery. ONS figures on Monday show that median income for non-retired households fell by 6.4% between 2007/8 and 2011/12 (from £37,900 to £32,000). To bridge the gap, households are withdrawing money out of savings accounts at the fastest rate on record. £23bn withdrawn from long-term savings account in the last year has reversed the sharp increases in savings at the height of recession. This money, coupled with the housing bubble created by the Chancellor, has boosted consumer spending, which in turn has been accompanied by a surreptitious reduction in government scheduled cuts and the Bank of England's quantitive easing programme. These measures have provided a stealth Keynesian stimulus - but of the most unsustainable and unbalanced kind.
Contrary to what George Osborne will claim tomorrow, the dominant view among economists is that austerity hasn't worked. Crucially, investment continues to flatline. Despite the OBR's forecast of a 35% increase in investment between 2008 and Q3 2013, total investment fell by £61bn in that period. Britain languishes in 159th place in the world investment league table. And exports fell in the last quarter. Most importantly, as our poll revealed in October, nearly 4 in 5 Britons do not feel they are personally benefitting from the economic recovery.
So what should the Chancellor announce?
As a result of growth returning, and future predicted growth, the deficit will be at least £15bn lower in each of the next financial years than predicted earlier this year. Using the Chancellor's own logic, planned cuts must be cancelled.
Wage and benefit freezes must be cancelled to ease pressure on worst off - and boost spending.
The minimum wage should be increased by £1.50 and vigorously enforced, and the living wage should immediately be implemented across the public sector. This would ensure the recovery is felt by ordinary working people.
The Chancellor should announce and fund a serious infrastructure plan, commensurate with Britain's needs; not a skinflint wish-list of unfunded bypass widening schemes. Where appropriate, this should include public ownership of transport and utilities. He must freeze prices and tax the super profits of the energy companies now.
The Chancellor should also commit to fund the building of 250,000 homes a year with a majority social housing, to address the housing crisis, prevent housing bubbles, and sustain the construction sector.
He should establish a serious British Investment Bank comparable to Germany, France and Brazil to provide major investment funds to renew and green British industry, and regionally rebalance our economy, (not a Mickey Mouse bank with funding of only £1.5 bn and which is unable to borrow)
The Autumn Statement should recognise that high wages, high skills and high productivity are essential for future success, and can best be delivered through sectoral collective bargaining and discussion as in most successful economies.
Jonathan Portes of NIESR wrote in September, "A credible strategy would set out a coherent long- term vision for the UK - a high skill, high productivity economy with structurally higher levels of investment, and a reasoned patient strategy for getting us there." Not a bad yardstick that these immediate measures would support.
But George Osborne will fail against this test and instead deliver some eye-catching and divisive crumbs aimed at pleasing swing voters. The next election will be won by the party that has credible answers to the living standards crisis, and a radical, bold and also credible vision which can transform the British economy so that it is fit and fair for the 21st century. Labour's response should be bold.