Mervyn King’s rosy recovery prediction means little for a shattered nation
This article was first published on The Conversation on 16 May 2013.
The outgoing Bank of England governor Mervyn King has presided over a huge economic crisis. His parting gift is the claim “a recovery is in sight” that the UK might achieve economic growth of even 1% this year. Despite this, the GDP will still be less than the 2007 figure.
Don’t be in a hurry to pop any champagne corks, because the assumed economic recovery is not what it seems and is unlikely to be sustained. It has been achieved through quantitative easing, printing money as old-fashioned economists used to call it, to the tune of £375 billion. That is equivalent to about £16,000 per household.
This money has been added to national debt – the only thing that citizens seem to own these days – but has not been used to restructure the UK economy or start new industries. Instead, it has been mainly given to the banks and they have used it to bolster their balance sheets and pay high executive salaries.
The plight of ordinary people has been getting worse. UK unemployment is rising and the official count now stands at 2.52 million. Nearly a million young people aged 16-24 are unemployed, taking the rate to a depressing 21.2%. The number of young people on zero hour contracts has doubled from 35,000 in 2008 to 76,000 in 2012. Zero contract hours are jobs which provide no guarantee of regular work or pay and have become the preferred mode of employment for some 23% of UK employers. Many miss out on rights such as sick pay, pension and paid holidays. Many firms and even charities and public sector organisations are adopting zero hour contracts.
Large sections of the UK population are wracked with insecurity. Since the 1980s, the governments have sought to weaken and destroy trade unions. In 1979, some 13.2 million UK workers, or 55.4% of the workforce was in a trade union, but by 2011 this declined to just over 6 million workers or 23% of the work force, compared to 69.2% in Finland, 68.4% in Sweden, 66.6% in Denmark and 54.4% in Norway.
In the absence of countervailing power structures, workers' pay has been ruthlessly assaulted. In 1976, wages and salaries paid to employees, expressed as percentage of GDP, stood at 65.1% of GDP. Now it stands at barely 53%. The plight of ordinary people is made even worse because the above statistics include the rewards lapped up by executives. The rates of corporate profitability are at historically high.
Wealth has been sucked upwards with the aid of state policies. Corporation tax rate has been reduced from 52% in 1982 to 21% for 2014. The top marginal rate of income tax has declined from 83%, in 1979, to 45%. Despite the recession, the rich are getting richer. In 2012, the richest 1000 people, representing just 0.003% of the adult population, increased their wealth by £35 billion to £450 billion, enabling them to fund political parties and shape public choices.
It is misery for ordinary people who have borrowed £1.423 trillion, equivalent to the GDP, to maintain a decent living standard. Thousands of people have become victims of the payday loans industry which does not shy away from charging interest at the rate of 4000%. Some 13.5 million people, including 1.8 million pensioners and 2.5 million children were estimated to be living below the poverty line and with a deep austerity programme these numbers will increase.
The number of people relying on emergency food handouts, simply to survive, has trebled to 350,000. People are facing massive hikes in the price of electricity, gas, water, transport and other essentials and simply do not have the financial capacity to take any further hits. One survey has suggested that an increase in monthly bills of just £99 will prove to be disastrous for a large number of families.
The above sketch of the social landscape is a million miles away from the rosy picture painted by the Bank of England. Equitable distribution of income and wealth is a key requirement for any sustained economic recovery, but it is not on the agenda of any major political party. Some may be happy to gather the crumbs of economic recovery; but most of us will simply be asking, “what recovery?”