Talk of an economic recovery rings hollow to ordinary families in Britain, who are still seeing their living standards fall
At last economic growth is returning – not just in America, but now in the eurozone and Britain too. Risks remain, prices are still rising faster than wages and, as Mark Carney, the new governor of the Bank of England, has warned, the UK’s recovery is set to be “measured rather than rapid”. But the stalled recovery finally resuming is welcome news.
Predictably David Cameron and George Osborne now claim their economic policy has worked after all. But that won’t wash. Two quarters of positive growth does not begin to repair the damage from three years of flatlining.
Osborne gambled that faster tax rises and spending cuts would boost private investment and growth. But instead he choked off growth and delivered the slowest recovery on record. This failure has done long-term damage: youth unemployment at almost one million, business investment lost and deficit reduction stalled. It will mean tough decisions on public spending for Labour in the next parliament.
The talk of economic recovery rings hollow for ordinary families across the country, who are still seeing their living standards fall. This is how economic policy must respond to their concerns. First, the Treasury must not take recovery for granted. Around the world emerging markets are jittery, China is slowing, oil prices are rising and the eurozone is still stuck with chronic low growth. And in the UK, with bank-lending to small firms still falling and fiscal policy dragging growth down, the IMF and the Bank of England are right to warn of “downside risks”.
Carney fully understands these threats. His sensible “forward guidance” on keeping interest rates low is just the kind of flexible and forward-looking leadership that has been so woefully lacking over the past three years. With our economy still well below its pre-crisis peak, there is plenty of room for stronger growth – we need growth of 1.4% a quarter just to recover the ground lost since 2010.
But he is not a miracle worker, and it is very hard for low interest rates to propel the recovery forward. That is why I continue to agree with the IMF, which has urged the UK to act now to support recovery by bringing forward £10bn of infrastructure investment. This would allow us to build 400,000 affordable homes, create more than half a million jobs and make our economy stronger for the long term.
Second, we need a long-term plan to deliver the right kind of growth – producing a balanced and sustained recovery that can last. Over the last three years both UK business investment and exports have underperformed. Since 2010 UK exports have grown more slowly than America, the OECD average, the Eurozone and the EU.
But the government has no plan to put this right. The Business Investment Bank still does not exist. The Heseltine growth plan is being scaled back. Banking reform is being watered down. Energy policy is in chaos. The Green Investment Bank has been neutered. Apprenticeships for young people have fallen year on year. And major infrastructure projects are stalled. Simply boosting housing demand with a taxpayer guarantee – yet doing little to increase the supply of housing, which is at a historic low – is not going to deliver a sustained and balanced recovery.
Third, we need a recovery that benefits everyone, not just a few. With prices rising faster than wages in 37 of the 38 months since the last election, working people are on average almost £1,500 worse off a year since David Cameron became prime minister.
As Labour will highlight in parliament today, not only are energy bills, childcare costs and rail fares soaring, but wages are stagnant and more than three million people want to work more hours but are unable to do so. Yet bank bonuses soared in April as payments were delayed so the highest paid could benefit from this government’s top rate tax cut.
That’s why Labour is calling on the government to reverse its ill-judged tax cut for millionaires and use the money to help struggling families. It is why we want to help make work pay by introducing a lower 10p starting rate of tax, paid for by a mansion tax, and to repeat the tax on bank bonuses to pay for a compulsory jobs guarantee for young people.
After three years of stagnation, any growth is better than no growth. But the country is crying out for real change – not more of the same. We need a stronger recovery and a more balanced economy which boosts the living standards of the many and not just a few at the top. At our conference in Brighton this month, we will set out Labour’s way forward for Britain.
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