I was all ready to write this on Monday evening, I’d sorted my links and aggregated a good selection of articles for your perusal. I skimmed the newspapers online last thing last night and … I knew I’d have to wait a day.
This happened. The Office of National Statistics, the body that reports the state of the UK economy to Parliament, reported that the economy had tanked (the BBC are more tactful, reporting a ‘sharp contraction’). Regardless of the language, the figures show that people are spending less, that more people are out of work and that the country (note: not the government) is losing money (GDP, or Gross Domestic Product measures how much the economy is worth and that has reduced by 2.4%).
Worse luck, this is set to continue. The OECD, an international advisory group of which Britain is a member country, predict that output (measured by GDP) will fall this year by 4.3% and the economy will be stagnant in 2010.
The Treasury predicted that the recession wouldn’t be so pronounced in the UK. If these figures are right (and theirs are therefore wrong), it would mean they may have spent too much money compared with what they expected to earn back. This has massive political implications, and the fall out has already started (I’ll discuss this a bit more below).
But beware the folly of following statistics too closely. Because of this large fall now, the economy may look statistically better in a few months. The BBC’s Stephanie Flanders says ‘we may yet get a positive surprise when the first estimate for the second quarter comes out on 24 July. Indeed, the sheer scale of this decline in the first three months must make a sharp improvement more likely.’ The Guardian’s Larry Elliot believes that there may be ‘a cloud around an economic silver lining.‘ He’s not particularly specific though.
Regardless, things aren’t great in the UK and it doesn’t look like they’re getting better any time soon. So what does this mean?
This post was going to be on public spending cuts, it still will discuss them, but first, the political ramifications of recession must be explored. I’ve already written that Gordon Brown’s fate isn’t tied in with the economy (“it’s not the economy, stupid, it’s you. Sorry Gordon“), but that was on whether economic recovery would boost Brown’s premiership. That was in the heady days when 0.2% growth was reported and the fabled green shoots appeared to be sprouting across the land.
No longer. If Brown’s poll ratings can fall any lower, perhaps they will. Brown appears to be no longer trusted to manage the economy and pull Britain out of the recession (more on this later).
Brown appears profligate. And that’s what got us into this mess, albeit the profligacy of bankers not politicians and certainly not ordinary folks like you and me. Morten Morland’s cartoon in The Times shows this perfectly. Click on the thumbnail to see the full thing on their website.
The Telegraph’s Simon Heffer, who let’s face it, has never been the Labour Government’s greatest fan writes in his usual lyrical style of the ever increasing debt the government is building up. He cites an opinion poll suggesting that 80% of the public are looking for spending cuts.
Yet yesterday the government unveiled a plan to build 30,000 more homes to help ‘local’ embattled families, to spend more money and to Build Britain’s Future. The Guardian has a great piece of analysis from a panel of its columnists.
‘Where will the money come from?’ asks C4 New’s Gary Gibbon – who answers his rhetorical question by pointing to the Department of Communities and Local Government itself. The Times are suggesting that the money will come from schools, roads and health. Lord Mandelson announced on Today yesterday that the government’s spending review would come after the next general election, so of course we can’t be certain where the money will come from. The Guardian thinks this badly hampered Brown’s new policy launch. It comes down to a matter of trust at this stage.
In terms of public opinion, Brown is on the wrong side of the public spending vs spending cuts debate. The public appear to see a need to cut spending from its bloated present position. The Independent are reporting an opinion poll that shows voters trust David Cameron’s Conservatives more with this task than the Labour Party. Only 1 in 5 people trust the Labour Party to do the best thing for the public finances.
This may lead to rioting, at least according to an over excited David Cameron. Interestingly, The Tehran Times have also reported on this issue, but their front page mostly forgets their domestic troubles and concentrates on the US in Iraq. That’s just an aside. The Conservatives haven’t yet released comprehensive plans of their own, so this stands out as one of the few predictions the Conservatives have made over the last few weeks. As Benedict Brogan notes, David Cameron has been getting rather jumpy in the last few weeks.
Worse than a spot of rioting would be the loss of Britain’s international credibility. This is possible if the UK loses it’s ‘Triple A rating’, which means that internationally it’s seen as a safe bet for banks and countries to lend money to it. This may be lost – Standard and Poor are an international ratings agency who warned on this possibility quite recently (that links to wonderfully clear piece of analysis not a dry news report).
This is speculative, we are always reliant on tricky statistics. But despite these statistics looking pretty poor, they may mask an even unhealthier economic situation. Public spending figures don’t include PFI’s.
George Monbiot calls this a ‘scam’, and quotes the Accounting Standards Board as calling these agreements an ‘off balance sheet fiddle’. Public debt figures don’t take into account any scheme that uses Private Finance Initiatives, for example the widening of the M25 (“the biggest, weirdest rip-off yet according to Mr Monbiot).
It’s worth noting that Polly Toynbee has completely turned against the Brown now although supports some of the government’s policies and the New Labour project. In her latest column she says that ‘These are tough times requiring cuts all round’. She goes further, stating that ‘The prime minister cannot lie to all of the people all of the time.’
However, unlike Fraser Nelson, I’ll steer clear of calling Brown, Balls and Mandelson (Darling no longer) liars when they make pronouncements on public spending and national debt.I agree with Bagehot, it’s a tricky term – I can’t understand all the statistics and sound-bites so I won’t make any judgement just yet. Of course, that’s what both parties appear to be relying on when they make their arguments, so it’s certainly worth reading some of the articles I’ve linked to and finding out more. They’re well written, promise.
But perhaps all of this is a distraction. That economic sage, Vince Cable, has written a piece for the New Statesman saying that bankers have won their battle resisting increased legislation. They got us into this mess but they’ll be the first out of it and back to their old tricks. He puts it better than that, of course.
So it goes?
PS. As ever, if you’ve seen something I’ve missed add it to the comments below!
UPDATE July 1: Courtesy of regular reader Michael Sanders, I see the council housing plan has already run into trouble. A Labour activist, Sanders is positive about some of the new ideas unveiled in today’s manifesto in all but name – notably the ‘teachers’ MOTs’, as he puts it. Perhaps the Labour Party will rally around today’s policy announcements after a damaging few months. Given that the spending on many of these policies won’t be reviewed until after the next election, are these policies for public consumption or party consumption for now?