Including, this is still the slowest recovery for 100 years, the economy is 3.3% smaller and unemployment hasn’t fallen for six months.
So downgraded have our economic expectations become that unremarkable growth of 0.6% is now viewed as cause for celebration. Those who opposed George Osborne’s decision to pursue austerity in 2010 are now urged to recant. But here are five reasons why it’s still the Chancellor and his supporters who have all the explaining to do.
1. This is still the slowest recovery for more than a century
Growth has returned – it was always bound to at some point – but this remains the slowest recovery for more than 100 years. Had Osborne achieved the OBR’s original June 2010 forecasts, the economy would now be 8.1% larger. Instead, after a collapse in private and public investment, it’s only 4% larger. To make up the lost ground since 2010, the economy would need to grow at 1.3% a quarter for the next two years. Output of 0.6% is the least we should expect.
2. The economy is 3.3% smaller than before the crash (the US is 3% larger)
Owing to three years of anaemic growth, the economy is still 3.3% below its pre-recession peak. In the US, by contrast, where the Obama administration maintained fiscal stimulus, the economy is 3.2% larger than in 2007 (even before the Q2 figures) after growth three times greater than that of the UK since autumn 2010. And it’s not just the Americans who have outpaced us. The UK recovery has been slower that of any other G7 country bar Italy.
3. Unemployment hasn’t fallen for six months and underemployment is at a record high
Before the economy returned to growth, the Tories were hailing the employment figures as this government’s success story (as they did when the most recent were published). But the data, as so often, tells a different story. After falling from 8.4% to 7.7% between November 2011 and November 2012, the headline rate of unemployment has been stuck at around 7.8% for the last six months (read Alex’s superb myth-busting post), 0.1% higher than its previous low.
That total joblessness has not risen to the heights experienced in the 1980s owes more to the willingness of workers to price themselves into employment (real wages have fallen by a remarkable 9%) than the success of the government’s strategy.
Alongside this, underemployment is surging, with a record 1.45m in part-time jobs because they can’t find full-time work. Worst of all, long-term unemployment (those out of work for more than a year) has reached a 17-year high of 915,000 and youth unemployment is at 959,000 (20.9%).
4. His deficit reduction plan failed and he’s forecast to borrow £245bn more
For a man whose raison d’etre is deficit reduction (“The deficit reduction programme takes precedence over any of the other measures in this agreement,” states the Coalition Agreement), Osborne isn’t very good at it. Having originally pledged to eliminate the structural deficit by 2014-15 and ensure that debt is falling as a proportion of GDP by 2015-16, he’s been forced to push both targets back to 2017-18.
Contrary to what some on the right claim, this isn’t due to any lack of austerity. Infrastructure spending has been slashed by 42%, VAT has been increased to 20% and 356,000 public sector jobs have been cut, so that the state workforce is now at its lowest level since 1999. Despite all this, Osborne is still forecast to borrow £245bn more than planned across this parliament and more in five years than Labour did in 13.
5. Most people are still getting poorer – and that won’t change soon
While the media and the political class fixate over GDP, it’s a poor measure of the nation’s economic health. As we saw even before the crash, a growing economy can disguise stagnating or falling wages for the majority. In the year to May 2013, total pay rose by just 1.7%, more than two percentage points below the rate of inflation (2.9%). Since the election, average pay has fallen by £1,350 a year in real terms, with most now earning no more than they were in 2003. And the situation is unlikely to improve anytime soon. Wages aren’t expected to outstrip inflation until 2015 at the earliest and earnings for low and middle income families won’t reach pre-recession levels until 2023.