After figures showed the UK economy returning to growth, a recalcitrant George Osborne was quick to presume a vindication of his economic strategy, and he hasn't looked back since. Osborne is emboldened to the extent, that he opines all doubts over his approach have been conclusively proved wrong. The economy had 'turned a corner', was positioned, set firm, on the road towards prosperity and a 'balanced, sustainable recovery'. His ebullience continued unabated in the autumn statement as Osborne proudly asserted 'our economic plan is working'.
Yet despite this return to growth, the narrative George Osborne is trying to propagate needs to be questioned, because of the economic competence it seeks to imply. Let us remind ourselves of this Chancellors's record over the last 4 years. The longest economic downturn since the Great Depression. Some £245 billion more borrowing than planned, despite debt reduction being stated as the highest priority. Only 7 of 576 coalition infrastructure projects are completed or operational. Real incomes falling as inflation rises faster than earnings. Average hourly wages down 5.5% since mid 2010, the fourth worst decline among 27 EU nations. And despite a drop in overall unemployment, the rate is still high at 7%. Unemployment among 16 - 24 year olds is still close to 1 million. The latest data shows GDP growth for the fourth quarter fell to 0.7%, from 0.8% in the previous quarter, and economic output is still 1.3% below its 2008 first quarter both industrial production and construction growth falling.
So can this level of economic activity really be deemed a recovery worthy of the title? A 'recovery' worthy of the name would certainly require rising real incomes and far stronger output growth. It would require increases in aggregate demand, and aggregate supply. It would require higher profitability and higher productivity. Only then could higher wages, increased demand, and rising employment be justified.
In recent weeks, the government had the audacity to claim credit for a real terms 'wage rise', reporting a 2.5 per cent increase in wages, compared to a 2.4 per cent rate of inflation. Yet according to its average weekly earnings index, the Office for National Statistics records inflation far exceeding wages in recent months. Taking into account cuts to tax credits and child benefit, real wages have fallen by over £1,600 a year under this government.
A study by the Joseph Rowntree Foundation found that among 20 million households, with between 1 and 4 children, the number living on incomes below that needed for an adequate standard of living, increased from 3.8 million to 4.7 million between '09 and '12. Most of the increase came in the final year of the three-year period. Using the latest available data on household incomes, The study also revealed 480,000 people under 35 living alone couldn't afford a decent standard living in '11/12, up from 310,000 in '08/9. They also had a greater risk, rising from 9% to 25%, of living on an extremely low income .
The Institute of Directors stated they expect the current period of growth to be 'short and sweet', unlikely to extend beyond next year. As wages continue to trail inflation, declines in real incomes would persist, making basic quality of life more and more unattainable. This, combined with fiscal constraints and a stagnant eurozone, were likely to inhibit the accumulation of any growth momentum.
And there are long term imbalances in the UK economy, which this Chancellor has failed to address. The inflated housing market, especially in London, is one such concern. In the last year alone, a jump of 10.2% in prices added £50,484 to the asking price of an average new property coming to market. This extravagant rise in prices has been caused principally by supply shortages. It is estimated that 400,000 new homes a year would be needed to meet present demand - but Iast year there were only 98,280 registered new starts, the lowest number in Europe. The rise has been financed by ever increasing mortgage debt. The UK housing market is highly dependent on credit, with mortgage debt accounting for the highest proportion of UK debt.
Any fall in house prices would have mixed consequences, benefitting first time buyers, but hurting those who already own, depreciating their assets and eroding personal wealth. In addition, many use mortgage equity withdrawal, borrowing against the value of a property, to supplement disposable income. Thus a fall in values could impact upon consumer spending. On the one hand, we have a generation who can barely afford to buy, or rent, and when they do, do so at great sacrifice. And on the other, we have property owners who will lose wealth, and spending power if prices fall.
But why is an inflated market such a bad thing structurally? Because wages have not increased at anywhere near the same rate as property. After accommodation costs, there is much less money left to spend, irrigating other areas of the economy. Unless incomes increase dramatically, any further growth in the housing market will have to be funded by yet more, ever increasing mortgage debt.
If an equilibrium between prices and incomes is to return, not everybody can win. It is certainly a difficult political calculation. Who would be least damaging electorally, to upset - established property owners, or a younger generation of first time buyers? This dilemma perhaps explains the government's diffidence towards sponsoring house building programs, that would increase supply and surely create downward price pressure. it is a damning fact that under this government house building is at its lowest level since the 1920's.
Last year the government launched the Help to Buy scheme, whereby lenders offered mortgages with deposits as low as 5%, and the Treasury guaranteed 15% of the value of the loan. It's most recent iteration applies to all types of homes, up to £600,000 in value, and to all buyers, including existing home owners. Whether by design or fluke, one short term effect of the scheme has been to boost government receipts, with a reported 46% rise in stamp duty. This may appear on the surface to be a positive intervention, but in the long-term the policy will perpetuate distortions in the housing market, supporting inflated prices and the requisite excess borrowing.
Indeed, we learned last month that the return to growth has coincided with record levels of UK Household debt, £1.43 trillion, (including mortgage debt) according to the Bank of England. On average, each adult in the UK owes £28,489, most of which is in mortgages. Such data has validated concerns that the UK's return to growth has been based on increased borrowing. And despite George Osborne's repeated claims to be dealing with the nation's debts, figures from the Office for National Statistics showed public sector net debt reached a record £1.2 trillion in October, 75.4% of GDP. It was also revealed the coalition has borrowed £430.072 billion in nearly 4 years - the last Labour government, persistently maligned as the party of debt, borrowed £429.975 billion in 12 years.
After nearly 4 years of government, George Osborne has only just managed to reach a growth level comparable to that which he inherited in mid 2010. With a litany of missed targets, he has failed even by his own standards - on deficit reduction, on growth, on debt, on inflation. With the announcement that austerity cuts will continue until 2019, George Osborne has demonstrated further, his complete intransigence to the pain his decisions have wrought in people's everyday lives. This callous policy is the product of an utter determination to carry through a brutal ideological mission, no matter it's cost to the disabled, the poor, the young, working families, in fact anyone who wasn't born into a considerable stockpile of wealth.
The austerity program has never been about financial health. It has always been about creating a certain type of society. The Conservatives repackaged themselves as a centre ground party, oriented towards markets, but combined with a belief in social conscience. Except the social conscience element disappeared rather quickly once in power. It was replaced with a more familiar elitism, and a hatred of the poor, redolent of antisemitism in its vindictiveness and characterisation of welfare recipients as subhuman and degenerate.
Let us be very clear, It is not the fault of the poor that there was a recession. It is not the fault of the poor that there was a a financial crash. It is not the fault of the poor inflation has outpaced wages. It is not the fault of the poor that the economy has stagnated for the last 4 years. It is because of economic mismanagement by government and over reliance on an inherently unstable sector, financial services, and the consequent overexposure to its exponential crashes.
Each narrative conjured by this government has rested on deliberate falsehood, falsehoods to create fears. It is a classic 'politics of fear' - present people with a threat to their well-being, inspire an emotional response, fear, that will obscure critical reason, and motivate people to vote a particular way, or accept policies they otherwise would not. Fear of a debt crisis, fear of economic ruin, disaster, calamity, these fears have been central to this government's narratives of justification. The debt narrative was used to scare people into accepting austerity, and again fear is central to the recovery narrative - stick with us and everything will be alright - don't and you are inviting disaster.
It is fear manufactured to gain consent.