If Osborne has any sense of humility – which seems impossible to believe – he is in for a rather uncomfortable Xmas. Having plastered the media with hyperbolic over-optimism about his ‘recovery’, the cold facts of decline are already reappearing disconcertingly quickly. There are 4 potential sources of growth – business investment, rising wages, productivity, and exports. First, exports. According to the latest figures, in the 3 months to September Britain’s trade deficit more than trebled to £21bn, compared with just £6bn in the previous quarter. That means the deficit is now 5.1% of GDP, the highest level for 20 years, according to the Office of National Statistics (ONS). Second, wages. After 5 years of falling incomes, the longest since the 1873 recession, real wages, already 6.5% down on 2008, are now expected to have fallen another 1% in 2013. Third, productivity. According to the latest Bank of England (BoE) Quarterly Bulletin, Britain now has an estimated productivity shortfall of 18% compared with its pre-crisis trend, which is very serious, and there is no sign of recovery. Lastly, business investment. It has fallen a disastrous 25% since 2008, and is estimated to have fallen by a further 5.5% this last year. If UK plc was a private company, Osborne would be heading for the sack in the early New Year.
So where is this so-called Osborne recovery supposed to be coming from? The obvious two sources regularly referred to are consumer borrowing and the housing bubble precipitated by Osborne’s Help to Buy. Even Carney, Osborne’s protege, has made clear he is determined (very wisely) to prevent the latter getting out of hand by increasing required deposits or even raising interest rates, so that source of growth may gradually peter out. As to consumer borrowing, the national accounts for the third quarter show real incomes grew by 0.4%, but spending grew by 0.8%, in other words people were dipping into their savings to spend – a facility that of course cannot last long. So although Osborne has already in desperation even tried Keynesian measures (though he would never own up to it) to kickstart the economy – ultra-low interest rates, quantitative easing, underwriting risk, everything except the one thing really needed, public investment – the economy is still stagnating.
But the real question is still not being raised: do we actually want a recovery that merely put the clock back to 2007-8? In the near-30 years from Thatcher’s introduction of uncontrolled market capitalism from 1980, every economic index has worsened compared with the previous 30 years of 1950-80. The growth of incomes has slowed by a third, manufacturing production has halved, the balance of payments deficit on traded goods has grown 5-fold to a massive £100bn a year, unemployment and poverty have both trebled, R&D and productivity have declined relative to other nations, and British standards of living are only being preserved by selling off an increasing amount of our prime industrial assets and prime central London property to foreigners. This is not the way to a vigorous competitive Britain, it is the primrose path to perdition. An entirely new business model is needed: that is what I have sought to spell out in my new book ‘The State We Need: Keys to the Renaissance of Britain’.