The last week has produced a bumper crop of economic reports and statistics – resulting in a form of daily economic bingo – which will define the political and economic debate for the rest of the autumn and set the scene for the run into 2012. It’s a week that has sharpened the economic and political challenge on growth – not just for the Coalition, but for Labour too.
It kicked off with Incomes Data Services grabbing the headlines with their finding that this year there has been a near 50 per cent increase in total remuneration for FTSE 100 directors – a hike that dwarfs the 2.3 per cent increase in average earnings, or the 4.5 per cent annual rise in the FTSE 100. It provided extra piquancy to the rapidly unfolding events at St Pauls, as well as to our new poll showing that only one in three workers feel secure in their jobs (one in four part-time workers), a finding that helps explain the ongoing weakness of consumer spending as well as the upward tick in savings.
Hot on the heels of this the OECD slashed growth figures for the eurozone to just 0.3 per cent in 2012 and to 1.8 per cent for the US. It decided to avoid producing specific forecasts for UK (and other individual European countries), as it persisted with its own brand of economic diplomacy by serving up just enough quotes for either side of the political argument to claim at least some vindication. Less diplomatic was the International Labour Organisation (ILO) – who clearly didn’t receive David Cameron’s new memo calling for an end to economic pessimism – with its bleak headline that it will take at least five years for employment to return to pre-crisis levels in advanced economies, making widespread social unrest far more likely.
Next up was the ONS telling us that the UK economy grew by 0.5 per cent in the third quarter of the year, above the expected 0.3 per figure, yet a long way below what is required to meet the OBR’s 1.7 per cent growth forecast for 2011. It means the economy has grown just 0.6 over the last 6 months, or a paltry 0.5 over the last 12 months. Leading City commentators immediately predicted next quarter’s figures could well be worse, in part because the latest purchasing managers’ index (PMI) is going backwards — suggesting the manufacturing sector is contracting for the first time since mid-2009. The gloom was only reinforced by further turmoil in Greece – with NIESR predicting a 70 per cent chance of recession in the UK next year without a resolution of the euro crisis, and a staggering 50 per cent chance even if one is found. Continued sluggish growth also shines the spotlight on the OBR who will soon need to downgrade their growth forecasts – presumably this time to a level which leaves them confident they won’t have to do this once more next spring.
All of this economic news raises the stakes for both sides at Westminster. For the Coalition the clock is ticking with little more than three weeks until the Chancellor’s autumn statement and the long awaited, and much vaunted, growth strategy.
The smoke signals are not encouraging. Repeated briefings are stoking contradictory expectations, risking disappointment on all sides. On the Tory right there are high hopes that the forthcoming Beecroft report will serve up some real red meat on deregulation (eg reigning in maternity rights, and ending unfair dismissal). Few of these ideas may survive Cabinet discussion, and if they do they are likely to do little to boost overall employment levels, yet could still destabilise Coalition relations. Meanwhile, those closer to the centre ground are pinning their hopes on talk of a new stream of capital projects as evidence that a meaningful ‘plan A+’ may emerge, involving significant new infrastructure investment (even if it falls short of a ‘plan B’ which slows the pace of cuts to current spending). These hopes may well also be dashed if what materialises is simply a list of modest announcements broadly in line with existing planned (cuts) to capital spending.
For their part Labour strategists are pleased that ‘growth’ rather than ‘the deficit’ has become the dominant economic and political frame in Westminster. This is perhaps the first time (other than the momentary News International meltdown) that the issue the Labour leadership wants to talk about overlaps so directly with what the media wants to write about – which provides a real opportunity.
Despite this Labour has yet to flesh out its own growth strategy – an omission that is likely to become more glaring over the next few weeks. Labour has, of course, put forward some specific growth measures. And it has made some important big picture economic arguments – most noticeably Ed Miliband’s conference speech, and Ed Balls’ 2010 Bloomberg lecture. Even foes of the leadership now concede that both of these were significant moments, that have aged well, and to some degree changed the political weather. Yet supporters would have to admit that neither intervention really sought to clarify the nature of the growth problem the UK is likely to face in 2012-2015 (and beyond), never mind Labour’s distinctive post-crisis approach to industrial, infrastructure and innovation policy. Neither Ed Miliband’s call for a new ethic of responsibility in our system of capitalism, nor Ed Balls’ critique of austerity economics answers this. Thinking on longer-term growth remains a work in progress.
In the interim the risk for Labour – on growth as on other issues – is that it repeats the pattern of getting ahead on an issue by correctly identifying and naming it (think “squeezed middle” or “the promise of Britain”) only to struggle to convert this into real momentum with a distinctive policy direction. It quickly needs to learn how to make its prescience pay a political dividend.
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