Waving goodbye to two decades

Nice or nasty, either way the economic future doesn't look great.

Another week, another terrible set of GDP figures, an IMF downgrade of the UK's growth prospects, and a new report showing the squeeze on living standards is set to run and run. The public, along with our politicians, is probably starting to grow immune to some of the shocking headlines about how long it will be before their incomes recover. All attempts at peering into our economic future do, of course, need to be taken with a handful of salt. And if long range economic forecasting is a mug's game, then seeking false precision about the resulting political consequences is truly the pursuit of fools.

Yet for all the uncertainty we can discern the broad contours of different possible paths for living standards over the rest of the decade. None are attractive -- though some are uglier than others. All are likely to challenge the standard assumptions upon which recent politics have been based.

Let's start by tracing the immediate prospects for low to middle income households (broadly those in work in the bottom half of the income distribution). To do this we can adjust the OBR projections for average earnings (reflecting the historic relationship between average and lower earnings), and take account of the coalition's planned cuts to tax credits. The depressing result is that typical disposable household income for this large swathe of Britain is set to fall 8 per cent by 2015 (from just under £22,000 in 2007-08 to just over £20,000).

To get any sense of the range of possibilities for the next parliament the best we can do is draw on different periods from our recent past as alternative guides to the future. So let's consider a "nice growth" and "nasty growth" scenario from 2016 up until 2020. The nice scenario replicates the growth in household income experienced during the first half of Labour's period in office (until 2003) when wages were climbing and the creation of tax credits further boosted low to middle income households. Given the miserable times we are currently living through, referring to this as merely "nice" is something of an understatement. Yet even under this cheery scenario low to middle income households would only regain the position they reached in 2007-08 by 2020. They would have lost more than a decade, but at least they'll be headed in the right direction.

Nice and nasty scenarios for low household income of low to middle income Britain

 

So much for the supposed good news. Under the "nasty growth" scenario low to middle income households don't share in rising prosperity; their living standards stagnate as they did between 2003 and 2008 -- a period of steady economic growth. Household income limps along at around £20,000 to 2020, around the same as it was in 2001. We've waved goodbye to two decades. And just to repeat: both these scenarios are premised upon the OBR's assumptions for GDP growth until 2016 being realised (and many think that will be a stretch). We haven't dared contemplate a nightmare scenario in which the Eurozone implodes and there is no or very low growth for an extended period.

What might all this mean for how politics shapes up as we approach the next election? The conventional wisdom would hold that the defining question for a living standards election, which 2015 should surely be, is Ronald Reagan's "are you better off" than you were five years ago?

I'm not so sure. As things stand it's not clear in whose interests it will be to make this the issue hovering over the ballot paper. Unless Labour somehow manages to secure a seismic shift in the public's assessment of where blame lies for the crisis and its aftermath it may not like the answer it gets if this becomes the election question. As for the Conservatives, "things could have been even worse" is not exactly a rousing campaign tune for David Cameron to be humming. All of which raises the unlikely possibility that the largest decline in household incomes in living memory might be the dog that no one -- or at least no party leader -- wants to bark come 2015.

Nor is it clear what the electorate's frame of reference will be: their living standards when David Cameron first entered Downing Street or the change in the months immediately prior to the election? A lot could hang on this. For every economic commentator who thinks the scale of our personal debt overhang will mean growth staying miserably low all the way to 2015, there are others who believe that at some point in this parliament, probably late on, things will -- finally -- tick upwards. Eventually, so this argument runs, forecasts that have been too rosy will give way to those that are too gloomy, with strong pre-election growth and sharp falls in unemployment. Veterans of election campaigns will tell you that changes in economic sentiment in the months running in to a campaign are absolutely vital: it's all about finding your mojo for the final sprint. Even the faintest glimmers of economic hope provide the basis for a traditional incumbent campaign theme along the lines of "don't let Labour ruin the hard won recovery".

Yet there is another, counter-intuitive, and altogether more troubling scenario for the coalition: it's just possible that the emergence of a year or so of strong growth prior to the election could even become a source of vulnerability. A stoical public, after years of swallowing the harsh medicine of austerity, may finally refuse to take another spoonful if the long promised return to strong growth fails to lift their own economic prospects.

Only a fool would claim to know which of these scenarios will come good. What's more clear is that for all the endless talk about the new times we are living through, today's politicians are still operating under the old assumption that nice growth is bound to prevail. They still haven't reckoned with the possibility that the world really may have turned nasty.

Gavin Kelly is the chief executive of the Resolution Foundation.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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A Fox among the chickens: why chlorinated poultry is about more than what's on your plate

The trade minister thinks we're obsessed with chicken, but it's emblematic of bigger Brexit challenges.

What do EU nationals and chlorinated chickens have in common? Both have involuntarily been co-opted as bargaining chips in Britain’s exit from the European Union. And while their chances of being welcomed across our borders rely on vastly different factors, both are currently being dangled over the heads of those charged with negotiating a Brexit deal.

So how is it that hundreds of thousands of pimpled, plucked carcasses are the more attractive option? More so than a Polish national looking to work hard, pay their taxes and enjoy a life in Britain while contributing to the domestic economy?

Put simply, let the chickens cross the Atlantic, and get a better trade deal with the US – a country currently "led" by a protectionist president who has pledged huge tariffs on numerous imports including steel and cars, both of which are key exports from Britain to the States. However, alongside chickens the US could include the tempting carrot of passporting rights, so at least bankers will be safe. Thank. Goodness. 

British farmers won’t be, however, and that is one of the greatest risks from a flood of "Frankenfoods" washing across the Atlantic. 

For many individuals, the idea of chlorinated chicken is hard to stomach. Why is it done? To help prevent the spread of bacteria such as salmonella and campylobacter. Does it work? From 2006-2013 the Centers for Disease Control and Prevention reported an average of 15.2 cases of salmonella per 100,000 people in the US (0.015 per cent) – earlier figures showed 0.006 per cent of cases resulted in hospitalisation. In 2013, the EU reported the level at 20.4 cases per 100,000, but figures from the Food Standards Agency showed only 0.003 per cent of UK cases resulted in hospitalisation, half of the US proportion.

Opponents of the practice also argue that washing chickens in chlorine is a safety net for lower hygiene standards and poorer animal welfare earlier along the line, a catch-all cover-up to ensure cheaper production costs. This is strongly denied by governing bodies and farmers alike (and International Trade Secretary Liam Fox, who reignited the debate) but all in all, it paints an unpalatable picture for those unaccustomed to America’s "big ag" ways.

But for the British farmer, imports of chicken roughly one fifth cheaper than domestic products (coupled with potential tariffs on exports to the EU) will put further pressure on an industry already working to tight margins, in which many participants make more money from soon-to-be-extinct EU subsidies than from agricultural income.

So how can British farmers compete? While technically soon free of EU "red tape" when it comes to welfare, environmental and hygiene regulations, if British farmers want to continue exporting to the EU, they will likely have to continue to comply with its stringent codes of practice. Up to 90 per cent of British beef and lamb exports reportedly go to the EU, while the figure is 70 per cent for pork. 

British Poultry Council chief executive Richard Griffiths says that the UK poultry meat industry "stands committed to feeding the nation with nutritious food and any compromise on standards will not be tolerated", adding that it is a "matter of our reputation on the global stage.”

Brexiteer and former environment minister Andrea Leadsom has previously promised she would not lower animal welfare standards to secure new trade deals, but the present situation isn’t yet about moving forward, simply protecting what we already have.

One glimmer of hope may be the frozen food industry that, if exporting to the EU, would be unable to use imported US chicken in its products. This would ensure at least one market for British poultry farmers that wouldn't be at the mercy of depressed prices, resulting from a rushed trade deal cobbled together as an example of how well Britain can thrive outside the EU. 

An indication of quite how far outside the bloc some Brexiteers are aiming comes from Foreign Secretary Boris Johnson's current "charm" offensive in Australasia. While simultaneously managing to offend Glaswegians, BoJo reaffirmed trading links with the region. Exports to New Zealand are currently worth approximately £1.25bn, with motor vehicles topping the list. Making the return trip, lamb and wine are the biggest imports, so it’s unlikely a robust trade deal in the South Pacific is going to radically improve British farmers’ lives. The same is true of their neighbours – Australia’s imports from Britain are topped by machinery and transport equipment (59 per cent of the total) and manufactured goods (26 per cent). 

Clearly keeping those trade corridors open is important, but it is hard to believe Brexit will provide a much-needed boon for British agriculture through the creation of thus far blocked export channels. Australia and New Zealand don’t need our beef, dairy or poultry. We need theirs.

Long haul exports and imports themselves also pose a bigger, longer term threat to food security through their impact on the environment. While beef and dairy farming is a large contributor to greenhouse gases, good stock management can also help remove atmospheric carbon dioxide. Jet engines cannot, and Britain’s skies are already close to maximum occupancy, with careful planning required to ensure appropriate growth.

Read more: Stephen Bush on why the chlorine chicken row is only the beginning

The global food production genie is out of the bottle, it won’t go back in – nor should it. Global food security relies on diversity, and countries working and trading together. But this needs to be balanced with sustainability – both in terms of supply and the environment. We will never return to the days of all local produce and allotments, but there is a happy medium between freeganism and shipping food produce halfway around the world to prove a point to Michel Barnier. 

If shoppers want a dragon fruit, it will have to be flown in. If they want a chicken, it can be produced down the road. If they want a chlorinated chicken – well, who does?