A Chancellor hoping something will turn up

Ignore the fuss about whether or not the economy is technically in recession. Economic stagnation lo

No sooner had the Office for National Statistics (ONS) announced last Wednesday that the UK economy had fallen back into recession than economists starting lining up to denounce the figures as wrong. Having predicted that the economy would have expanded at a modest rate in the first quarter of 2012, they refused to believe the ONS has got it right when it said that real GDP contracted by 0.2 per cent, after a fall of 0.3 per cent in the final quarter of 2011.

However, this debate over whether the economy grew or shrank by 0.1 or 0.2 per cent in the most recent quarter should not distract from the bigger picture. When the coalition government was formed, the economy had grown by 2.5 per cent over the preceding year - not a strong recovery from recession, but at least a recognisable one. In the subsequent seven quarters, real GDP has increased by just 0.4 per cent according to the official data. Even if the ONS has got the latest quarter wrong and the true figure is a little higher, this is a pretty dismal performance.

In part, this is down to bad luck - in particular the effect of higher food and energy prices on spending power and the Eurozone crisis – but government policies and rhetoric are also to blame.

The hike in VAT from 17.5 to 20 per cent added to the squeeze on households’ spending power and massive cuts in government capital spending have hit activity in the construction sector.

There is a sharp contrast with the United States, where there has been less urgency about tightening fiscal policy and which also released a preliminary estimate of first quarter GDP this week. There output increased by 0.75 per cent in the final quarter of 2011 and 0.55 per cent in the first quarter of this year. So while the UK economy contracted by 0.5 per cent over the last two quarters, the US economy expanded by 1.3 per cent.

The government’s rhetoric about the need for austerity in the public sector has also not helped. When they took office, Cameron and Osborne believed in the idea of an ‘expansionary fiscal contraction’: that cutting the budget deficit sharply would so boost confidence in the private sector that companies would step up their investment and recruitment programmes and the economy would grow faster than if the deficit had not been cut. It followed that the tougher they were on the deficit, the greater would be the boost to confidence and the stronger would be economic growth.

After almost two years, the idea of expansionary fiscal contraction has been shown to be patently false. As many economists warned at the time, the most likely result from public sector austerity is economic stagnation. The more the government increased taxes and cut public spending and the more it talked about austerity, the more companies worried about the outlook for demand. This made them understandably reluctant to invest and recruit. The government’s cuts mean there were 350,000 fewer jobs in the public sector in December 2011 compared to June 2010, but the private sector only created 320,000 jobs over the same period.

Despite this evidence, the Prime Minister and the Chancellor are sticking to the line that any deviation from their plan to cut the deficit would make matters worse. 90 per cent of the cuts in public spending are still to be implemented, meaning many more jobs will be lost in the public sector, and there is little to suggest the private sector is willing to step up recruitment to fill the gap.

George Osborne is simply left hoping that something turns up to change the situation. Or rather that something specific – inflation – turns down, so that real incomes start to increase again. Unfortunately, the latest figures, showing inflation of 3.5 per cent and an annual increase in regular earnings of just 1.6 per cent, are not encouraging.

Ignore the fuss about whether or not the economy is technically in recession, the economic stagnation that began in the middle of 2010 looks set to extend for some while yet.

Tony Dolphin is Chief Economist at the IPPR 

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Tony Dolphin is chief economist at IPPR

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.