Why today's GDP figures will give Osborne sleepless nights

The recession leaves the UK's AAA rating in even-greater danger.

In his response to today's terrible GDP figures (the economy shrunk by 0.7% in the second quarter), George Osborne wisely resisted blaming the eurozone, the weather or the Jubilee for the third successive quarter of contraction. Instead, he dwelt on the UK's "deep-rooted economic problems". Britain has many long-term problems - an economy too dependent on finance, a lack of long-term investment, and persistently high levels of youth unemployment - but the charge against Osborne is that he has made them worse, not better.

Today's figures mean that the economy is now smaller than it was at the time of the election and 4.5% below its 2008 peak. Even before the double-dip (and don't say we didn't warn you), the UK, unlike the US, Germany, France, and Canada, still hadn't recovered the lost output from the previous recession. Osborne will hope for an Olympics-led recovery in the third quarter as the lost production from the Jubilee bank holiday is made up. But recent history suggests he would be wise not to count on it.

The deepening of the recession will do little to alter the demands of Labour and Tory MPs but it will amplify them. The problem for Osborne is that the constraints of the coalition and his decision to rule out fiscal stimulus in advance mean that he can offer neither the supply-side revolution that the Tories crave nor the Keynesian boost that Labour seeks. As a result, he has invested much of his hope in greater monetary stimulus by the Bank of England. But with the UK caught in a classic liquidity trap - when consumers are so determined to save that greater availability of credit makes no difference to growth - he is profoundly wrong to do so.

At times of recession, when consumer spending is depressed and businesses are hoarding cash, the state must act as a spender of last resort and stimulate growth through temporary tax cuts and higher infrastructure spending. Yet it is precisely this option that Osborne has rejected at every turn, dismissing well-intentioned critics as "deficit deniers". Today's figures are his reward.

A further consequence of the recession is that it will be even harder, if not impossible, for Osborne to meet his golden rules on borrowing. The IMF, whose prediction of 0.2% growth this year now looks hopelessly optimistic, has already warned that he will miss his target for national debt to be falling as a percentage of GDP by 2015-16. Today's figures leave him even further away from that goal.

While Osborne's arbitrary targets are of little economic importance they are of immense political significance. Should he abandon his debt rule, the UK could lose its AAA credit rating. Standard & Poor's, for instance, has previously warned that our top rating is conditional on Osborne meeting his fiscal mandate. But why should we listen to the discredited agenices that rated Lehman Brothers and AIG as "safe investments" days before the crash? The answer is simple: we shouldn't. But this doesn't alter the fact that Osborne did. Having adopted the UK's credit rating as his metric of success (he once boasted that we were "the only major western country which has had its credit rating improve") he can hardly change tact now.

The UK's AAA credit rating is one of the few emblems of "credibility" the Chancellor has left. Its loss would be a final and possibly terminal blow to his authority.

George Osborne blamed the UK's "deep-rooted economic problems" for the continuing recession. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.