Why GDP growth does not mean recovery for everyone

The old formula that “growth equals gains in living standards for ordinary workers” is no longer eno

It's fairly widely assumed that the outcome of the next election will pivot on the strength – or otherwise – of Britain's economic recovery. But what kind of recovery are we seeking? The perceived wisdom suggests that the key figure to look out for is strong and sustained GDP growth. Other stats – such as those for household spending released this week – are pored over mainly for what they tell us about when growth will return.

The trouble is that national GDP growth may be necessary for a recovery in the living standards of Britain's households, but is it sufficient? Gavin Kelly argued on newstatesman.com back in March that it might not be. Put simply, the old formula that says "growth equals gains in living standards for ordinary workers" just doesn't seem to be working as well as it used to.

Today at the Resolution Foundation, we have released a new report which adds significant weight to that argument. It raises the question of whether the UK will follow the path of other countries – such as the US, Canada and, more recently, Germany – in which people on or below median wages have failed to benefit from growth. The UK experience before the 2008 recession was not encouraging. From 2003 to 2008, wages were already flatlining. In the same period, disposable income per head fell in every English region outside London.

That all suggests that the Chancellor's political prospects depend on much more than just what happens to GDP. Based on OBR projections, median wages will be no higher in 2015 than they were in 2001. Part of this poor performance is explained by the temporary impact of high inflation, but it also stems from trends from before the recession. As yet, it's not at all clear that anything has happened to shift the economy from those pre-recession tramlines: top earners pulling away from the rest, and median earnings failing to keep up with GDP.

So if the Chancellor is to avoid hailing a false dawn when growth does return, he needs to get beyond talk of "recovery" in the abstract, to look at the conditions that helped raise living standards during previous decades of growth. Take the long-term rise of female participation in the jobs market and the move towards dual-earning households. In recent years, this growth has been trailing off, and the prospects for future increases have just got bleaker.

The government's intention to reduce childcare support, a crucial factor among low-to-middle-income women in deciding whether to work, will make full-time work less of an option for millions of mothers. By the end of this parliament, it might be cuts such as these – which don't just cause short-term rows about reduced services, but also long-term reductions in living standards – that the coalition most regrets.

Debt, too, will be important. As we know all too well, the five years of wage stagnation from 2003 to 2008 were also characterised by a sharp rise in personal debt, enabling households to prop up their standard of living. Most economists expect debt to be run down in coming years, with low-to-middle-income households either unable or less willing to borrow to the same degree. (In fact, it is surprising that the Office for Budget Responsibility is arguing that personal debt will continue to increase for the rest of this parliament.)

The move to a more sustainable credit market may bring stability, but it also means the destruction of another pillar of rising spending power in recent years.

In terms of the national economic debate, all this means that we would be well advised to look beyond GDP growth as a test of our economic health. Better tests of the political and economic weather may be measures of the living standards of ordinary workers: median wage growth, household disposable income, the affordability of a basket of essential goods.

Not until green shoots can be seen in these areas can we breathe a sigh of relief. As things stand, there's little reason to believe that a return to growth would mean anything other than a return to the kind of growth we saw from 2003 to 2008. That will not be enough.

James Plunkett is secretary to the Commission on Living Standards, a wide-ranging investigation into the long-term economic trends hitting low-to-middle earners.

James Plunkett is director of policy and development at the Resolution Foundation

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Who "speaks for England" - and for that matter, what is "England"?

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones.

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones. It trotted out Leo Amery’s House of Commons call from September 1939, “Speak for England”, for the headline on a deranged leader that filled a picture-free front page on David Cameron’s “deal” to keep Britain in the EU.

Demands that somebody or other speak for England have followed thick and fast ever since Amery addressed his call to Labour’s Arthur Greenwood when Neville Chamberlain was still dithering over war with Hitler. Tory MPs shouted, “Speak for England!” when Michael Foot, the then Labour leader, rose in the Commons in 1982 after Argentina’s invasion of the Falklands. The Mail columnist Andrew Alexander called on Clare Short to “speak for England” over the Iraq War in 2003. “Can [Ed] Miliband speak for England?” Anthony Barnett asked in this very magazine in 2013. (Judging by the 2015 election result, one would say not.) “I speak for England,” claimed John Redwood last year. “Labour must speak for England,” countered Frank Field soon afterwards.

The Mail’s invocation of Amery was misconceived for two reasons. First, Amery wanted us to wage war in Europe in support of Hitler’s victims in Poland and elsewhere and in alliance with France, not to isolate ourselves from the continent. Second, “speak for England” in recent years has been used in support of “English votes for English laws”, following proposals for further devolution to Scotland. As the Mail was among the most adamant in demanding that Scots keep their noses out of English affairs, it’s a bit rich of it now to state “of course, by ‘England’. . . we mean the whole of the United Kingdom”.

 

EU immemorial

The Mail is also wrong in arguing that “we are at a crossroads in our island history”. The suggestion that the choice is between “submitting to a statist, unelected bureaucracy in Brussels” and reclaiming our ancient island liberties is pure nonsense. In the long run, withdrawing from the EU will make little difference. Levels of immigration will be determined, as they always have been, mainly by employers’ demands for labour and the difficulties of policing the borders of a country that has become a leading international transport hub. The terms on which we continue to trade with EU members will be determined largely by unelected bureaucrats in Brussels after discussions with unelected bureaucrats in London.

The British are bored by the EU and the interminable Westminster arguments. If voters support Brexit, it will probably be because they then expect to hear no more on the subject. They will be sadly mistaken. The withdrawal negotiations will take years, with the Farages and Duncan Smiths still foaming at the mouth, Cameron still claiming phoney victories and Angela Merkel, François Hollande and the dreaded Jean-Claude Juncker playing a bigger part in our lives than ever.

 

An empty cabinet

Meanwhile, one wonders what has become of Jeremy Corbyn or, indeed, the rest of the shadow cabinet. The Mail’s “speak for England” leader excoriated him for not mentioning “the Number One subject of the hour” at PM’s Questions but instead asking about a shortage of therapeutic radiographers in the NHS. In fact, the NHS’s problems – almost wholly caused by Tory “reforms” and spending cuts – would concern more people than does our future in the EU. But radiographers are hardly headline news, and Corbyn and his team seem unable to get anything into the nation’s “any other business”, never mind to the top of its agenda.

Public services deteriorate by the day, George Osborne’s fiscal plans look increasingly awry, and attempts to wring tax receipts out of big corporations appear hopelessly inadequate. Yet since Christmas I have hardly seen a shadow minister featured in the papers or spotted one on TV, except to say something about Trident, another subject that most voters don’t care about.

 

Incurable prose

According to the Guardian’s admirable but (let’s be honest) rather tedious series celeb­rating the NHS, a US health-care firm has advised investors that “privatisation of the UK marketplace . . . should create organic and de novo opportunities”. I have no idea what this means, though it sounds ominous. But I am quite certain I don’t want my local hospital or GP practice run by people who write prose like that.

 

Fashionable Foxes

My home-town football team, Leicester City, are normally so unfashionable that they’re not even fashionable in Leicester, where the smart set mostly watch the rugby union team Leicester Tigers. Even when they installed themselves near the top of the Premier League before Christmas, newspapers scarcely noticed them.

Now, with the Foxes five points clear at the top and 7-4 favourites for their first title, that mistake is corrected and the sports pages are running out of superlatives, a comparison with Barcelona being the most improbable. Even I, not a football enthusiast, have watched a few matches. If more football were played as Leicester play it – moving at speed towards their opponents’ goal rather than aimlessly weaving pretty patterns in midfield – I would watch the game more.

Nevertheless, I recall 1963, when Leicester headed the old First Division with five games to play. They picked up only one more point and finished fourth, nine points adrift of the league winners, Everton.

 

Gum unstuck

No, I don’t chew toothpaste to stop me smoking, as the last week’s column strangely suggested. I chew Nicorette gum, a reference written at some stage but somehow lost (probably by me) before it reached print.

Editor: The chief sub apologises for this mistake, which was hers

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle