On the edge

If the UK is to turn its economy around, the two key factors will be exports and productivity.

Is the UK back in recession? The OECD, a think-tank that governments love to have on their side, believes that the economic recovery has gone into reverse over the last six months. For once, most other economic forecasters disagree, and think the OECD is being far too gloomy; the consensus seems to lie with Mervyn King's "zig-zag" rather than the OECD's "double dip".

Does any of this matter? Hardly. There will be a media storm on 25 April if the GDP figures show that the economy has slipped back into recession, but the question is largely academic. For the 2.7 million Britons looking for a job, and the further 1.4 million unable to find full-time work, it will make very little difference whether the UK is technically back in recession or not.

The fact is that the UK economy is in a far more serious state than the odd double dip can do justice to. The economy has not grown for 18 months, while unemployment has increased by over 200,000 - that is far more serious than a temporary, technical recession. Flatlining is not what is supposed to happen after a recession; we were expecting faster-than-normal growth to make up some of what was lost after the financial crisis. At the Budget in 2010, the Office for Budget Responsibility forecast that the economy would grow by 2.3 per cent in 2011. It has been downgrading its forecasts ever since.

And there is little chance that the economy will ever regain the ground lost during the recession. According to the Office for Budget Responsibility, the recession will eventually leave an 11 per cent scar on the UK economy, almost five years' worth of growth that we will never get back. What we are dealing with is not just an economic slump - there is a serious problem with the way the UK economy works.

The most alarming symptom has been a dramatic slump in productivity. The value of what we produce per hour of work has fallen by 3.3 per cent since the end of 2007 - it should have increased by about 9 per cent. I don't expect many people feel they have become less productive or hard-working since the recession hit, but the value of what we collectively produce has fallen nonetheless. Of course, that productivity shock translates into a wage shock, which is why real incomes have fallen. (There is a silver lining, in that this drop in wages has stopped unemployment climbing even higher).

Now falling incomes mean that we have less money to spend, which means there is less opportunity for firms to make money in the UK, which is likely to mean further falls in incomes and fewer jobs. And that's not all we have to contend with - there is also the household debt burden left over from the financial crisis that we need to deal with, which further reduces spending. (There has been some debate in recent weeks over whether it is household debt or bank debt that causes the problems, but again this debate is academic - either way, consumer spending is squeezed).

As a result of this squeeze, the UK's domestic demand fell by 0.8 per cent during 2011. Had it not been for exports, the economy would have shrunk last year, and we'd have already had first-hand experience of a double dip recession. There are plenty of reasons why the UK economy remains in such a precarious position.

But there is some good news amidst the gloom: we are finally beginning to see exports grow significantly, several years after the devaluation of sterling in 2007. This export boom saved the economy from recession in 2011, and remains our best hope for a speedy recovery. It might also help to solve one of the core problems with the British economy; since 1997, we have consistently imported more than we export, and haven't been able to pay our way in the world.

If the UK is to turn its economy around, the two key factors will be exports and productivity. These two issues go to the heart of the underlying changes the economy needs; we need to increase the value of what we do, and sell more of it to the world. Overseas markets are the only place Britain can look to for growing demand at present, and exports are already helping to drag the economy out of the mire. But if any recovery is to be sustained, it must be accompanied by solid growth in productivity, on which the signs are much less encouraging. Reversing the UK's productivity shock will be a longer and more laborious project.

If they are to have any realistic plan for recovery, politicians of all stripes need to worry less about short-term fluctuations, and more about the key underlying factors that will make or break the economy over the next decade. There is little we can do to treat the after-symptoms of the financial crisis, but there is plenty of scope for re-making the UK economy.

Andrew Sissons is a researcher at the Big Innovation Centre at the Work Foundation

David Cameron at a GSK plant. Photo: Getty Images

Andrew Sissons is a researcher at the Big Innovation Centre based at the Work Foundation.

Photo: Getty
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Jeremy Corbyn's opponents are going down a blind alley on tuition fees

The electoral pool they are fishing in is shallow – perhaps even non-existent. 

The press and Labour’s political opponents are hammering Jeremy Corbyn over his party's pledge/ambition/cruel lie to win an election (delete depending on your preference) to not only abolish tuition fees for new students, but to write off the existing debts of those who have already graduated.

Labour has conceded (or restated, again, depending on your preference) that this is merely an “ambition” – that the party had not pledged to wipe out existing tuition fee debt but merely to scrap fees.

The party’s manifesto and the accompanying costings document only included a commitment to scrap the fees of students already in the system. What the Conservatives and Liberal Democrats are claiming as a pledge is the following remark, made by Jeremy Corbyn in his Q&A with NME readers:

“First of all, we want to get rid of student fees altogether. We’ll do it as soon as we get in, and we’ll then introduce legislation to ensure that any student going from the 2017-18 academic year will not pay fees. They will pay them, but we’ll rebate them when we’ve got the legislation through – that’s fundamentally the principle behind it. Yes, there is a block of those that currently have a massive debt, and I’m looking at ways that we could reduce that, ameliorate that, lengthen the period of paying it off, or some other means of reducing that debt burden. I don’t have the simple answer for it at this stage – I don’t think anybody would expect me to, because this election was called unexpectedly; we had two weeks to prepare all of this – but I’m very well aware of that problem. And I don’t see why those that had the historical misfortune to be at university during the £9,000 period should be burdened excessively compared to those that went before or those that come after. I will deal with it.”

Is this a promise, an aspiration or a target? The answer probably depends on how you feel about Jeremy Corbyn or fees policy in general. (My reading, for what it’s worth, is that the full quote looks much more like an objective than a promise to my eyes but that the alternative explanation is fair enough, too.)

The more interesting question is whether or not there is an electoral prize to be had, whether from the Conservatives or the Liberal Democrats, for hammering Labour on this topic. On that one the answer is open and shut: there really isn’t one.

Why not? Because the evidence is clear: that pledging to abolish tuition fees largely moves two groups of voters: students who have yet to graduate and actually start paying back the fees, and their parents and grandparents, who are worried about the debt burden.

There is not a large caucus of fee-paying graduates – that is, people who have graduated and are earning enough to start paying back their tuition fees – who are opposed to the system. (We don’t have enough evidence but my expectation is that the parents of people who have already graduated are also less fussed. They can see that their children are not crippled by tuition fee debt, which forms a negligible part of a graduate’s tax and living expenses, as opposed to parents who are expecting a worrying future for their children who have yet to graduate.)

Put simply, there isn’t a large group of people aged 21 or above voting for Corbyn who are that concerned about a debt write-off. Of those that are, they tend to have an ideological stance on the value of a higher education system paid for out of general taxation – a stance that makes it much harder for the Conservatives or the Liberal Democrats to peel those votes off.

The whole thing is a bit of a blind alley for the parties of the centre and right. The Tory difficulty at this election wasn’t that they did badly among 18-21s, though they did do exceptionally badly. With the exception of the wave year of 1983, they have always tended to do badly with this group. Their problem is that they are doing badly with 30-45s, usually the time in life that some younger Labour voters begin to vote Conservative, largely but not exclusively because they have tended to get on the property ladder.

Nowadays of course, that cohort, particularly in the south of England, is not getting on the property ladder and as a result is not turning blue as it ages. And that’s both a bigger worry and a more lucrative electoral target for Labour’s opponents than litigating an NME interview.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.