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.

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Is Labour really as doomed as it seems? The polls have got it wrong before

Pollsters often overrate Labour's performance. But in two elections, the opposite happened. 

Few moments in the Labour Party’s history can have felt as gloomy as this one. Going into a general election that almost no-one expects them to win, their overall opinion polling is appalling. Labour seems becalmed in the mid-20s; the Conservative Party has rocketed into the mid- to high-40s, and has even touched 50 per cent in one survey.

The numbers underlying those voting intention figures seem, if anything, worse. The Conservatives have huge leads on leadership and economic competence – often even more reliable indicators of election results than the headline numbers. High turnout groups such as the over-65s have turned against Labour in unprecedented numbers. Working-class Brits have swung towards the Conservative, placing once-safe Labour seats in danger. There are limited, but highly suggestive, hints among the data that the swing against Labour is higher in its own marginal seats – a potentially toxic development for any party seeking to hang on to MPs, as Conservatives defending apparently impregnable majorities under John Major in 1997 would attest.

All the while, Labour seems confused about what it is really for. Try as he might, Keir Starmer’s term as Labour’s shadow Brexit secretary has been marred by a fatal confusion and indecision about the extent of the UK’s future engagement with the European Union’s single market. Labour seems neither the party of Brexit nor of Remain, but one determined to irritate as many voters as possible. A similar situation reigns in Scotland, where nationalists under Nicola Sturgeon face Conservative Unionists led by Ruth Davidson, and Labour struggles even to gain a hearing.

Many Labour policy offers – free primary school meals for all, the promise of free university tuition, nationalising the railways, upholding the triple lock of pensions, opposing National Insurance rises for the self-employed – are pleasingly universal, while in isolation appealing to different electoral groups. But together, they represent a massive shift of resources to higher-income Brits that would take huge tax rises to offset. Labour is dangerously close to offering a regressive package under the guise of left-wing radicalism. This is pretty much as far from the British people’s electoral sweet spot as it is possible to imagine.

It is therefore little wonder that Labour lags so far behind Theresa May’s Conservatives. Even some Labour strongholds appear likely to fall - regional polls from London and Wales suggest that many Labour seats will be lost in the party’s remaining citadels. Brutal stories are already coming in from the campaign trail. Rumours fly of truly epochal losses - though it is important to note that other anecdotes seem much less dramatic.

Still, there are other indicators – all too easily missed in the heat of the moment – that point in the other direction. Labour’s performance in local by-elections has been dire for the main opposition party, but the swing towards the Conservatives has been running at "only" just over 2 per cent. The party has certainly suffered some big swings against it, and it has lost wards to the Conservatives in local authorities as varied as Hertfordshire, Harrow and Middlesborough. But there is no evidence that its vote has collapsed on the scale that some of the polling suggests.

Relatively recent history should also give us pause before we write Labour off altogether. Consider the last two general elections in which Labour had near-death experiences, in both 1983 and 2010. Britain’s third party - first the Liberal-SDP Alliance, and then the Liberal Democrats - seemed about to overtake Labour in the popular vote, and steal scores of seats from the bigger progressive party. On both occasions, Labour was able to draw on hitherto unguessed-at wells of cultural identity and strength to pull away right at the campaign’s end. These are in fact the only elections in recent times when the polls have underrated, rather than overestimated, Labour’s likely score. It might be that the same phenomenon emerges this time.

The Conservatives’ huge lead right now has not resulted from a sudden collapse in Labour support, but rather from the United Kingdom Independence Party’s well-publicised implosion. If anything, after about a year of steady decline, the last week or two has seen Labour’s twelve months of slow deflation grind to a halt. Labour’s numbers have even ticked up a point or two as some voters appear to rally around "their" flag. It might be that, as you squeeze the Labour vote down, it becomes more resilient to further shrinkage.

As the Conservatives try to push into Labour’s heartlands, they might find it harder and harder to persuade voters across, from Ukip as well as from Labour. The Conservatives’ image is still far from good in such communities, whatever the underanalysed and separate appeal of PM May as a strong, considered leader in need of a negotiator’s mandate in Europe. Voters might be attracted to May, and repelled by Corbyn - that does not necessarily mean that they will actually vote Conservative. There is little evidence, so far, of any realignment in how voters see themselves – whether they "are" Labour or Conservative, rather than the more ephemeral question of whether they will simply vote for those parties.

Humans always look for patterns. Experts are no exception, while journalists and commentators can always jump to rapid – but wrong – conclusions in the overexcited heat of an election campaign. So it is with the threat of a Labour catastrophe on 8 June. The danger of just such a result is definitely there. But some of the data points we already have, and two recent elections at which Labour walked close to an abyss, cast a little bit of doubt on the inevitability of such an outcome. There are still just over six weeks to go. A Conservative landslide is still quite likely. But it is not certain. We should keep an eye out for the many hints that May’s gamble might end in a rather less crushing victory than we have been led to expect.

Glen O’Hara is Professor of Modern and Contemporary History at Oxford Brookes University. He blogs, in a personal capacity, at Public Policy and the Past. He is the author of a series of books about modern Britain, including The Politics of Water in Post-War Britain (Palgrave Macmillan: forthcoming, May 2017).

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