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 Images
Show Hide image

The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.