Five questions answered on the shrinking UK economy

How do the figures compare with what was expected?

Figures released this morning indicate the UK could be heading for another recession. We answer five questions on the latest economy figures.

How much has the economy shrank by?

Figures released this morning by the Office of National Statistics show that the economy, or Gross Domestic Product, has shrank by 0.3 per cent in the last three months of 2012.

In the three months prior to this, the economy grew by 0.9% which is believed to have been boosted by the Olympic games.

This is the first estimate of how the economy performed in the fourth quarter, and is subject to at least two further revisions as further data is collected.

What is being cited as the cause of this latest shrinkage?

The ONS are blaming maintenance delays at the UK’s largest oil and gas field in the North Sea, which resulted in a fall of output from the extractive industries. Mining and quarrying output fell by 10.2 per cent, which knocked 0.18 per cent off of GDP.

Another industry that faired badly in the last quarter is manufacturing which fell by 1.5 per cent.

What does this mean for the outlook of the economy?

This means that the country could be heading for a third consecutive recession. Factors such as heavy snow could also hasten the economy into yet another recession. 

How do the figures compare to what was expected?

The figures are said to be worse than expected. Sir Mervyn King, the Bank of England Governnor, has said he only expects a gentle recovery this year, although now even this is looking increasing unlikely.

The International Monetary Fund did cut its 2013 forecast for British economic growth to 1pc from 1.1pc predicted in October, indicating slow growth in the UK economy was anticipated.

What reaction have economists had to these recent figures?

Jonathan Portes, an economist from the National Institute of Economic and Social Research, speaking to the BBC said:

"Underlying it, ignoring all the special factors, what we see is the economy is not delivering the sustainable growth that we would normally see at this point in the cycle.”

He added: "This is due to the [UK] government's policies and the failure of governments in the eurozone.

"They should not have cut the deficit so quickly and before the recovery was sustained."

Meanwhile the Treasury said in a statement:

"It confirms what we already knew - that Britain, like many European countries, still faces a very difficult economic situation.

"While the economy is healing, it is a difficult road."

Photograph: Getty Images

Heidi Vella is a features writer for Nridigital.com

Photo: Getty
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Could Labour implement universal basic income?

The battle over this radical policy is moving gradually into the mainstream.

Shadow chancellor John McDonnell has called universal basic income (UBI) “an idea whose time may well have come”. It means a fixed regular payment to each citizen, irrespective of income or behaviour. It is seen by both socialists and Silicon Valley as a panacea for the post-industrial world, addressing unrestrained inequality, economic insecurity, and automation-generated unemployment in the modern economy.

Guy Standing, a professor at Soas and founding member of Basic Income Earth Network (BIEN), says a “perfect storm of factors have suddenly pushed us into being a mainstream policy question” in recent years. “A lot of people who were sitting on their hands, as it were, have started to come out in favour ... I'm inundated with requests to speak and involvement in conferences, and it's indicative of the sudden realisation that if the growing inequality and growing economic insecurities persist, then the drift to fascist populism will continue. 

“Of course, in the background, a lot of these techies including prominent names in Silicon Valley have come out in favour because they see robots displacing us all. I don't buy that argument, but it's added to a growing chorus of people saying that we should take it more seriously.”

Standing's recent book charts the long history of thinking about UBI (through ancient Greece, Thomas More, and Martin Luther King). But the idea's rise to prominence is the result of a interlinked developments in the economy and the nature of work. As Labour MP Jonathan Reynolds argues, changes such as the rise of self-employment and the gig economy challenge the appropriateness of the traditional welfare state. It's “based around the principle of compulsion, and broadly believing there's two binary states – people in work, and people out of work. We know it's becoming a much more complicated picture than that... The state can't keep up with the complexity of people's lives.”

For Standing, the prospects of UBI being implemented successfully depend largely on how it is framed. He is wary of libertarians who see it as an opportunity to dismantle the welfare state, and believes it needs to be placed within the context of chronic economic insecurity for a growing number within the post-industrial economy.

“The argument that I think is going to prove really important for the left is linked to the growth of the 'precariat',” he says, meaning those living without predictability or security. “People in the precariat are experiencing chronic insecurity that will not be overcome by any existing policy.” 

Even so, support from business could be key. Peter Swenson's work on the history of the welfare state finds that reforms and expansions of social policy have only succeeded when key sections of the capitalist class are in support. He, and other academics, resist the idea that the welfare state is simply the focal point for the battle between left and right over Robin-Hood style redistribution. If UBI is to make its way into policy, support from business may be more important than the strengthening of the left.

Reynolds claims UBI may solve not just policy problems, but political ones.  "You have to say that Labour's situation, in terms of how we've struggled on all of these issues (the party's polling is significantly behind on running the welfare state) over the last few years, means that we should definitely be open to new thinking in this area.” Both he and Standing  are part of the working group that was brought together by McDonnell in February to produce a publication on the issue before the next general election, which would then be discussed across the country. Understandably, the group didn't quite meet its deadline. But Standing says “the general thrust of the plans hasn't changed”.

Standing is hopeful that important sections of the Labour Party are either in support, or can be won over. Clearly, the leadership is generally supportive of the idea – both McDonnell and Corbyn have expressed as much in public statements. Standing says many MPs are “rethinking their position ... many of them have not taken up a position because they thought that this was not an issue to be considered. I think we're seeing a real opening for a much more constructive discussion.”

Reynolds says that “there's people on the right and the left of the party who are in favour, there's people on the right and the left who are against”.
 
Nevertheless, discussion is winning over important Labour constituencies. It's not just radical activist groups, but also trade unions, who are coming round to the idea. According to Standing: “Unite now supports it, as well as a lot of unions in Europe. It used to be the case that the unions were among the most fierce critics of a basic income, on the spurious grounds (in my view) that if people had a basic income they wouldn't push for higher wages and employers wouldn't give higher wages.

“We found in our pilots and in our psychological research that people who have basic security have a stronger bargaining position and are therefore more likely to stand up for their rights, and can lead to improvement in wages and working conditions. So I think that all of those objections are gradually being exposed by theoretical arguments against them, or empirical evidence, from pilots.”

Reynolds agrees that “there's a lot of support coming from the wider labour movement”, but warns that people must not be too optimistic about anything happening quickly. “Clearly it's going to need a radical change to how the tax and benefits system would work, and you'd obviously be completely recasting how personal allowances work, and all of that,” he says. “I think this is sort of the cutting edge of thinking about the future and what our economy will look like in 50-100 years' time, that is the frame that we're looking at.” 

Rudy Schulkind is a Danson scholar who recently graduated in philosophy and politics from St Anne's College Oxford.