Edward Heath U-turned. Will Osborne be forced to do the same?

By David Blanchflower Published 03 April 2012

Creating mayhem is unlikely to be a sustainable, long-run industrial relations strategy. The government already has troubles in the public sector with its cull of jobs – remember all that talk of the enemy? Now it has intervened in an ongoing private-sector negotiation between haulage contractors and tanker drivers and made matters markedly worse. No strike has been called and the two parties are flexing their muscles as they do in the midst of a negotiation.

A strike threat is not the same thing as a strike. A threatened lockout is not the same as a lockout. A breakdown of negotiations can occur because of the intransigence of either party. Not infrequently, strikes occur because of mistakes.

The chart shows that, over the past decade or so, the incidence of strikes has fallen sharply.

It plots the numbers of days lost to disputes since 1970 and does not account for the increase in the numbers employed, up from roughly 24.5 million to 29 million over this period. Strikes have not been a major issue in the UK for decades, certainly up until the public-sector workers’ strike over pensions in November 2011. This is in contrast to the 1970s, an era of protracted industrial disputes when we had three-day weeks, power outages and uncollected rubbish on the streets.

The biggest spike in industrial disputes was in September 1979, when 11.7 million working days were lost (compared to fewer than a million last November). A large part of the explanation for the decline in strikes is that globalisation has weakened workers’ bargaining power. There is an ever-present fear that firms could move production to China. Since 2008, during what is now called the “Great Recession”, private-sector workers have accepted reductions in hours and wage freezes rather than lose their jobs.

Pointless point-scoring

The Cabinet Office minister Francis Maude’s reckless comments, encouraging people to fill up jerrycans when there was no need to, unnecessarily created long lines at petrol stations, as well as panic, even though there was no planned strike. He should have followed Monty Python’s suggestion to “shut your festering gob”. It appears that the Tories thought they could score political points because the Unite union that represents the drivers is a major funder of the Labour Party. A Machiavellian interpretation is that this was all just a cynical attempt to move spending from April to March to help lift GDP in the first quarter.

The biggest concern about incompetence is in relation to the coalition’s handling of the economy. I have previously described the last five quarters for which we have data as the “Osborne collapse”. I take this period from the fourth quarter of 2010 until the fourth quarter of 2011. Until recently, official data suggested that the economy grew by 3.1 per cent in the previous five-quarter period under Alistair Darling – the period that I have called the “Darling recovery” – but by only 0.1 per cent under George Osborne. However, the latest data revisions published by the Office for National Statistics (ONS) adjusted the +0.1 per cent growth to -0.1 per cent. On top of that, the Organisation for Economic Co-operation and Development (OECD) lowered its forecast for the first quarter of 2012 to -0.1 per cent, which, when added to the -0.3 per cent for the fourth quarter (revised down from -0.2 per cent), would imply that the UK was in double-dip recession. But most of the cuts haven’t hit yet and the concern is that we are going to see rapidly worsening social consequences – which, in my view, would inevitably add to the government’s unpopularity.

Status symbol

So, what will happen next? There are several instances in recent history of how UK governments were forced into making U-turns on economic policy. The markets forced U-turns in 1967, 1976, 1981 and 1992. Of particular relevance now is Ted Heath’s U-turn on economic policy in 1972 that precipitated what became known as the “Barber boom”. This was forced on the Conservative government primarily by unemployment passing the socially unacceptable one million barrier.

The economics commentator William Keegan has pointed out to me that a big factor behind Heath’s policy reversal was a telephone call to Downing Street from the then chief constable of Glasgow, David McNee. He said that he could no longer be responsible for public order in the city if, with unemployment already high, the government did not rescue Upper Clyde Shipbuilders, which was threatened with closure. In response, in his 1972 Budget, Anthony Barber reduced income taxes and gave big tax concessions to firms to save jobs.

A crucial moment for the coalition could well come as soon as 25 April, when the ONS announces GDP growth for the first quarter of this year, especially if the number is negative, as it may well be. Such an announcement could result in one or more of the credit rating agencies removing Britain’s cherished AAA status. Osborne has claimed that maintaining this rating is an important goal of his strategy, so losing it would be a great blow.

In reality, it wouldn’t be that big a deal even if it happened. France and the US had their costs of borrowing fall when recently they lost their AAA status. The consequences of trying to keep it, with rising unemployment, falling growth and declining living standards, are worse than the costs of losing it.

The Chancellor is surely going to have to change tack. The only question is whether he will do so voluntarily or involuntarily.

Tags: Employment

View the discussion thread.

58 comments

Fri, 2012-04-13 22:44 — matthew fox (not verified)

"wehn " please could your clarify this term?

I don't insult your grammar, it is your appalling spelling, do you understand the difference between grammar and spelling?

Overall Score 12-0 in your time mind doomandcuster.

I have heard of John Virgo old chap, he is throw back to the 80s, like your views.

Don't tell me, your errors are down you typing too fast?

Sat, 2012-04-14 09:42 — mike555

Oh look Matts given up on the big bounce in house prices argument because I'm correct. What another dismal showing to add to the list.

Sat, 2012-04-14 11:33 — matthew fox (not verified)

Are you correct Bozo555, the decline of house prices in 2008, wasn't big, it was huge, and don't forget house prices declined in 2010, how would you describe that decline?

The odd thing which under cut your fantasy, is the analysis from the nationwide, who describe falling households income and unemployment hindering the housing market.

No mention of QE or low interests, why would that be, are you more knowledge, then us mere mortals.

Tue, 2012-04-17 17:57 — mike555

@Matt

That's desperate. I've already explained to you what has happened to house prices, read my previous posts. If the 2008 drop in house prices was huge how would you describe the tripling of house prices under New Labour and what effect did you think that had on the low paid? I've lost count how many times you've avoided this question, the silence is deafening.

Tue, 2012-04-10 00:56 — Gracie

David I remember you talking about the AAA rating on American TV and everything you said is coming true. Pity George Osborne doesn't listen to you, if he did we could have carried on with Labour's recovery and be in a much stronger position that we are now.

Tue, 2012-04-10 18:45 — Indu Pendent

@Gracie.
These are Matt's figures:
Tories borrowed £260Bn in 17 years
Labour borrowed £600Bn in 11 years

The level of Labour's borrowing was unsustainable which Ed Balls and Ed Miliband both agree which why following their U turn there is cross party support for Plan A. Labour's Plan B which is now obsolete was to borrow £250Bn more than the coalition over the first 5 years with the same over the next i.e Labour was planning on ramping the national debt up to a level nearer to £2Tn. The UK would not retain AA+ at this rate of borrowing.

There never was a Labour recovery. It was synical manipulation of the economy through fiscal policy just as Thatcher did with interest rates. Take away the borrowing and the expansion of the state by Labour from 2000 to 2010 and the underlying economy was shrinking. Ever increasing borrowing was being used to hide the problem from voters by Ed Balls and Gordon (which is the reason why the OBR was set up). Its why we are in such a mess now -- as the state is being shrunk it is revealing the horrifying underlying state of the economy produced by the last government.

Out of interest, why do we need "Labour's recovery" which is a demand driven solution? Fundamental problems with the UK are that labor costs are not competitive in the world market which is why so many UK jobs are being lost overseas and that the fiscal multiply is very low because stimulus leaks out of the economy quickly through imports. What we need are policies that mend these weaknesses first.

Wed, 2012-04-11 08:37 — matthew fox (not verified)

Inastew, that is a lie, my simple minded friend. They are not "my figures " I suppose you need to cover up your dishonesty, of guestimating the Tories borrowing for 17 years.

Didn't you pretend it was only £100 Billion, are you getting any flashbacks?

Unlike you, I let third parties publish the facts, don't forget, you lied about Osborned only borrowing £100 Billion in his first year of being Chancellor, it was £150 Billion.

Wed, 2012-04-11 19:29 — Indu Pendent

They are your figures Matt. You know it.

What are you scared of - that they are right or they are wrong?

No where for you to hide on this one Matt.

Fri, 2012-04-13 22:48 — matthew fox (not verified)

No Inastew, your in denial. I haven't made any figures up, please remember that.

Mon, 2012-04-09 10:58 — No statesman (not verified)

Months ago we were told Greece, or Portugal, were doomed as their credit ratings were lowered.

Now it's the UK's turn, and surprise: We're told losing the AAA credit rating "wouldn’t be that big a deal even if it happened". We're told the consequences of trying to keep our AAA rating "are worse than the costs of losing it". Quite a difference with the headlines when, say, France lost its AAA rating.

Am I the only one who feels he's been lied to?