What George Osborne doesn't want you to know about the economy

Including, this is still the slowest recovery for 100 years, the economy is 2.9% smaller and most people are still getting poorer.

After the economy grew for two consecutive quarters and growth forecasts were revised from the terrible to the merely mediocre, George Osborne has decided it's time to declare victory. In his speech earlier today in east London, the Chancellor claimed that "those in favour of a Plan B have lost the argument" and that Britain was "turning the corner". The media, most of which endorsed austerity in 2010, has every interest in echoing his words. But here are five reasons why it's still the Chancellor and his supporters who have all the explaining to do. 

1. This is still the slowest recovery for more than a century

Growth has returned - it was always bound to at some point (and no Keynesian ever suggested otherwise) - but this remains the slowest recovery for more than 100 years. Had Osborne achieved the OBR's original June 2010 forecasts, the economy would now be 8.1% larger. Instead, after a collapse in private and public investment, it's only 4% larger. To make up the lost ground since 2010, the economy would need to grow at 1.3% a quarter for the next two years. Output of 0.7% is the least we should expect (not least when the population is growing). 

2. The economy is 2.9% smaller than before the crash (the US is 4.5% larger)

Owing to three years of anaemic growth, the economy is still 2.9% below its pre-recession peak. In the US, by contrast, where the Obama administration maintained fiscal stimulus, the economy is 4.5% larger than in 2007 after growth three times greater than that of the UK since autumn 2010. And it's not just the Americans who have outpaced us. The UK recovery has been slower that of any other G7 country bar Italy. 

3. Unemployment hasn't fallen for six months and underemployment is at a near-record high

Before the economy returned to growth, the Tories were hailing employment as this government's success story (as they did when the most recent were published). But the data, as so often, tells a different story. After falling from 8.4% to 7.7% between November 2011 and November 2012, the headline rate of unemployment has been stuck at around 7.8% for the last six months, 0.1% higher than its previous low.

That total joblessness has not risen to the heights experienced in the 1980s owes more to the willingness of workers to price themselves into employment (real wages have fallen by a near-unprecedented 9%) than the success of the government's strategy.  

Alongside this, underemployment is surging, with a record 1.43m in part-time jobs because they can't find full-time work. Worst of all, long-term unemployment (those out of work for more than a year) is at a near-record high and youth unemployment is at 973,000 (21.4%).

4.  His deficit reduction plan failed and he's forecast to borrow £245bn more

For a man whose raison d'etre is deficit reduction ("The deficit reduction programme takes precedence over any of the other measures in this agreement," states the Coalition Agreement), Osborne isn't very good at it. Having originally pledged to eliminate the structural deficit by 2014-15 and ensure that debt is falling as a proportion of GDP by 2015-16, he's been forced to push both targets back to 2017-18.

Contrary to what some on the right claim, this isn't due to any lack of austerity. Infrastructure spending has been slashed by 42%, VAT has been increased to 20% and 356,000 public sector jobs have been cut, so that the state workforce is now at its lowest level since 1999. Despite all this, Osborne is still forecast to borrow £245bn more than planned across this parliament and more in five years than Labour did in 13. 

5. Most people are still getting poorer - and that won't change soon

While the media and the political class fixate over GDP, it's a poor measure of the nation's economic health. As we saw even before the crash, a growing economy can disguise stagnating or falling wages for the majority. Between April and June, average weekly earnings (excluding bonuses) rose by just 1.1% compared with a year earlier, 1.7 percentage points below the rate of inflation (2.8%). Since the election, average pay has fallen by £1,350 a year in real terms, with most now earning no more than they were in 2003, a worse performance than every EU country except Portugal, the Netherlands and Greece.

And the situation is unlikely to improve anytime soon. Wages aren't expected to outstrip inflation until 2015 at the earliest and earnings for low and middle income families won't reach pre-recession levels until 2023

George Osborne takes part in a panel session on the main stage at the Campus Party computer coding event at the 02 on September 4, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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A third runway at Heathrow will disproportionately benefit the super rich

The mean income of leisure passengers at Heathrow in 2014 was £61,000.

The story goes that expanding Heathrow is a clear-cut policy decision, essential for international trade, jobs and growth. The disruption for those that live around the airport can be mitigated, but ultimately must be suffered for the greater good.

But almost every part of this story is misleading or false. Far from guaranteeing post-Brexit prosperity, a new runway will primarily benefit wealthy frequent flyers taking multiple holidays every year, with local residents and taxpayers picking up the tab.

Expanding Heathrow is not about boosting international trade. The UK is only marginally reliant on air freight to trade with the rest of the world. Total air freight traffic in the UK is actually lower now than it was in 1995, and most UK trade is with Europe, of which only 0.1 per cent goes by air. Internationally, as much as 90 per cent of trade in goods goes by ship because transporting by plane is far too expensive. And in any case our most successful exports are in services, which don’t require transportation. So the idea that UK plc simply cannot trade without an expansion at Heathrow is a gross exaggeration.

Any talk of wider economic benefits is also highly dubious. The Department for Transport’s forecasts show that the great majority of growth in flights will come from leisure passengers. Our tourism deficit is already gaping, with more money pouring out of the country from holidaymakers than comes in from foreign tourists. What’s worse is that this deficit worsens regional disparities since money gets sucked out of all parts of the country but foreign tourists mostly pour money back into London. As for jobs, government estimates suggest that investing in rail would create more employment.

As for the public purse, the aviation sector is undeniably bad for our Treasury. Flights are currently exempt from VAT and fuel duty – a tax subsidy worth as much as £10bn. If these exemptions were removed each return flight would be about £100 more expensive. This is a wasteful and regressive situation that not only forfeits badly needed public funds but also stimulates the demand for flights even further. Heathrow expansion itself will directly lead to significant new public sector costs, including the cost of upgrading Heathrow’s connecting infrastructure, increased pressure on the NHS from pollution-related disease, and the time and money that will have to be ploughed into a decade of legal battles.

So you have to wonder: where is this greater public good that local residents are asked to make such a sacrifice for?

And we must not forget the other sacrifice we’re making: commitment to our fair share of global climate change mitigation. Building more runways creates more flights, just as building more roads has been found to increase traffic. With no clean alternatives to flying, the only way to meet our climate targets is to do less of it.

The real reason for expanding Heathrow is to cater for the huge expected increase in leisure flying, which will come from a small and relatively rich part of the population. At present it’s estimated that 70 per cent of flights are taken by 15 per cent of the population; and 57 per cent of us took no flights abroad at all in 2013. The mean income of leisure passengers at Heathrow in 2014 was £61,000, which is nearly three times the UK median income.

This is in stark contrast to the communities that live directly around airports that are constantly subjected to dirty air and noise pollution. In the case of London City Airport, Newham – already one of London’s most deprived boroughs – suffers air and noise pollution in return for few local jobs, while its benefits are felt almost entirely by wealthy business travellers.

Something needs to change. At the New Economics Foundation we’re arguing for a frequent flyer levy that would give each person one tax-free return flight every year. After that it would introduce a charge that gets bigger with each extra flight, cracking down on those that use their wealth to abuse the system by taking many flights every year. This is based on a simple principle: those who fly more should pay more.

A frequent flyer levy would open up the benefits of air travel, reducing costs for those struggling to afford one family holiday a year, while allowing us to meet our climate targets and eliminate the need for any new runways. It would also generate millions for the public purse in an efficient and progressive way.

We have to take back control over an airports system that is riding roughshod over communities and our environment, with little perceivable benefit except for a small group of frequent flyers.

Stephen Devlin is a senior economist at the New Economics Foundation.