The Tories' big bet is that living standards will soon start to rise

Cameron's hope is that warnings of a "cost of living crisis" will fade as higher growth translates into higher wages. But Labour remains sceptical.

Both David Cameron and Ed Miliband used the former's Commons statement on last week's European Council meeting to thrash out the arguments over last Friday's GDP figures. After noting that Cameron had vowed to build a "recovery for all" (suggesting that it is currently just a recovery for some), Miliband challenged him on whether this was an admission that there is a "cost of living crisis". He pointed out that the UK has "the highest inflation in Europe" (2.7%) and that wage growth in the most recent quarter (0.7%) was the lowest "on record".

Cameron responded by reminding Miliband of his prediction that public sector job losses would outweigh private sector job creation and boasted that, after earlier warnings of recession, the UK was now forecast to grow "more than twice as fast as Germany". The PM's big bet is that Labour's warnings of a "living standards crisis" will prove similarly mistaken as higher growth translates into higher wages. In the view of the Treasury, the latter are a "lagging indicator" that will come to mirror the rise in GDP. 

But Labour remains confident that the government lacks a strategy to ensure that the proceeds of growth are fairly shared. While there may be one or two months before the election in which wage increases exceed price rises, it believes that any gains will be concentrated at the top (as in April 2013 when real wages rose after deferred bonuses were paid out following the abolition of the 50p tax rate) and that the damage done since 2010 (the average earner is £1,500 a year worse off since May 2010) will continue to weigh heavily on voters' minds. But in George Osborne's words, the Tories believe that "if Britain is growing then the finances of Britain's families will start to grow". Whichever is right will do much to determine the outcome in 2015.

 

Ed Miliband and Prime Minister David Cameron during the service to celebrate the 60th anniversary of the Coronation of Queen Elizabeth II at Westminster Abbey, on June 4, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.