Leader: The wrong kind of economic recovery

Even the most depressed economies eventually recover. The return of growth in the UK, after three years of stagnation under the coalition government, is merely a reflection of this truth. With GDP still at 2.5 per cent below its pre-recession peak, in 2007, the economy has yet to make up the lost output from the crisis. In the US, by contrast, where the Obama administration maintained fiscal stimulus by cutting taxes and increasing infrastructure spending, the economy is now 5.2 per cent larger. But after convincing much of the public that the post-2010 downturn was inevitable, George Osborne has been the beneficiary of low expectations.

According to the Chancellor’s account, the surge in growth is a vindication of his decision to pursue austerity after entering office. This claim is faithfully echoed by a media that loudly endorsed his deficit reduction programme in 2010. Not only does this narrative ignore the tardiness of the recovery – the slowest for more than 100 years – it also obscures the sources of the growth we are now experiencing. It is not austerity but its reverse that explains the upturn.

To the extraordinary monetary stimulus provided by the Bank of England, in the form of quantitative easing and record-low interest rates, have been added large-scale state interventions such as Help to Buy. After imposing damaging policies such as the VAT rise and the dramatic reduction in infrastructure spending in 2010, Mr Osborne has also eased the pace of austerity. Rather than sticking to his original deficit reduction timetable, the Chancellor allowed borrowing to rise and extended his programme from four years to seven. Even under the most optimistic scenario, the deficit is still expected to be at least £100bn this year, £40bn more than forecast by the Office for Budget Responsibility in 2010.

When he entered office in 2010, Mr Osborne pledged to rebalance the economy away from its reliance on property and debt-financed consumer spending, cynically fostered by Labour, and towards investment and exports. But growth is again being driven by the former. Exports fell by 2.4 per cent in the most recent quarter, despite the continuing weakness of the pound, while business investment remains 6.3 per cent below its 2012 level. With wage growth (0.8 per cent) still lagging behind inflation (2.2 per cent), the recovery is being built on consumer credit and rising house prices. Like Gordon Brown before him, Mr Osborne has found the attractions of debt-driven growth impossible to resist. If the economy is not to become permanently reliant on ultra-low interest rates, he must act now to promote both public and private investment. Rather than risking the creation of another property bubble through Help to Buy, he should concentrate on increasing the supply and the affordability of housing.

A programme of the kind pursued by Harold Macmillan as housing minister in the early 1950s, when 300,000 homes a year were built, would stimulate growth (for every £100 invested in housebuilding, £350 is generated in return), create employment and reduce welfare spending. As some MPs in his own party have suggested, the Chancellor should also offer incentives to firms to pay the living wage in order to reduce consumers’ reliance on borrowing to maintain their living standards.

At present, GDP is rising but living standards are not. The north-south divide in England is widening, rather than narrowing. Meanwhile, household savings are falling at their fastest rate for 40 years. The economic cycle may finally have turned but the structural conditions for a repeat of the crash remain firmly in place.

Mark Carney, Governor of the Bank of England. Photo: Getty.

This article first appeared in the 04 December 2013 issue of the New Statesman, Burnout Britain

Photo: Getty
Show Hide image

Goodbye, Sam Allardyce: a grim portrait of national service

In being brought down by a newspaper sting, the former England manager joins a hall of infamy. 

It took the best part of 17 years for Glenn Hoddle’s reputation to recover from losing the England job.

Between leaving his job as manager in February 1999 and re-surfacing as a television pundit on ITV during the 2014 World Cup, Hoddle was English football’s great pariah. Thanks to his belief in faith healer Eileen Drewery and a string of unconventional and unacceptable views on reincarnation, he found himself in exile following in a newspaper interview during qualification for England’s Euro 2000 campaign.

But just as Hoddle is now cautiously being welcomed back to the bosom of English football, current incumbent Sam Allardyce has felt the axe fall. After less than two months in charge of the national side and with only a single game under his belt, the former Bolton Wanderers manager was caught up in a sting operation by the Daily Telegraph — allegedly offering guidance on how to circumvent his employer’s rules on third-party player ownership.

The rewards for guiding an English team to major international success promise to be spectacular. As a result, the price for any failure — either moral or performance-related — is extreme.

Hoddle’s successor – the endearing Kevin Keegan – resigned tearfully in a toilet at Wembley after a tumultuous 18-month spell in charge. His replacement, the laconic Sven-Göran Eriksson, provided moments of on-field excitement paired with incredible incidents of personal indiscretion. His tangle with "fake sheikh" Mazher Mahmood in the run up to the 2006 World Cup – an incident with haunting parallels to Allardyce’s current predicament – led to a mutual separation that summer.

Steve McClaren was hapless, if also incredibly unfortunate, and was dispatched from the top job in little over a year. Fabio Capello – who inspired so much optimism throughout his first two years in charge – proved himself incapable of lifting the hex on English major tournament fortunes.

The Italian’s star was falling from the moment he put his name to the oddly timed Capello Index in 2010, although his sustained backing of then captain John Terry over a string of personal misdemeanours would prove to be the misjudgement that ultimately forced his exit. As Allardyce has found out, the FA has become increasingly hard on lapses in moral judgement.

English football is suffused with a strange mix of entitlement and crushing self-doubt. After a decade that has given us a Wimbledon champion, several Ashes triumphs, two Tour de France winners and eye-watering Olympic success, a breakthrough in this area has never felt further away.

In replacing Capello, Roy Hodgson — the man mocked by Allardyce during his hours supping pints with Telegraph reporters — had hoped to put a rubber stamp on a highly respectable coaching career with a spell managing his own country. But this summer’s farcical defeat to Iceland at Euro 2016 put his previous career in a much harsher light.    

Allardyce was a mix of the best and worst of each of his predecessors. He was as gaffe-prone as Steve McClaren, yet as committed to football science and innovation as Hodgson or Capello. He also carried the affability of Keegan and the bulldog spirit of Terry Venables — the last man to make great strides for England at a major tournament.  

And as a result, his fall is the most heartbreaking of the lot. The unfairly decried charlatan of modern football is the same man who built a deeply underrated dynasty at Bolton before keeping Blackburn, West Ham and Sunderland afloat in the most competitive league in Europe.

And it was this hard apprenticeship that convinced the FA to defy the trendy naysayers and appoint him.

“I think we make mistakes when we are down here and our spirit has to come back and learn,” Hoddle mused at the beginning of his ill-fated 1999 interview. As the FA and Allardyce consider their exit strategy from this latest sorry mess, it’s difficult to be sure what either party will have learned.

The FA, desperately short of options could theoretically turn again to a reborn Hoddle. Allardyce, on the other hand, faces his own long exile. 

You can follow Cameron on Twitter here.