Welcome to Cabinetland: The worsening inequality between Britain's rich and poor is shameful

The economic divide in Britain, hastened and worsened by the north-south divide, is wider now than any time since the war, and it is getting worse. That income inequality became worse during the boom is deeply regrettable. But that this has continued into

At the last Prime Minister’s Questions of the session David Cameron was triumphant. “Britain is getting stronger,” he proclaimed. Labour MPs, with caseloads filled with vulnerable people seeing their standard of living collapsing, were incredulous.

As the Coalition moves into its fourth year, the gap between the government and the opposition has widened to more than politics. Increasingly, the two opposing benches reflect two entirely different countries.

In one of these countries, unemployment is 2.6 per cent. The number of people claiming Job Seeker’s Allowance is down over nine per cent on last year. Youth unemployment has plummeted by 19 per cent in the last 12 months, and even over-50s unemployment is down. Each constituency has just 300 people unemployed for longer than twelve months.

These are the average figures for the 21 MPs who are full Cabinet members.

In the other country, there are no Tory MPs. Unemployment is 13 per cent. Every constituency has over 6,000 people looking for work. A quarter of them are under 25. One in three of those people has been looking, fruitlessly, for over a year.

This is the typical situation in the ten constituencies worst affected by the economic incompetence of the Coalition. My own hometown of Middlesbrough, which I now have the honour of representing, is among them.

As David Cameron enlists the help of Barack Obama’s campaign manager Jim Messina, it is perhaps worth looking at the message that handed the US President his only electoral defeat, that of the 2010 midterm elections. The message, repeated ad infinitum by the Republicans, was simple. “Where are the jobs?”

The claim from the Coalition is that “There are more people in work than ever before”. This claim is emblematic of the torturing of figures this government has been pulled up on repeatedly by the UK Statistics Authority. There are more people in work than ever before because Britain has more people than ever before. But the number of people unemployed is higher than it was in 2010. The rate, 7.8 per cent nationally, is unchanged since the Coalition came to power.

Despite herding people onto unpaid workfare schemes and counting that as a job.

Despite freezing the minimum wage for young people at a time of high inflation, cheapening their labour.

Despite a million people on zero hours contracts, unsure of if they will be granted the right to work today.

Further, productivity has fallen. The output per hour of private-sector workers fell by almost four per cent in the year to October 2012, according to data from the Office for National Statistics. Figures for the economy as a whole were not much better, with a 2.4 per cent decline in productivity over the year.

There are more people, working longer, in worse conditions to produce less value. Yet George Osborne has the nerve to crow about an ephemeral 0.8 per cent increase in GDP, in what is now the longest depression in British history.

Nothing has changed. For over three years this government has been treading water. It has done so with impunity, because the people it represents are doing fine. Your income is down, but the FTSE is up.

The targeting of the government resources echoes this twisted view. In response to the chronic household shortage in the UK, the government could have announced a mass house building programme. This would simultaneously have generated jobs for skilled and unskilled labour, in a construction industry still languishing at 14 per cent below capacity.

Instead we got George Osborne’s “Funding for Lending Scheme” (FLS). As of the end of March this year the scheme gifted £16.5bn of low interest loans to the banks. The effect? Mortgage rates have got cheaper, but primarily only on loans where those remortgaging or buying have at least 20 per cent equity in their home, or an equivalent deposit. The people the Chancellor thinks are really in need are those trying to buy a home with only fifty grand in the bank.

Universal credit will be “digital by default”, because who doesn’t have a computer? Benefit payments will be delayed an extra week, because who doesn’t have an overdraft? Legal aid will be cut because who doesn’t have a lawyer on retainer?

The economic divide in Britain, hastened and worsened by the north-south divide, is wider now than any time since the war, and it is getting worse. That income inequality became worse during the boom is deeply regrettable. But that this has continued into the bust is shameful. The average wage rise for those in work who don’t receive bonus payments is just one per cent, while inflation is more than double that. Meanwhile there was a sharp jump in bonus payments in the financial services sector in March this year: end-of-financial-year bonuses were 64 per cent higher than in March 2012.

Whether the blindness of the Coalition to the sufferings of ordinary people is deliberate or merely accidental does not matter. The compact between the richer and the poorer of Britain, Disraeli’s two nations, benefits us all. The deeply corrosive affect it has upon our society might start in Middlesbrough, or Birmingham Ladywood, or West Belfast, but the long term effects of inequality make life worse for everyone.

Andy McDonald is the Labour MP for Middlesbrough

William Hague and David Cameron. Photo: Getty
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The 2017 Budget will force Philip Hammond to confront the Brexit effect

Rising prices and lost markets are hard to ignore. 

With the Brexit process, Donald Trump and parliamentary by-election aftermath dominating the headlines, you’d be forgiven for missing the speculation we’d normally expect ahead of a Budget next week. Philip Hammond’s demeanour suggests it will be a very low-key affair, living up to his billing as the government’s chief accounting officer. Yet we desperately need a thorough analysis of this government’s economic strategy – and some focused work from those whose job it is to supposedly keep track of government policy.

It seems to me there are four key dynamics the Budget must address:

1. British spending power

The spending power of British consumers is about to be squeezed further. Consumers have propped up the economy since 2015, but higher taxes, suppressed earnings and price inflation are all likely to weigh heavily on this driver for growth from now on. Relatively higher commodity prices and the sterling effect is starting to filter into the high street – which means that the pound in the pocket doesn’t go as far as it used to. The dwindling level of household savings is a casualty of this situation. Real incomes are softer, with poorer returns on assets, and households are substituting with loans and overdrafts. The switch away from consumer-driven growth feels well and truly underway. How will the Chancellor counteract to this?

2. Lagging productivity

Productivity remains a stubborn challenge that government policy is failing to address. Since the 2008 financial crisis, the UK’s productivity performance has lagged Germany, France and the USA, whose employees now produce in an average four days as much as British workers take to produce in five. Perhaps years of uncertainty have seen companies choose to sit on cash rather than invest in new production process technology. Perhaps the dominance of services in our economy, a sector notorious hard in which to drive new efficiencies, explains the productivity lag. But ministers have singularly failed to assess and prioritise investment in those aspects of public services which can boost productivity. These could include easing congestion and aiding commuters; boosting mobile connectivity; targeting high skills; blasting away administrative bureaucracy; helping workers back to work if they’re ill.

3. Lost markets

The Prime Minister’s decision to give up trying to salvage single market membership means we enter the "Great Unknown" trade era unsure how long (if any) our transition will be. We must also remain uncertain whether new Free Trade Agreements (FTAs) are going to go anyway to make up for those lost markets.

New FTAs may get rid of tariffs. But historically they’ve never been much good at knocking down the other barriers for services exports – which explains why the analysis by the National Institute for Economic and Social Research recently projected a 61 per cent fall in services trade with the EU. Brexit will radically transform the likely composition of economic growth in the medium term. It’s true that in the near term, sterling depreciation is likely to bring trade back into balance as exports enjoy an adrenal currency competitive stimulus. But over the medium term, "balance" is likely to come not from new export market volume, but from a withering away of consumer spending power to buy imported goods. Beyond that, the structural imbalance will probably set in again.

4. Empty public wallets

There is a looming disaster facing Britain’s public finances. It’s bad enough that the financial crisis is now pushing the level of public sector debt beyond 90 per cent of our gross domestic product (GDP).  But a quick glance at the Office for Budget Responsibility’s January Fiscal Sustainability Report is enough to make your jaw drop. The debt mountain is projected to grow for the next 50 years. All else being equal, we could end up with an incredible 234 per cent of debt/GDP by 2066 – chiefly because of the ageing population and rising healthcare costs. This isn’t a viable or serviceable level of debt and we shouldn’t take any comfort from the fact that many other economies (Japan, USA) are facing a similar fate. The interest payable on that debt mountain would severely crowd out resources for vital public services. So while some many dream of splashing public spending around on nationalising this or that, of a "universal basic income" or social security giveaways, the cold truth is that we are going to be forced to make more hard decisions on spending now, find new revenues if we want to maintain service standards, and prioritise growth-inducing policies wherever possible.

We do need to foster a new economic model that promotes social mobility, environmental and fiscal sustainability, with long-termism at its heart. But we should be wary of those on the fringes of politics pretending they have either a magic money tree, or a have-cake-and-eat-it trading model once we leap into the tariff-infested waters of WTO rules.

We shouldn’t have to smash up a common sense, balanced approach in order for our country to succeed. A credible, centre-left economic model should combine sound stewardship of taxpayer resources with a fairness agenda that ensures the wealthiest contribute most and the polluter pays. A realistic stimulus should be prioritised in productivity-oriented infrastructure investment. And Britain should reach out and gather new trading alliances in Europe and beyond as a matter of urgency.

In short, the March Budget ought to provide an economic strategy for the long-term. Instead it feels like it will be a staging-post Budget from a distracted Government, going through the motions with an accountancy exercise to get through the 12 months ahead.

Chris Leslie MP was Shadow Chancellor in 2015 and chairs Labour’s PLP Treasury Committee

 

 

 

Chris Leslie is chair of Labour’s backbench Treasury Committee and was shadow Chancellor in 2015.