The run of good news for the Tories on the economy has continued with today’s GDP figures. Growth was 0.8 per cent in quarter one of this year (and 3.1 per cent year-on-year), the fifth successive increase and the longest period of continuous expansion since the crash. The economy is now finally within touching distance (0.6 per cent) of exceeding its pre-recession peak with the right poised to boast that Britain is “bigger than ever”. But before hanging out the bunting, recall that GDP per head is still almost 7 per cent lower than in 2008 and that the US, which avoided many of George Osborne’s mistakes, is 6.3 per cent larger.
The UK is on track to be the fastest-growing economy in the G7 this year and to surpass France as the world’s fifth biggest economy. But again, recall that growth of 1.8 per cent is needed each quarter between now and the election to match the level predicted by the OBR in autumn 2010.
The belated recovery, combined with the sharp fall in unemployment to 6.9 per cent, has given Osborne a much better economic story to tell. The danger for the Tories, however, as some of their MPs privately acknowledge, is that most people still aren’t feeling the benefits. Wage growth excluding bonuses remains below inflation (1.4 per cent to 1.7 per cent) and there will be no rise in real incomes for the millions of public sector workers who have had their salary increases capped at 1 per cent and for those most reliant on state benefits. In a country as unequal as Britain, average wages are no guide to how the middle and the bottom are faring. In London last year, bankers’ pay grew nearly five times faster than the pay of the typical worker.
For most, after six years of falling living standards, it will take more than a few months of growth to make up the ground lost since the crisis. In 2015, as the IFS has repeatedly pointed out, real incomes will still be far below their 2010 level (paving the way for Miliband’s Reagan moment). Many in the private sector remain stranded in low-paid, part-time jobs (1.42 million people are working part-time because they can’t find full-time jobs) that do not provide enough for them to maintain their family’s living standards.
Indeed, based on the RPI measure of inflation (which includes housing costs), the OBR forecasts that wages will be flat until 2019; there will be plenty of people who feel no better off in the next decade, let alone in the next year. The price of many essentials, such as housing, food, energy and transport, continues to rise faster than the general rate of inflation. For all of these reasons, Labour strategists believe that the party’s “cost-of-living” attack will retain its potency in May 2015.
The risk for the Tories is that the more they boast about the performance of the macroeconomy, the more voters will demand “Why aren’t we feeling it?” If they are to have a chance of winning the election, they will need a far ambitious plan to restore the severed link between the nation’s growth and individuals’ living standards.