So the Chancellor of the Exchequer made a speech last week in which he converted from the Jolly Santa look he was going for ahead of the Autumn Statement to the Godfather of Doom. In just six weeks since the Autumn Statement when he painted such a rosy picture, the tone of yesterday’s speech could not have been more different. Most commentators have suggested that he is simply managing expectations for what looks like a difficult year for the world economy; maybe he is getting his excuses in early; maybe he just had the mother of all Christmas binges and now has the hangover from hell.
I read it more as a relaunch for his leadership campaign. Because all that has really changed is that his political stock has had a major wobble and if the economy takes a turn for the worse, then he is worried that his colleagues will sell George and buy Boris.
The Chancellor’s own words show the absurdity of his current position. Last he asked: “And the question for the whole United Kingdom is this: are we going to see through the economic plan that is delivering growth at home and security from risks abroad?” So if it’s already delivering security from risks abroad then why the speech about a “cocktail of risk”? And isn’t this the plan which six weeks ago he said puts security first “so we’re prepared for the inevitable storms that lie ahead” because he and his colleagues were the “Guardians of the Galaxy, sorry economic security”.
When he went on to warn about a “creeping complacency” I thought yep, your own complacency about your road to Number 10..
Because where the economy is concerned the risks that he is now suddenly so worried about have been around for a while – certainly longer than the six weeks since his Autumn Statement.
Of course, the volatile price of oil is a concern – for those who work in its production, for those who invest in it. But not so long ago when lower oil prices delivered him a better line on the cost of living crisis he was happy to run with it.
A few weeks ago he was rolling out the red carpet to welcome the Chinese because greater partnership with them was a vital part of his long-term economic plan. Yesterday, China is part of the problem. We all know that we are hugely exposed to Chinese debt – more so than many similar economies but this exposure did not sneak up on the Chancellor overnight.
And he even pointed towards the tensions between Iran and Saudi Arabia as a factor in this “cocktail”. Not being funny, but Sunni Shia tensions have (depressingly) been around for centuries, and the recent crisis (very depressingly) has been going for some years…
This cocktail of risk is anything but new and he has been warned about it repeatedly; unfortunately for the rest of us our collective exposure to this risk is directly connected to the unbalanced nature of the British recovery. But every time he has been warned the answer has been the same: we have a longterm economic plan, it’s working and we’re sticking to it.
But the recovery has consistently been unbalanced; key indicators remain a serious cause for concern.
The current account figures for 2014, the last full year for which they are available, saw a deficit of £92.5 billion – up from £77.9 billion in 2013 or an increase from 4.5 per cent to 5.1 per cent of GDP. The 2014 deficit is a record high. The 2013 deficit is the second highest on record.
The trade deficit in quarter three of 2015 was £8.8 billion up from £3.8 billion the previous quarter although not as high as for quarter one.
In productivity we still lag behind our own standards – an average annual increase of two per cent – and those of our competitors. In 2014 our productivity was 20 percentage points below the average of the rest of the G7 countries, the widest productivity gap since at least 1991.
Even though today’s figures show that the deficit in goods and services narrowed to £3.2billion compared to £3.5billion in the previous month, our export performance leaves a lot to be desired. And the slight improvement has more to do with a fall in oil imports, rather than an increase in our manufacturing output.
Global factors can throw anyone off course. But domestic policy decisions are in his control – and it is his domestic policy decisions that are delivering the unbalanced recovery that is such a cause for concern. So in the end we do come back to complacency as Osborne rightly points out. But the complacency is not yours, mine, ours – it’s his. He needs to start paying more attention to the day job.