At the opening of his Spring Statement, Philip Hammond modestly conceded that MPs may be preoccupied with other matters. The biggest economic choice that the UK faces — whether or not to leave the EU — is out of the Chancellor’s hands.
But Hammond insisted that, unlike Theresa May’s enfeebled government, the British economy was “remarkably robust”. And the story he told was superficially impressive: GDP growth has risen in each of the past nine years, employment is at a record high (75.8 per cent) and real wages rose by 1.3 per cent in the most recent quarter.
These headline figures, however, mask more disquieting trends. Although Hammond may boast that the economy has grown continually under the Conservatives, this is comparable to a flagging runner declaring that he has, at least, kept moving. Since 2010 the UK has endured its slowest economic recovery on record and the outlook is merely worsening.
GDP growth is forecast to fall below 2 per cent in each of the five forecast years (1.2 per cent this year, 1.4 per cent in 2020 and 1.6 per cent in each of the three subsequent years) — a low no previous government has ever plumbed.
Though real wages are now finally rising, average earnings are not expected to return to their pre-crash peak until 2025 (workers are still £13 a week worse off than in 2007). And even before the damage of the last recession has been undone, the threat of a new global crisis is looming. Record debt levels, great power trade wars and China’s slowdown are among the multiplying threats.
Should the world soon enter a new recession (as it has done around every decade), it will do so in a significantly weaker position than 2008. Monetary policy is already ultra-loose (UK interest rates are just 0.75 per cent, compared to 5 per cent before the crisis), while fiscal policy is constrained by higher debt (Britain’s national debt is 82.6 per cent of GDP, compared to just 40.9 per cent in 2007-08).
Rather than heralding the end of austerity, as some hoped, Hammond spoke instead of “another step on Britain’s road out of austerity”. Should the UK fail to pass a Brexit deal, he warned, this outcome would be jeopardised.
In reality, of course, should Britain suffer a no-deal Brexit, only the most reckless chancellor would further depress the economy by imposing new austerity. Should Britain enter recession, the Conservatives will be forced to become Keynesian converts or accept punitive economic and political consequences.
But even if austerity is finally ended, it will take many more years to undo the damage to Britain’s public realm. Austerity’s social costs are visible to all in homelessness (up 169 per cent since 2010), rising crime, overburdened schools and hospitals, unrepaired roads, and closed libraries and children’s centres.
Hammond’s Spring Statement, stuffed with cringeworthy jokes, will be swiftly forgotten but its lesson should not be: regardless of the outcome of Brexit, the British economy is in trouble.