Published on 28 Jan 2014

Playing ‘long-term plan’ bingo with George Osborne

Today’s growth numbers are another Goldilocks number for the government. Not too cold as to suggest a faltering recovery, nor too hot to call for a dampening of consumer excess, and immediate interest rises.

2013 now appears to be a year of solid private sector growth, extra jobs, and though far from perfect, it compares favourably with almost every other advanced nation.

Some people might not like what is happening to the squeezed middle, or welfare recipients etc, but the UK in the past year undoubtedly compares well with other countries.

Pre News refresh player – this is the default player for the C4 news site – please do not delete. Ziad


Should the chancellor take credit for this? It might be argued that he should only take as much credit for 2013, as he took the blame for 2011 and 2012, ie not much.

In a laboratory in Oxford the journalists lining up to interview the chancellor were playing “long-term plan” bingo. Rarely does a sentence pass George Osborne’s lips without the phrase being uttered.

But it is abundantly clear that over the three years of his chancellorship the shape of the recovery is far from what his long-term plan envisaged. This chart from the GDP release today shows

28_faisalgraphic_y

that since Q2 2010, the service sector is 6 per cent larger, and the production (ie manufacturing) and construction sectors are have shrunk around 3 per cent each. This is not rebalancing. This is already existing imbalances, further imbalancing.

In his interviews today the chancellor was adamant that “growth is broadly balanced” but “the job is not done”. I put the numbers in the above chart to the chancellor, saying that rebalancing has failed.

“There has been a rebalancing between public and private sector: one part of the rebalancing,” he said. But in recent days, Mr Osborne has conceded that more needs to be done on export industries. Indeed November showed the worst current account deficit since 1989.

He has referred to “the handover” of the baton of growth from the consumer to producer. When Mark Carney first arrived at the Bank of England, he rather candidly told me that the recovery would be kindled in the consumer, with the help of forward guidance, and then with that foundation, it would be easier to get companies to spend cash on business investment, to raise productivity, raise real wages and then rebalance the economy.

That is why maintaining low interest rates, despite the 7 per cent threshold, is vital to the Osborne project. Inside the Bank of England, they have steered clear of trying to claim credit for the economic, confidence and employment impact of forward guidance. But they do think it has had an impact, and it is true that survey measures of the economy are off the scale.

Forward guidance may not have worked as planned in monetary policy credibility terms. But with record employment growth, and a solid four plus quarters of growth under way, the BoE and Treasury do think it has worked to excite demand and confidence in the economy generally.

So when will “the handover” (sounds like a bad Hollywood comedy) actually happen? The chancellor’s argument appears to be that with the “job not half done” he will be the man to deliver that shift, after the next election.

His aides point to the very latest stream of data showing fast balanced growth (though more than half of the 0.7 per cent Q4 growth came from a subset of services called “business services and finance” – 0.4 per cent).

If you believe that the government’s policies contributed to further imbalances, it might appear a little cheeky to argue: “Vote for me and I will rebalance the economy I further imbalanced.”

But for now, compared to the last years, some solid growth is far better than flatlining. Two speeds better than none.

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4 reader comments

  1. Kit Hardy says:

    Blah blah blah… Why do you believe this government propaganda? Because they told you it’s true? You should know, unless you are staggeringly stupid, they are shamefaced liars who would say anything to remain in power. Perhaps you should do some investigative journalism of your own and see how many people (apart from the rich such as Osborne and his cronies) are feeling the impact of his so called recovery.

  2. Philip Edwards says:

    Faisal,

    “…it compares favourably with almost every other advanced nation.”

    Yeah, right. Like Greece, Cyprus, maybe even Ireland. That’s an “advance,” that is.

    Try telling it to the non-deluded populace outside Canary Wharf. Small wonder economists have the same standing as booky’s clerks.

    On a lighter note…..did you notice the reintroduction of “hard working families,” the stupid mantra that disposes of de facto minimum three million unemployed and a quarter of the population living in poverty? Also, that Georgy Boy has taken obvious PR lessons in how to avoid looking like he’s trying to get his mouth under his left ear like Shirley Bassey?
    :-)

    And don’t forget……the Plastic Yank Carney has promised to raise interest rates when unemployment hits a mere seven percent, thus a mortgage rise, thus a cut in wages and salaries. I can’t wait to see how Crooked Mouth Osborne explains THAT one away after handing his rich chums over £100,000 each.

    You couldn’t make it up, but Georgy Boy does.

  3. Andrew Dundas says:

    Economies of most countries are “unbalanced” because international trade causes each nation to concentrate on those activities that they do best. That concentration inevitably means that every nation will appear to be “unbalanced”. This is, of course, standard economic theory that Osborne may well have forgotten.

    Small States such as Ireland and the Nordic States become even more unbalanced because the need for larger scale in each of their specialities. Which could make them a little more vulnerable if some shock hits a leading speciality. But their choice of specialities is, in fact, made by their customers and NOT by busy-body governments like Osborne’s.

    The UK is a medium sized economy. Well diversified and was thriving until a shock from Wall St and two Scottish banks shocked our financial sector. We were quickly recovering from that shock when Osborne introduced his statist idea that somehow our economy was unbalanced and in need of “restructuring”.

    Restructuring sounds awfully like the statist philosophy espoused by Harold Wilson in the 1960s. I thought Osborne was against the State trying to “pick winners”? Perhaps this nostalgic episode could be rounded off by Osborne taking up pipe smoking?

  4. John Nicholas Leicester says:

    According to Mr Osbourne raising the tax rate to 50p would only bring in a couple of hundred
    million pounds. With approximately 33600 in the top1% paying the higher rate my computer makes this figure approximately £1,900,000,000. If he can be so far out in this how can we trust
    anything he has to say about rebalancing the economy? When we have new power stations, trains, roads, bricks being made by British companies it might help. We have instead a blind belief that the market will work. Unfortunately in the contract bidding little account seems to be taken of jobs being lost, the cost of transporting materials from further away, the flow of dividends out of the UK. We need to bring the work back to the UK, then we might be nearer
    to balancing our economy.

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