17 Mar 2011

Are we really in an economic ‘recovery’?

I’m at the NIESR pre-Budget briefing and there Ray Barrell has explained that it is wrong to describe what we’re going through as “economic recovery” because “growth is below trend growth so the output gap is widening so we are not actually recovering.” Any suggestions for a new term for our current predicament? “Under resuscitation,” perhaps?

We’ll be recovering properly when growth is comfortably over 2 per cent, Barrell says, and to achieve that, he suggests, you should shift the burden of deficit reduction to higher taxes and away from cuts equivalent to 2 per cent of GDP. (Ray Barrell suggests a house-building boom like the 1930s.)

NIESR’s also been crunching Labour Force Survey numbers and says they suggest that for 2010 unemployment amongst black under 25s was 39 per cent…a bit lower than the IPPR’s 50 per cent estimate but still about double the figure for all younger people.

Interesting Budget preview story in The Independent saying that the Chancellor might give the green light for merging National Insurance and Income Tax. It would be a long-term, slow burn policy and there are all sorts of challenges including how you merge a tax that only applies to earnings with a tax that applies to savings too. It would also be a  career-long dream come true for the Treasury’s Permanent Secretary, Sir Nicholas MacPherson. Word is that there will be no hard decisions on this in the Budget but we might be told about a readiness to look at it and meanwhile try to simplify payments.

(NIESR: National Institute of Economic and Social Research)

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