George Osborne's Autumn Statement on Thursday of this week is no doubt set to continue the tactical adjustments that a coalition that is fundamentally on the defensive has been pursuing.
In the past few months Ed Miliband has successfully positioned Labour as a credible challenger to the coalition in a general election that is now barely 18 months away, particularly thanks to his promise of a temporary freeze on energy prices.
So a widely trailed cut in energy bills will, it seems, follow other mini U-turns—for example, the promised cap on payday loans and introduction of plain cigarette packaging—where the government has embraced Labour policies it previously rejected.
No doubt there will also be a lot of crowing about the pickup in economic growth. The Office of Budget Responsibility predicted that the British economy would grow by 0.8 percent in 2013.
City analysts are now forecasting something closer to 2 percent this year and 2.3 percent next year.
Osborne will claim that these figures prove that he has been right to stick by his guns and continue with austerity, despite the attacks, not just from the opposition, but even from the International Monetary Fund (IMF).
The first thing to note about this is that Britain’s return to growth comes against the background of a huge fall in output since the financial crash in 2007.
Commenting on a higher growth forecast from the IMF, the Marxist blogger Michael Roberts pointed out, “UK real GDP would still not return to pre-crisis levels even on this upgraded growth rate until the end of 2014, or seven years since the crisis began.”
Secondly, recovery will not end the squeeze on living standards, which has been caused mainly by wages rising more slowly than prices. Real median household income in 2011-12 was five percent lower than in 2008-9.
According to the Financial Times, “the Institute for Fiscal Studies expects official figures, published in 2014, to show stagnant household disposable incomes in 2012-13 followed by two further years of falling living standards right up to the 2015 election.
“IFS researchers say that faster economic growth would improve the outlook, but such is the scale of planned cuts to benefits that Britain would have to enter boom times before it saw a normal rise in real household disposable incomes.”
Thirdly, investment—the normal driver of economic growth in a capitalist economy—is projected by the Confederation of British Industry (CBI) to have fallen by
4.9 percent this year, though the CBI expects it to rise next year. Exports have also fallen.
So where has the growth come from? Will Hutton’s answer in last Sunday’s Observer is the surreptitious embrace of “spatchcocked and eclectic Keynesianism” by Osborne. In particular, while easing the pace of public spending cuts, he has encouraged the Bank of England to pursue “monetary activism” to boost growth.
As Hutton puts it, “we have record low interest rates alongside active measures to direct credit where it is wanted, underwriting risk, with the Bank standing by to head off any house price boom, not with interest rate hikes but, first, with interventions in the mortgage market.”
For all the talk of “rebalancing” the British economy away from finance and towards production, the government is relying on yet another property boom fuelled by borrowing to stimulate growth. Average house prices are rising at an annual rate of nearly 7 percent, while in London they were up a 23.9 percent in October, but may have peaked there. Household debt is near the highs it reached before the crash.
Early in November Mark Carney, the governor of the Bank of England, said rising house prices were “initially an important part of the recovery”. But he’s had to eat his words. Last week he announced the Bank was ending the subsidies to mortgages in its Funding for Lending Scheme.
This is another in the series of micro U-turns into which the government has been forced. These can’t conceal the fact that it has found no miracle cure for the British economy, and is expecting the rest of us to pick up the tab for this failure.