Touchstone Extras - All in this Together?

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Introduction

The 2008-9 recession - which lasted five quarters - was the longest and deepest since the 1930s. The latest official estimates show that the downturn was also much sharper than previously thought, with GDP contracting from peak to trough by 7.1 per cent rather than the initial estimate of 6.4 per cent. The recessions of 1980-1 and 1990-1, in contrast, were much shallower and shorter, while those of the 1950s and 1960s were weaker still. Moreover, after some optimism in 2010 when growth seemed to be gathering pace, recovery has slowed and is proving to be much more fragile than initially predicted.

As shown in Figure 1 below, growth began to pick up from the end of the second quarter of 2009 when the UK officially moved out of recession, but has slowed sharply over the last nine months. As a result, the economy is still 4.4 per cent below its peak level before the recession - with only a third of lost output restored - while the future looks increasingly bleak. The Office of Budget Responsibility (OBR) has been forced into repeated downgrades of its growth forecast since it was established after the 2010 general election. Growth has been close to zero over the last nine months, while most economic forecasters, including the OECD, are predicting growth of less than 1 per cent in 2011. The National Institute of Economic and Social Research is predicting a 70 per cent chance of a double-dip recession (two consecutive quarters of negative growth) in 2012. That has not happened since the mid-1970s.

Figure 1: Quarterly output growth in the UK economy, 2007 to 2011
graph
Source: ONS

It has become clear that the UK is facing the weakest recovery from any of the post-war recessions, with the speed of recovery slower even than in the aftermath of the 1930s' depression. Then the economy returned to its previous peak after 16 quarters. The current slump is predicted to last at least 19 quarters before doing so, and could be even longer lasting; 2015 is the earliest at which output is likely to return to its pre-recession level. 'The UK is in the midst of what is set to be the longest - and among the most costly - of its depressions in over a century,' according to the Financial Times' Martin Wolf. 'The characteristic of this depression, compared with its predecessors, is the frightening weakness of the recovery phase.'1 The Governor of the Bank of England, Mervyn King, is on record as stating that it could be even worse than the 1930s.

All recessions bring widespread pain. One that cut the size of the national cake by over seven per cent was always going to have severe consequences for living standards and livelihoods. In the past, the fall-out from recessions has always been very unevenly shared, usually borne most heavily by the most economically vulnerable. This time, although the pain could not be avoided, there was talk at a high political level of the need for it to be more fairly distributed.

In October 2009, the then Shadow Chancellor George Osborne told the Conservative Party conference that in sorting out the nation's finances he would ensure that 'we're all in this together'. It was a promise repeated by David Cameron in June 2010, shortly after he became Prime Minister. 'I want to make sure we go about the urgent task of cutting our deficit in a way that is open, responsible and fair... that strengthens and unites the country. I have said before that as we deal with the debt crisis we must take the whole country with us - and I mean it.'

Although the government was talking specifically about the way in which it was setting out to cut the growing budget deficit, it is a key principle that could have been applied more widely. This report looks at how the inevitable economic burden of the downturn has been shared. It examines the impact of the slump and its aftermath on those of working age, concentrating on three key areas: jobs; pay; and terms and conditions of work. It does not look at the impact of the cuts in public spending arising from the 2010 Comprehensive Spending Review, which has been tackled by other studies. It attempts to identify the key winners and losers from the recession and subsequent slow recovery. Have those with the broadest shoulders shared in the pain along with those on low and middle incomes?

Briefing
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