In 2010, as the economy was emerging from what the Chancellor described as the “longest and deepest recession in living memory” George Osborne set out his analysis of the challenges facing British policy makers. He described a UK economic model based on debt (in his view both public and private) and imbalance, and made the case for change.
While the TUC has consistently opposed the Chancellor’s assertion that public debt was a cause rather than a consequence of the financial crash, we also recognise that his wider analysis identified a number of significant economic concerns: soaring asset prices, low investment and saving, high private debt, low exports, a persistent current account deficit, a fall in living standards and regional and industrial imbalances.
However, our key point of disagreement is with the Chancellor’s view that government stands in the way of delivering balanced and sustainable growth. Contrary to his position, the TUC understands that government has a vital role to play in securing such a recovery, through more supportive fiscal policy as well as wider supply-side policy measures.
In the years since 2010 the global and UK economy alike have moved forward only fitfully; no decisive momentum has been achieved. The Budget approaches against the backdrop of a slowing world economy and resumed volatility in financial markets. The OECD and IMF have both recently sounded the alarm and called for an urgent policy response.
Fiscal consolidation aimed at reducing the role of the state has also proved detrimental to overall economic conditions. Economic expansion over the past five years has fallen around £140bn – nearly a third – short of expectations.
Productivity and wages have been depressed, and expansion has been heavily reliant on the same imbalances as under the pre-crisis model. The cumulative effects of restrained activity is now obvious in price data, with the economy experiencing disinflation for four years.
The consequences for working people have been significant, both in terms of the quality and security of work, reduced standards of living and withdrawn public services and welfare support. And our fear is that rather than long-awaited improvements, the years ahead will hold even greater concerns. Given the latest weakening of economic conditions, projected improvements in the public finances once more are unlikely to materialise in full and the Chancellor has in the meantime indicated that he will review existing spending plans. But in spite of repeated rounds of public spending cuts, the public debt crisis is further than ever from resolution. There is now a danger that persistent disinflation turns into outright deflation, bringing even poorer prospects for living standards in the period ahead.
Seemingly discarding policy doctrine that they have previously supported, the OECD now argue that increasing public investment will support future growth and improve the sustainability of public finances. The broader implication is that a new policy approach would not only be fairer and better for working people, but for economic conditions more generally, including for the public finances.
The TUC Budget Statement therefore sets out an interpretation of current economic events and social conditions (Section 2), and then makes a series of recommendations for a stronger economy (Section 3). We hope the Chancellor will take this opportunity to recognise that delivering against his aspirations for a better balanced economic model will need both more supportive fiscal policy alongside wider policy change.
The Budget is set against the backdrop of growing fears in financial markets and worries about the strength of the global economy going forward. The OECD in particular is calling for expansionary policies coordinated across countries to revive demand, as protection against deflationary forces. In line with previous TUC reports, the OECD now emphasise not only that spending cuts might be harmful to the public finances, but that spending increases should improve the public finances by strengthening the economy.
The policies outlined in this submission therefore seek to act on supply and demand in tandem. They set out proposals for targeted increased government spending aimed to lift economic activity, alongside wider actions aiming to ensure that UK industry is well positioned for sustainable, balanced growth and to compete internationally in the future. Likewise actions aimed at improving the conditions of employment seek also to improve activity and prosperity.
The recommendations, which set out TUC priorities for action, are summarised below.
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