What would a One Nation recovery look like?

November 14, 2012 7:00 am

After the longest double recession since the Second World War, the economy is growing again. Whilst a growing economy is obviously better than a contracting one, the UK is far from out of the woods.  Two and half million people are out of work, one third of them have out of work for over a year, three million are ‘under-employed’ unable to get the hours they want, real wages have been falling for almost three years now, youth unemployment remains around the one million mark and the longer term picture is of an economy that has barely grown for two years.

Now is not the time to break out the bunting and declare the crisis over.

Since the fall of Northern Rock, over five years ago, the media have become so used to bad economic news that the bar for success has been set low. Any level of growth is now seemingly hailed as a victory for the Government and a vindication of its policies. In reality the ‘recovery’ is far from secure and as long as the squeeze on living standards persists this won’t feel like a recovery to most people.

The challenge facing the country is actually two-fold and runs much deeper than simply generating growth. We need not only to get the economy moving again, but to generate the ‘right’ kind of growth.  We can’t simply return to business as usual, instead we need to build a new economy.

In the years before the crash things started to go seriously wrong in the UK economy. Growth became more and more concentrated in too few sectors and too few regions. The gains from this growth were increasingly captured by too few people.

In the five years between 2003 and 2008, the years before the recession, the economy grew by 11% but median real wages (the pay, after price rises, of those in the middle) were stagnant. Over three decades of a liberalised economic model, the public finances became too dependent on tax revenues associated with a booming city and a frothy property market. Household debt rose as easy credit replaced rising pay packets.  London and the South East’s share of the economy rose steadily whilst the other regions and nations fell behind. The contribution of financial services to GDP rose from around 6% in the mid 1990s to 10% on the eve of the crash. The level of investment in the real economy was weak by international standards. By 2008 we had an unbalanced economy, one that was vulnerable to sudden shocks.

Most forecasters now believe that the economy is set to grow in 2013 and 2014. The latest forecasts from the CBI have growth at 1.4% in 2013 and 2.0% in 2014. This would be a very weak result – just two years ago the Government’s own independent Office for Budget Responsibly assumed growth would be 2.9% and 2.7% in those years.

More worrying than the weak headline growth numbers though are the forecasts for living standards and unemployment. The CBI sees no rise in real wages for another 18 months and unemployment still at 2.4 million at the end of 2014. This simply isn’t good enough.

A meaningful recovery, what could be thought of as a ‘One Nation recovery’, would be marked rising real wages for those in the middle and below. The policy challenge is not just to generate growth but to generate growth that is balanced across the UK, not concentrated in too few sectors, jobs rich and which doesn’t see most of the rewards flowing to those at the top.

Such growth won’t be achieved just by relying on the old levers of fiscal and monetary policy (important as they undoubtedly are), instead it will require wide spread reforms to the structure of the banking system, corporate governance, skills and training systems, a modern industrial policy, steps to support green growth and wider set of government interventions into how the labour market works to ensure we are generating the kind of better paying, higher skilled jobs that we need.

The debate now has to be about not just how we get the economy moving again but how we ensure that we get a better balanced, more resilient, fairer economy where the benefits of growth aren’t captured by those at the top.

Duncan Weldon is a Senior Economist at the TUC

This piece forms part of Jon Cruddas’s Guest Edit of LabourList

  • Mr Arthur Cook

    A “One Nation recovery” would have one simple principle to guide thinking.
    This is that the economy is there to serve the people. It rejects the notion that the people are a “human resources” and a market which exists to serve the economy.
    It would abandon the Thatcher and Blairite neo-liberal mantra that “private is best” and recognise that “public-private” is simply a means of pouring taxpayers money into corporate pockets who then export their profits and a means of capturing a virtual monopoly which can then be used to fleece the powerless consumer and again export the profits. It would have an economy which recognises that coffee shops serve better coffee when their are 5 competing on the high street and recognise that “competition” and “private enterpise” in education and care of the elderly leaves the vulnerable exposed to minimum-waged untrained uncaring people who don’t want to do the job but have no choice because their purpose for being there is to earn profits for “Care-U-like co”
    Message for (New?) Labour. Forget “rebranding”…”marketing” and “communicating the message”. Before you start this you’d better ensure that you actually have a new message rather than a recycled Blaire agenda which failed and got you kicked out last time. Time for a change of direction NOT a new wrapper!

Latest

  • Comment Europe McFadden’s appointment comes at a time of big opportunity for Labour on Europe

    McFadden’s appointment comes at a time of big opportunity for Labour on Europe

    Pat McFadden is taking over the Europe brief just at the time when the issue can work in Labour’s favour. Provided we hold to Ed Miliband’s decision not to cave in to the calls to offer an in-out referendum. Europe is again becoming toxic for the Tories. How Cameron must be looking back wistfully to that time when he told his party to stop banging on about Europe. That’s exactly what it is now doing. And it’s largely his own […]

    Read more →
  • Comment The Next Portillo Moment

    The Next Portillo Moment

    Undoubtedly the highlight of election night ‘97 was seeing Labour record the unlikeliest of victories where I live in Enfield Southgate. We did it through hard work, at the time all three Enfield seats were blue and though the Labour swing meant that Edmonton and Enfield North were going red regardless it took a special campaign lead by an extraordinarily good candidate in Stephen Twigg to record what was an iconic victory in the Party’s history. We held the seat […]

    Read more →
  • Comment The business backlash against Tory EU exit plans 

    The business backlash against Tory EU exit plans 

    It’s not just José Manuel Barroso who has warned David Cameron that his party is taking the wrong approach when it comes to talk of an EU exit. There is a clear sense of concern and anger from the UK and international business community in respect of the Tory plans for an in/out referendum on the UK’s membership of the EU in 2017. This has led to a serious business backlash against the Tories. Standard & Poor’s, the international rating […]

    Read more →
  • Featured Miliband sets out 5 point immigration reform plan (but won’t join “Operation Pander”)

    Miliband sets out 5 point immigration reform plan (but won’t join “Operation Pander”)

    Ed Miliband is in Rochester today, where he’s campaigning for the party’s by-election candidate Naushabah Khan against what he called the “two Tory opponents” of UKIP and the Tories in the Rochester and Strood by-election. But the main purpose of Miliband’s speech was to set out what Labour’s approach to immigration will be – specifically an Immigration Reform Bill in the first Queen’s Speech of the new Parliament. Miliband announced it’d be based around five key principles (most of which […]

    Read more →
  • News Sadiq Khan asks Mansion Tax critics – how would you fund the NHS?

    Sadiq Khan asks Mansion Tax critics – how would you fund the NHS?

    Since Labour conference, the majority of Labour’s potential London mayoral candidates have been critical of the party’s Mansion Tax proposals. However one presumptive candidate has been consistently positive about the plans – Sadiq Khan. That’s understandable and expected, as he’s a Shadow Cabinet member and a Miliband loyalist. But Khan has now launched a public defence of the tax (calling it “absolutely fair”) and a broadside against critics, asking them “why they are opposed to hiring thousands more nurses and doctors […]

    Read more →