Last week it was revealed that a secret group of Whitehall officials were drawing up plans to rescue the economy if it were to tank after Brexit. However, the release of the latest GDP data shows that even before the UK leaves the European Union the economy looks as though it needs resuscitating. Philip Hammond thinks Brexit is a terrible idea. He also believes there is little wrong with the economy. As the man in charge of the nation’s finances, he would say that, wouldn’t he? The truth is that rather than presiding over a “fundamentally strong” economy, Mr Hammond and his Conservative predecessor George Osborne have been slowly asphyxiating the economy by depriving it of the oxygen of demand.
The result has been that UK economic growth is as bad as it was in 2012, when Mr Osborne first softened ever so slightly his hardline policies but not his offensive rhetoric. It is important to say that we are some way off a recession, and it would be premature to suggest otherwise. However, the data shows that business investment is going backwards, unlike in other big European nations, and exports have stalled, which was perhaps foreseeable given the slowdown in near neighbours. The UK consumer, already in debt, is not willing to spend when Britain’s future direction, not least in respect to the EU, remains unsure. That leaves the government, which ought to be turning on the spending taps but is instead consumed by ideological rows over Brexit. What the Conservative party ought to realise is that the slow recovery from the 2008 crisis is about a deficiency of aggregate demand. The way out is more public spending. Remember the £350m on the side of the Brexit bus? Theresa May thinks she can get Mr Hammond to cough up that much and claim it as a Brexit dividend. In reality Brexit’s causes run deeper than that. Much more will be needed to repair the damage wrought by years of austerity politics.
There is a good counter-argument: that Britain is a jobs factory. In January ministers trumpeted that the unemployment rate in the quarter until November 2018 hit its lowest level in more than 40 years. Yet unemployment is low because “involuntary” part-time work is high, and at a level 42% up on what it was a decade ago. The official figures also show that all the growth in the last three months was in self-employed jobs, whereas there was a fall in the number of employees. Mass unemployment, characterised by dole queues and unemployment benefits, has been replaced by low-paid, often part-time, insecure work. One economist noted that the “more sober picture” that emerged once these trends were taken into account was of an unemployment rate at almost 7% rather than 4%. This is a waste that was, and is, avoidable.
The Conservatives need a post-austerity message. As one thinktank pointed out, just to maintain current day-to-day current spending per capita would require an extra £5bn a year by 2023. The public wants the government to spend more. The Tories might argue that voters trust them to do so more than they trust Jeremy Corbyn’s Labour party. Public spending would bring in more votes than traditional Tory tax cuts. There is little sign that the Tories understand this as a party, and mealy-mouthed concessions that welfare cuts “could” be causing hardship illustrate how out of touch they have become. Mr Hammond wanted there to be just one budget a year, playing to a Thatcherite idea that there was no need to make major tax changes twice a year. Instead, the chancellor needs to start spending and would benefit the economy by taking an opportunity do so.
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