A Rebalanced Economy?
This Government came to power talking about “rebalancing the economy”. I thought this meant a move from volatile financial services back (yes back – it’s not always bad) to more tangible wealth creating sectors such as manufacturing (particular of goods for export – which bring money into the country). The government is beginning to claim a measure of success, so how are they doing?
The “re-adjustment” following the financial crash has seen most of us tighten our belts with no pay increases for years, pay increases less than inflation, or in some cases pay cuts. Yet:
The gap between the executive pay of the big FTSE companies and that of the average worker is reported to be widening. According to annual research on the pay of top-listed company directors from Income Data Services, directors of FTSE100 companies have seen their median total earnings rise by 14% during the last year. However, a survey out on Monday from Market magazine found that the outlook for the average household budget is the worst it has been since April as wage rises stay below the 2.2% inflation rate. BBC News Website 18 November 2013: Pay gap between executives and employees is ‘widening’
The economy “as a whole” may be recovering, but it is not recovering evenly and arguably the recovery that the already rich are undoubtedly seeing is partly at the cost of the poor and the moderately paid. Another nice bit of rebalancing (of which Boris would approve).
Building groups said this would severely damage the green energy industry and mean thousands of people will lose their jobs in coming weeks. It also means much less free insulation for fuel poor households, half of whom live in solid wall properties. Diluting the target also means that the government will be doing much less to reduce carbon emissions. … Paul King, chief executive of the UK Green Building Council, said: “ECO [Energy Companies Obligation] is the lifeblood of the insulation industry and cuts to it will result in huge job losses and condemn hundreds of thousands of families to unaffordable energy bills, yet government appears to be in the pocket of some of the energy companies when it comes to deciding its fate.” BBC News Website 29 November 2013: Energy bills: Green levy reform plan revealed
So there we have a bit of rebalancing:
- take the short-term strain (about £50 per year) off those who can actually afford fuel (albeit sometimes making some economies elsewhere) and put it onto those who are fuel poor.
- take short-term climate change mitigation costs off us and pass them on to our descendents.
Saving and Borrowing
The interest rate position looks as if it has permanently changed such that savers are getting next to nothing but borrowers (in good standing) can get historically cheap credit. Nice bit of rebalancing there – particularly since the most recent economic trouble was partly caused by a credit bubble!
The Structure of the Economy
“Rebalancing” of course was meant to mean two things:
- Balancing away from volatile unstable sectors like banking and financial services which had nearly brought down the economy in the last crash,
- Moving towards sectors that earn money (i.e. bring cash into the country) such as manufacturing exports.
But what has happened?
Osborne also skated over the lop-sided nature of the recovery. The main reason the independent Office for Budget Responsibility is now expecting national output to grow by 1.4% in 2013 rather than the 0.6% predicted in the Budget is that consumers are spending more. Projections for business investment and exports – the two sectors that were supposed to lead to a rebalancing of the economy – have been cut since the spring.
Guardian Economics Blog, 6 December 2013 : Economic recovery is based on repeating the sins of the past
Osborne could not make his ideas work in time (i.e before the 2015 election), so he has fallen back on what the Guardian refers to as “the sins of the past”. Make us feel good by getting us to withdraw savings and take on debt to buy housing and (imported) consumer goods – the bubble will not burst for at least, ooh, 17 months?
From big state to big society?
Many towns (even in leafy suburbs) now have food banks. “Social Supermarkets” (selling surplus food at heavy discounts to welfare recipients) are opening across the country. These individual initiatives are probably praiseworthy as examples of community spirit assisting one’s fellow humans, but given that many of the beneficiaries are in work, these initiatives are in effect subsidising employers who underpay their workers. So “Big Society” is now actually subsidising mean employers.
And for those who are in need and do not live in areas served by food banks or social supermarkets and who fall through the threadbare mesh of our welfare safety net? There’s Wonga (and its likes):
Television viewers were exposed to nearly 400,000 payday loan adverts last year, according to the regulator, Ofcom.
In 2011 there were 243,000 such adverts, increasing to 397,000 in 2012, a rise of 64%.
On average, each adult viewer saw 152 such adverts in 2012, while children watched 70.
BBC News Website, 10 December 2013: Ofcom says TV payday loan adverts have hit 400,000
This government wanted to rebalance the welfare state – I fear it has succeeded.
So as the government claims that we are coming out of recession with a “rebalanced economy”, we are left feeling that this was not quite what most of us had in mind.