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A ‘recovery’ without legs will soon topple over

prosthetic legsJust about everything about this so-called UK economic recovery is wrong. It’s not just today’s report from the Resolution Foundation that the lop-sidedness of the labour market is becoming entrenched, with bonuses to the City financial and insurance sector rising to £14bn this year while the pay of those in the bottom fifth, mainly women and part-time or zero hours contract workers, are stuck in a rut or even falling. The whole shape of the ‘recovery’ is misguided.

Even though 0.7% growth in the last quarter is still feeble, where is the demand coming from even to cause that modest upturn? Not from business investment which has fallen 34% in 5 years, not when Britain’s investment-to-GDP ratio was the 159th lowest in the world last year. Not from R&D spending either which puts up near the bottom in the rich-world league. It comes from exactly where it shouldn’t – from domestic borrowing, the start of a new credit bubble. It is astonishing, but true, that 5 years in to prolonged austerity lending to households is just 0.3% below its 2008 peak. That compares with lending to companies which is 22% lower, or if inflation is taken into account, the fall is a staggering 32% and the decline is actually still accelerating. At the beginning of the year lending to businesses was falling at a rate of 3% a year; now its’s 7%.

The intolerably high level of unemployment at 2.5 million is increasingly passed off a s ‘normal’ – a price worth paying – and would almost certainly be over 3 million but for the huge numbers forced into part-time or temporary work. This year no less than a third of all those entering or re-entering work are employed part-time and another third are only taken on for temporary work. A million so-called ‘employees’ are on zero hours contracts. The long-term persistent structural decline in wages was concealed by State supplementation of the lowest wages via tax credits – the modern version of the Speenhamland system during the Napoleonic wars – but has now been ruthlessly exposed by the shrinking of these credits which in 2008-9 topped up wages to the extent of no less than 3.7% of national income. As a result real wages will fall at current wages by some £6,660 over the period of this Parliament up till 2015. If low pay is defined as less than two-thirds of gross hourly median pay which was £7.44 last year, a third of all young people aged 16-30 are now low-paid, i.e earning less than £4.96 an hour when the national minimum wage is now £6.19 an hour.

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