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Osborne’s recovery: fiction triumphant over fact

Osborne Liar LiarOsborne’s central pitch in Wednesday’s budget will be that the recovery is strengthening, the economy is coming along nicely, so don’t hand back the keys to the people who caused the mess in the first place. Each of those statements is questionable or wrong. But Labour have boxed themselves in by supporting the austerity line all along and now find it difficult – even if they were so minded – to advocate an alternative expansionary programme when the economy seems to be reviving anyway from the austerity ashes.

Nevertheless Labour should be attacking hard the unsupported optimism of Osborne’s predictions across the board. There cannot be a genuine and sustainable recovery without a big revival in business investment, yet it is stuck still at 20% below the pre-crash level – in other words, business itself is still deeply sceptical about the ‘recovery’.

Nor can you build a recovery on falling wages, i.e. on falling demand, and average wages are now 7% down in real terms and still falling. Rising productivity is another essential component, yet it is one of the lowest in the OECD and obstinately flat. And a real recovery can only be built on rising exports closing the balance of payments gap; but exactly the opposite is happening, with the current account deficit rising to £9.5bn last month.

Even the improved unemployment figures look like being fiddled. There are now over a million persons who have been sanctioned (i.e. had their benefits ended for 4 weeks or 3 months because of some alleged infringement of the DWP rules), and unless they continue to sign on for JSA which the vast majority of them understandably do not, they are not included in the unemployment figures. If they are on a Work Programme or receiving training or getting Universal Credit, they similarly ‘disappear’ from the records. So instead of the jobless total dropping like a stone to near 7%, it is likely that the true figure is stuck much closer to 7.5% or even 8%. And even where new jobs have been created, four-fifths of them are low-paid at little more than the minimum wage and many on zero hours contracts.

Then there’s the problem that this so-called recovery is heavily dependent on consumer borrowing. That may stimulate growth for a little while, but it cannot be sustained for long while real terms wage slippage continues, as it does. There is far too much financial froth about this upturn, with stockmarkets approaching all-time highs while the all-important manufacturing base remains stagnant, unhelped by a strongly rising exchange rate.

On these foundations it’s difficult to see there’s enough substance to justify growth predictions of 2.5% growth this year and 3% next, and we should remember that Treasury and OBR predictions in the past have been grossly exaggerated time and time again. That’s enough for Labour to get their teeth into, and even at this stage to press for a much more expansionist policy as a far better way than austerity to cut the deficit.

Image Credit: Captain Ska, still from video ‘Liar, Liar

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