What is a rebalanced economy? To some extent, whatever you want it to be. The Coalition could be said to have delivered one simply by presiding over our country’s return to growth. We’ve been rebalanced away from being crap.
But, sadly for the residents of Downing Street, that won’t cut it. George Osborne was very specific about how he wanted the economy rebalancing, even before he became Chancellor. It was all there in the Mais Lecture he delivered in February 2010. He spoke then of a “new economic model” that did away with the debt-fuelled profligacy of the New Labour years. It would involve more saving, more exports and less reliance on the false economics of the City.
In this way, Osborne wrote the criteria by which we can judge him. So, over five years later, how’s he done? It barely needs saying any more that the national debt has risen, from about one £trillion to almost one-and-a-half £trillion, over the course of this Parliament. It would have done so even if the Chancellor had met his expectations for borrowing, but he didn’t. He’s set to borrow £90 billion in this current financial year alone. The original forecast was for £35 billion.
This may not seem like a good first entry on Osborne’s scorecard, but there’s another way of looking at it – and it is, in fact, how I prefer to look at it. The Chancellor fiscal plans were upset by the sluggishness of the economy and the tax revenues that emerge from it, yet he still delivered the spending cuts that he promised. That’s why the Government is borrowing £50 billion less this year than it was at the start of the Parliament. The necessary rebalancing has begun, even if it hasn’t yet tipped the public finances into surplus.
The problem for Osborne, and the rest of us, is that the national debt isn’t the sum-total of it. There’s also the debt that we accumulate as individuals. According to the Bank of England’s latest figures, the amount of unsecured debt in the country is £168 billion. That’s less than the £208 billion that we put on the never-never in September 2008, although there are signs that it’s on the rise. Only last November, the amount of new borrowing on credit cards, loans and overdrafts hit a seven-year high.
Blame that on Black Friday and its mega-deals, if you will. But the truth is that we’re now living out a series of Black Fridays. It took a while for household consumption to return to where it was before the crash – until 2013, in fact – but now it’s set to grow almost as fast as the economy that it’s helping to push along. Some form of confidence is returning, and with it that old instinct to pull out the plastic. Why not, when interest rates are so low?
The corollary of this is, of course, savings. British workers now put away only 10 per cent of their incomes, which isn’t just lower than the 14 per cent total from 2010, but also lower than most other countries in Europe. Even the bedraggled economies of Italy, Spain and Portugal manage savings rates of between 11 and 15 per cent. The middle part of Osborne’s promise of an economy “rooted in more investment, more savings and higher exports” is a far way off.
And there’s similar news to report when it comes to the third part: higher exports. Brits are borrowing to spend again, but they’re spending on goods from abroad. Imports from the EU totalled £17 billion in January, some £6 billion higher than our exports. For countries outside the EU the gap was another £4 billion. Which it to say, we are still and consistently a net importer – and it’s getting worse. The Office for Budget Responsibility, in its latest set of forecasts, writes gloomily of a “gradual decline in export market share”. They reckon that net trade will actually make a “small negative contribution” to economic growth in each year of the next Parliament.
Very little of this can be laid at the black-gloss door of Number 11. It is not Osborne’s fault that the malarial Eurozone hasn’t really felt like trading, nor that the pound has remained relatively strong against the Continent’s currency. The global economy is too big and unwieldy for any one politician. It could be too much for better people too.
But this will be scant consolation to the Chancellor and Britain’s manufacturers. If the world ain’t buying, then there’s less reason for them to be making. And that’s what we’ve seen: manufacturing is now growing slowly, but it’s still some way below its level at the beginning of 2008. The only sector to have exceeded that level is, predictably, services.
Oh yes, services. They account for around three-quarters of our growth, and four-fifths of our jobs. Britain is very much a service economy – and what service would you like? We’re still pretty good at the financial ones, which account for 8 per cent of the value in our economy. But we could have become stronger at others. According to a paper that PricewaterhouseCoopers published at the end of 2013, jobs and money have gone across to “professional, business and support services and the health sector.” They cast it as a rebalancing of the services sector within our economy.
Which, again, isn’t quite the rebalancing that Osborne hoped for. Nor is it the “march of the makers” that he has spoken of since. Yet it is something. We wouldn’t have seen a 2.8 million increase in the number of private sector jobs since the beginning of this Parliament, with a 1 million decline in the number of public sector jobs, had it not been for the services sector. The jobs miracle would have been a bust.
It’s probably the employment figures that best support Osborne’s claim to a “new model economy”. I’ve written before of how the jobs recovery has been weighted towards the private sector, British workers and, more recently, full-time work. But there’s another component to it: the north. The latest labour market statistics, and others before them, have employment growing faster in the North East and North West than in any other part of the country. They are also among the regions that have lost the most public sector jobs. The state is giving way to the store and the start-up.
And on to a Northern Powerhouse? It’s telling that Osborne mentioned better transport links between northern cities in his very first Budget speech, just as he did in his last one. These projects take a long time to deliver, and many are planned for the fogbound period of the next Parliament. That means they may not happen if Labour are returned to power. They might not even if the Conservatives are.
This is the sort of uncertainty that lours over the Chancellor’s rebalancing act. Some parts of the economy have changed beyond hope and expectation; some are still as they were, or worse; but others could fall either way, depending on what happens next. Will the prospect of higher interest rates encourage more saving? Will it stretch thousands of borrowers to breaking point? Will it strengthen the pound and diminish our exports? Will all of this happen? Or none of it?
It is unsatisfying to finish with so many questions, but economies are complicated things. I haven’t even mentioned the housing market or the welfare reforms. There’s too much for one blog-post, and indeed too much for a few years of legislation. A truly new economy takes longer than one Parliament.