The Real Economy

Grahame Morris writes:

An Opposition Debate on Trade, Exports, Innovation and Productivity highlighted the fragile nature of our economic recovery.

The fundamentals for a strong economy have been overlooked by a Government more interested in short term headlines than our long term economic interests.

The Government’s promise to “rebalance” the economy has not materialised with the UK now having record high trade deficits for 2014 and 2013.

Our balance of payments, the amount we import compared to the amount we export, show a trade deficit of £34 billion. 

However, this figure is misleading and masks our trade deficit in goods, which stands at £123.1 billion.

The Chancellor promised to double exports to £1 trillion by 2020.

However, he missed the target by more than £350 billion and at the current rate he will not hit his target until 2032. 

Productivity is also lacking behind, with the Office for National Statistics stating that the extent of stagnation in productivity is “unprecedented in the post-war period”. 

Higher productivity is essential in determining our long-term growth rate, with stronger productivity leading to stronger growth. 

This would lead to increased tax revenues, reducing the government’s budget deficit. 

Towards the end of last year, productivity was just 0.7% above the pre-recession levels of seven years earlier. 

The UK is lagging behind our international competitors, ranked sixth amongst the G7 countries and 20 percentage points behind the G7 average, the widest productivity gap since records began in 1991. 

After six years of austerity the government have failed to clear the deficit, and the fundamentals of our economy are weak to such an extent that even the Chancellor has warned of dangerous times ahead.

Pointing to international threats, he failed to acknowledge the problems at home. 

There has been a failure to rebalance the economy without enough emphasis on manufacturing and engineering which can create the export-driven recovery we need to succeed. 

Public investment remains skewed towards London and the South East, and while the government push for airport expansion in the South, HS2 from London to Leeds, and cross-rail in the capital, regions in the North struggle for investment in basic infrastructure in transport and broadband, holding back our development, despite being home to the manufacturing and engineering business that will drive forward an export led recovery. 

The lack of any response to the collapse of the strategically important steel industry exposed the government’s lack of any genuine industrial strategy. 

The rhetoric of the Northern Powerhouse is not met with any practical policies or support.

While London benefits from seemingly unlimited levels of public investment, the Government fail to support not only traditional industry in the North East, but also emerging industries in East Durham.

The Centre of Creative Excellence remains on the drawing board despite the potential to transform our area, delivering new jobs and training opportunities in export led industries such as media, film and digital technology. 

At a time when we need to support workers to obtain skills and training to compete in an ever changing global economy, the government are kicking away the ladders of opportunity. 

Tuition fees are making higher education increasingly unaffordable and the change from grant to loans will only increase this debt for the poorest students. 

The government failure to support adult life-long learning has resulted in unprecedented cuts to adult learning budgets undermining the work of Further Education colleges. 

The Government have not only failed on the fundamentals, but have presided over an unsustainable consumer driven recovery based on personal debt. 

While UK households were running a surplus of £70bn five years ago, today UK family finances are running a £40bn deficit. 

High levels of personal debt are damaging to individual families and the fabric of our society, affecting health, wellbeing and work. 

The Children’s Society highlights the stress of debt problems affect relationships, children are more likely to struggle in school, and nine out of ten families with problem debt are forced to cut back on essentials such as food, clothing or heating in order to keep up with repayments.

The Office of Budget Responsibility predict that over the course of this parliament household debt will rise to 167% of household income, with the OBR going on to predict that debt levels in 2020 will exceed the levels of household debt before the 2007/08 financial crash.

Such high levels of debt are not only damaging to the individual but also to the economy.

The Bank of England warns that high levels of household indebtedness is likely to have a “large adverse effect on aggregate demand,” adding that “high levels of household debt have been associated with deeper downturns and more protracted recoveries in the United Kingdom.” 

Time is running out.

We cannot continue to build an economic recovery on unsustainable and ever increasing personal consumer debt, because once that bubble bursts the collapse of family finances will also mean a collapse in the nation’s finances. 

The export driven manufacturing led economy is possible, however, it will mean tough decisions for the Chancellor who will have to move away from his comfort zone and over-reliance on the City of London. 

We need an economy built on skills and training, manufacturing and productivity, with a comprehensive industrial strategy that supports the real economy.