George Osborne prepares to present the 2010 budget. Photo: Number 10 / Crown copyright
#Budget2016: Osborne’s five year failure to tackle the real problems
On Wednesday, Chancellor George Osborne will deliver his sixth budget. In his first budget back in 2010, he identified a number of challenges for our imbalanced and over-indebted economy that his strategy indended to resolve.
He’s had five budgets since to tackle them, but looking back at his record over the past five years he’s failed to fix virtually anything, missing target after target over the years. In many cases he’s made things worse.
Re-balancing the economy:
In 2010, Osborne identified the UK’s skewed economy as a problem, promising a “march of the makers” to encourage a resurgence our vital manufacturing industries. This failed to materialise, with growth remaining skewed towards the service sector.
Of course it’s good that the service sector is now 12.5% above its previous peak, but manufacturing has remained virtually stagnant, still 6% below its pre-crisis summit. Construction is still 2% smaller than it was before the crash. And despite all the rhetoric around creating a ‘Northern Powerhouse’, London now accounts for an even bigger slice of the UK economy than ever before (22.5% of the total).
The Chancellor may have begun paying lip service to the importance of supporting industry, but he’s delivered little more than a rag-tag of pre-existing policies bundled together. And with one in six jobs now under threat in our battered steel industry, this is more important than ever.
If Osborne continues to fail on delivery a better-balanced economy and a proper industrial policy, vital industries are going to continue to decline and millions of families will face an uncertain future.
In 2015 business investment was 9.6% cent of GDP – that’s lower than it was before the crash. The UK ranks 5th from bottom in the league table of investment as a share of GDP. As our industries find it harder and harder to compete internationally, we need leadership in investing to meet the challenge. There’s a huge opportunity in transforming our industry to world-leading standards in meeting our climate change obligations, but at this rate we’ll miss it.
Employment levels have recovered since the crash, but wage growth has remained very sluggish. Even if real earnings rise in line with OBR projections (looking very unlikely now), they will have taken eleven years to catch up with their pre-crisis peak. UK workers are still over £40 a week worse off than they were before the recession (even on the basis of the government’s preferred CPI measure; it’s £50 using RPI). The only comparable period for wage stagnation was the Great Depression era of the 1920s and 1930s.
Public service workers have seen wage frozen or capped over this period, and the one per cent cap means the outlook is even bleaker than for those in the private sector. Younger workers are disproportionately feeling the squeeze too, with the new national living wage not helping the under 25s.
Despite being flagged as a priority for the Chancellor, consumer credit is growing at its fastest rate for a decade, as people try to bridge the gap between that low wage growth and rising prices. The burden of this debt is highest for those on lower incomes, with one in eight (3.2 million) UK households now finding themselves in problem debt. Meanwhile, corporate debt has also remained alarmingly high since the financial crisis, now at over 120% of GDP.
Really the Chancellor did very little to resolve any of the other problems, his only real strategy was to slash at the public sector budget. But he has failed even here, the cornerstone of his economic strategy.
In 2015-16, public borrowing is likely to be around £80bn, four times higher than he’d planned back in 2010. Under his plan the government debt ratio was supposed to peak in 2012 and then start to fall, but instead it’s grown every year and is still growing – rising by £460bn between 2010 and 2015.
This is no surprise to the TUC. Government spending is not only an integral part of our society, but also to aggregate macroeconomic outcomes. His cuts have weakened severely the economy, and this weakness has translated into weaker tax revenues from households and businesses.
So when George Osborne stands up in Parliament this Wednesday, we’re hoping to see something more than gimmicks, rhetoric and denial. It’ll be his sixth shot at fixing these problems. We need a better plan for long-term growth and decent jobs that has investment in infrastructure increased public sector wages and an industrial strategy at the heart of it, not just another round of cuts, making public services worse without making the economy or the public finances better.
We’ve got a list of policies we want to see him announce in our own Budget Statement (you can read it here). We’re not precious if he wants to take them up, and not that we like to say “told you so”, but they could have helped him over the last five years, so he might like to give it a shot this time round.