UK Economy: Where to next?

What a fine mess we have got ourselves into. Today, Britain became the latest country to return to recession after figures revealed that the British economy shrunk by 0.2% between January and March this year. After months of commentary asking whether Britain would face a double-dip recession, the Chancellor George Osborne will now face a brutal bombardment to whether his plans are working.

The belief in the Treasury was that growth would not be easy to come by, the independent Office for Budget Responsibility (OBR) forecast growth at 0.8 per cent in 2012 and 2.1 per cent in 2013. The original figures were far more hopeful.

The admission that the target to wipe out the budget deficit within this Parliament would not be fulfilled only made the Chancellor and his Treasury team more resolute. Whilst America has seen a healthy return to growth, Britain has been undermined by the uncertainty caused by the debt crisis within the Euro zone. The bite of austerity would continue for at least another two years into the next Parliament.

Ironically, as these harsher conditions have ensued, the government debt is actually increasing. The loss in tax revenues has meant the Coalition will increase national debt to around £1.4 trillion by the end of this Parliament. So whilst the budget deficit may eventually be eradicated, there will still be a long term national debt burden for future generations to deal with. Economists are still uncertain of the long term effects of low interest rates combined with tranches of quantitative easing.

So was the Labour shadow chancellor Ed Balls correct? Was the coalition government cutting ‘too far and too fast’? It appears now that the coalition’s strategy is running at the same timescale as former Labour chancellor Alastair Darling expected it to before the last general election. According to Mr Balls the coalition has made the cuts but created no growth.

However, despite the poor headlines for the Chancellor in recent weeks, it is unlikely to shake him and his Liberal Democrat partners. Mr Balls has been vociferous, yet despite his so-called ‘five point plan’ he is yet to suggest anything of substance. The double-dip may actually force pressure on the Labour treasury team to announce some of their ideas, a stage which may get them caught out.

The previous set of employment figures showed that for the first times there were more jobs created in the private sector than lost in the public sector, a trend that Mr Osborne can only hope to continue. Today’s figures if anything are more likely to make the Chancellor ignore calls from the opposite benches and look towards greater market reforms from the right. As chief strategist of the Conservative party, be certain it will not be something he is willing to get wrong.

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Every Government is subject to criticism, whether it is policy, sleaze or accountability, every Government will be scrutinised for its failures by the press and voters alike. Much of the criticism directed towards the Coalition Government is the aura of privilege and patronage. Many voters do not believe the mutterings of Messieurs Cameron, Osborne or Clegg when they say ‘we’re all in this together’ in recognition of a faltering economy and increasing burdens on everyday families. All three men and much of the current Cabinet are millionaires and come from what most Britons would describe as exceptionally comfortable backgrounds; Eton, Oxford and a job in the City are far from most people’s realities. Perhaps we are now being exposed to an American trait that we expect all our politicians to show compassion and feel our every creak and groan on a day-to-day basis. I suspect that many suspicions of politicians do not stem from envy or contempt, most likely it is from mistrust. For a politician to hear the phrase ‘you’re all the same’ or ‘you’re just like the last lot’ is nothing new nor revealing, yet the resignation of Defence Secretary Liam Fox does highlight something tawdry and something that will continue to blight how politics works in this country.

Most people would not usually be interested in following the blogs or commentary of Whitehall watchers and probably did not read a great deal into the resignation of Dr Fox last week. Yet, most journalists within the Westminster village live within a scramble of politicians, lobbyists, PR advisors and other hacks, in what has truly become a blur. It is increasingly becoming more prevalent and the agents within the game are becoming ever transient, one commentator said that it is like ‘the pavement retiring to become the lamppost’ i.e. the advisors are becoming the politicians and the journalists are becoming the PR men, Westminster is a corridor of ‘suit and tie’ men.

Prime Minister David Cameron spent time before joining Parliament as a PR man and an advisor in the Home Office and Treasury. Chancellor George Osborne joined Conservative Head Office soon after leaving Oxford. Labour leader Ed Miliband was a policy advisor to Gordon Brown and Shadow Chancellor Ed Balls was a financial journalist before also joining Brown as an advisor. The London Mayor, Boris Johnson, was the editor of The Spectator and still writes a column in The Daily Telegraph. Not forgetting Tony Blair who took up various consultancy roles with companies such as JP Morgan Chase. It is all too common for Ministers who leave office too simply find a job with an international firm and continue their work with more subtlety and better pay. The nature of Westminster is that everyone knows each other and the lobbyists will pay big money to scoop any of that influence.

The issue that ultimately arises is how you tackle such a sport, if it is possible. Government is unlikely to kowtow to the Civil Service anytime soon and Ministers will continue to surround themselves with special advisors and spin-doctors. One thing that was interesting to read regarding the Liam Fox affair was that one commentator said ‘he was acting like an American politician’ and maybe it is true that we have reached that stage. Deputy Prime Minister Nick Clegg said that his father used his contacts to help him obtain an internship in the City when he left University, but it is this culture that we need to curtail. I’m not quite sure how soon it’s going to happen.

Balls to that: The other Ed.

It appears now that the leader of the Labour party will be a Miliband, David or Ed that is. It does also appear that since the general election and the departure of Gordon Brown, this story has been ongoing for an age. Do we ultimately know where they will want to take the Labour party? Will they move the party in a particular direction? Will they challenge the Coalition Government? It is lamentable from a news perspective that we have learnt nothing new about the two. We know that Ed wrote the recent Labour manifesto, David was the head of policy under Tony Blair and that their father was a Russo-Belgian Communist Jew who moved to Britain to escape persecution. That appears to be all. The candidate receiving the worst coverage is Ed Balls, not because his name is the same as Wayne Rooney’s profession; but because of his so-called insidious alliance with Gordon Brown throughout his time in the New Labour government.

Balls too is on the campaign trail and with his time and experience in the Treasury, he has made some important reflections on the Coalition’s attempts on the recovery. Balls is correct to question the severity in cuts and the possibility of a double-dip recession, as seen in Japan in the mid-nineties. He has also attacked the Education Secretary Michael Gove on his mishandling of the schools rebuilding scheme and his push to increase the number of academies and start-up schools (there is a bit of history between these two). The problem for Balls, that doesn’t seem to affect the Milibands, is that he is seen by voters as part of the old wallpaper within New Labour. He was Brown’s special advisor within the Treasury and implicated as part of the epoch of financial meltdown. Despite his obvious intelligence and perspective on economics, he doesn’t have the same amicability of Vince Cable or Ken Clarke that the public warm too. Despite making some salient points politically, he is tarred in the media as part of the New Labour coterie of using spin-based politics. On camera he seems quite friendly, yet spiteful from all accounts in the Westminster Village.

Inevitably, if the election goes to plan then he may become the next Shadow Chancellor and play an important part in recovering Labour’s record on the economy. However for Balls despite his penance, it seems distant for him to win anyone’s trust or support anytime soon.