Bill Carmichael: Baffling side of the economic recovery

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SOMETHING decidedly odd is happening to the British economy that is baffling politicians, economists and even the Bank of England.

First the good news – the UK is enjoying something of a mini boom in terms of job creation. This week’s quarterly unemployment figures showed the numbers out of work have tumbled to 6.4 per cent – the lowest rate since the recession hit in 2008.

Jobs are being created at an unexpectedly rapid rate – more than the rest of Europe put together, although given the moribund state of the euro perhaps that isn’t saying much.

None of this was predicted. Even the eggheads at the Bank of England got it badly wrong. A year ago they said it would take three years for unemployment to dip below seven per cent. In the event, it took just six months. And it isn’t just happening in London and the South East. All over the country businesses are growing and people are moving into jobs.

No one seems to know exactly why this happening, but one possible explanation is the structural changes to the economy that have happened as a result of Iain Duncan Smith’s welfare reforms.

You may recall the hysterical reaction when reforms to the bloated benefits system were first mooted. There was wailing, gnashing of teeth and renting of garments – and that was just Boris Johnson. On the Left the response was even more extreme.

We were confidently told there would be tens of thousands made homeless, entire cities would be “socially cleansed” of poor people, and those on benefits would be starving in the gutters and chopping up their grannies for firewood.

None of this happened, of course. There hasn’t been an increase in homelessness because of the bedroom tax. Capping benefits at £26,000 (equivalent to a pre-tax salary of about £35,000) hasn’t led to mass starvation. Maybe a few claimants have been forced to cancel their Sky Movies subscription and iPhone upgrade, but there is little hard evidence of widespread hardship.

But what has happened is that significant numbers of those on benefits have been persuaded to take up a job – exactly what the policy was designed to achieve in the first place.

Recent Government figures show that claimants subject to the benefits cap have been moving into work at the rate of 500 a month. In more than 10,000 capped households someone has found a job or stopped claiming entirely.

All this is good news – not just for the country, but also for the individuals concerned. They are far more likely to lift themselves out of poverty when in employment rather than languishing on benefits all their lives.

But now we come to a less welcome development that also has economists scratching their heads – the glacially slow growth in wages. At a time when demand for labour is increasing, economists suggest that wages will normally rise – but this isn’t really happening.

Wages rose by just 0.6 per cent in the year to June – the lowest rate since 2001.

One possible explanation may be the influx of foreign workers prepared to work for lower wages. Of the 800,000 jobs created in the UK last year, a quarter went to foreign workers, particularly from the so-called A8 countries that joined the EU in 2004, such as Poland, Hungary and Lithuania. So it is a puzzling picture. One thing we can say for certain is that we are not out of the woods yet. The recovery is fragile, Government spending is still way too high (and is increasing), high taxes and red tape still stifle growth and of course we are still handcuffed to the rotting corpse of the EU, which could pull us down at any second. Interesting times!

Middle-class guilt

Veteran actress June Whitfield is unimpressed with the claim by the BBC Trust that too much of the corporation’s output is “middle-class”.

She said: “It is ridiculous to attack on the grounds of something being middle-
class. So many folk are middle-class. And no one says this or that programme is too working- class or upper-class.”

I think she has a point. Of course the Beeb is Home Counties middle-class down to its bone marrow, and there is nothing much wrong with that. When it tries to be all northern and working class it comes over as insufferably patronising.

And of course being racked with guilt and agonising over being middle-class is a quintessentially middle class thing to do!