HAVING for so long looked a lame duck Chancellor, George Osborne all of a sudden finds himself operating from a position of strength. The reason? New growth figures that confirm the economy has indeed turned a corner.
The 1.9 per cent growth recorded by the Office for National Statistics over the course of last year is the strongest rate since before the credit crunch. Couple that with the flak heading in Ed Balls’s direction after a string of lacklustre Commons displays which call into question Labour’s entire economic policy and the Chancellor looked far more assured in West Yorkshire yesterday.
There have even been muttered words of approval from sceptics and wise old sages who disapproved of his appointment.
That’s not to say everything in the garden is rosy, as Mr Osborne himself has been quick to acknowledge. The Institute for Fiscal Studies warned on Wednesday that an NHS funding crisis and Britain’s burgeoning population could make his austerity plans even tougher after the election.
It says just 40 per cent of the planned cuts will have been delivered by the end of this year – with the remaining 60 per cent needing to be pushed through amid massive pressures on key services.
Despite this, the top Tory – now spoken about as a possible successor to David Cameron – will be feeling both relieved and vindicated as he looks to stay the political and economic course.
It helps too that the big hitters share his optimism. Ian Stewart, the chief economist of accountancy giant Deloitte, told this newspaper: “This looks like a recovery that has legs and is sustainable.”
But he was also clear that sustaining the current rates of growth will depend on companies having the ability to invest in expansion plans and being able to reward staff with wage rises.
And this is where George Osborne faces his second – and arguably biggest – test. Having set the economy back on the path to recovery via a package of stringent but necessary austerity measures, the Chancellor needs to find a way to ensure the benefits start filtering down to the man on the street while heeding the warnings of the IFS.
After all, if the public are going to vote in a Conservative government next spring, then it’s vitally important that they experience a tangible improvement in their living standards.
George Osborne can point to the 450,000 jobs that were created in 2013 as proof that the Government’s economic policies have helped provide businesses with a competitive environment in which to expand and hire people.
And despite concerns over the rise in part-time and zero hours contracts, the number of full-time jobs created outstrip part-time positions by nearly four to one.
The challenge now, however, is to translate this into boosting living standards that have suffered a steady decline over the last six years. The pre-crash years showed that growth is no guarantee of rising incomes – wages began to stagnate long before the slump, with 11 million people seeing no rise in their earnings since 2003.
Another batch of ONS figures at the end of last week showed that workers have experienced the longest fall in real wages (calculated once the cost of inflation is taken into account) since at least 1964, dropping by 2.2 per cent annually since the first three months of 2010.
There is a nagging suspicion that many companies continue to use the post-recession slump as an excuse not to pay their workers more, despite their improving fortunes. It adds to doubts as to whether the low-paid and squeezed middle will truly benefit from the recovery. Ed Miliband’s conference quip that “they used to say a rising tide lifts all boats, now the rising tide just seems to lift the yachts” struck chords across the country.
Worryingly, there are signs that the Chancellor doesn’t quite grasp the scale of this problem. He was forced to row back from comments in which he appeared to rule out an increase to the minimum wage, while his plan to raise the minimum contribution rate for private sector pension schemes from eight to 12 per cent of salary ignores the fact that many are struggling to get by on their take home pay as it is.
One of the chief concerns remains the idea that the recovery is still far too London-centric and overly reliant on a property bubble created by overseas buyers for it to translate beyond the M25. Economic forecaster Ernst & Young warned that the average price in the capital is expected to reach around £600,000 by 2018 – nearly three-and-a-half times the price in Yorkshire.
Indeed, independent think-tank Civitas is calling for curbs on purchasing power of the global super-rich who use the London property market as an investment vehicle, which in turn distorts the overall economic picture.
If the coalition is truly committed to rebalancing the economy and spreading the benefits of this recovery then, it is imperative that it now sets its sights beyond the capital.
The Government responded to Portsmouth’s loss of Royal Naval shipbuilding by giving the city its own Minister in the shape of Michael Fallon – so why is there no equivalent post for the North?
George Osborne and the rest of the coalition ignore this region at their peril. After all, as an area that represents one of the biggest drains on welfare and is among the most reliant on public sector jobs, it arguably has the most to gain from the aspiration agenda set out by David Cameron. And it definitely has more marginal seats than any other part of the country.