The past 14 years have been a white-knuckle ride for the British economy. Record low interest rates, money creation from the Bank of England on an industrial scale, Brexit, millions of workers furloughed during the pandemic, the biggest fall in output in at least a century – all that, and a record number of people inactive through long-term ill health. Boring it hasn’t been.
At the end of it all, there is a sense of deja vu as Jeremy Hunt puts the finishing touches to next week’s budget. When Liam Byrne departed the Treasury in 2010 he left a note – meant as a joke – for his successor as chief secretary, which said: “I’m afraid there is no money.” After almost a decade and a half of economic underperformance, Byrne’s words have come back to haunt the Tories.
Under pressure from Rishi Sunak to deliver pre-election tax cuts, the chancellor is scrabbling around for cash to fund the much-anticipated giveaways. The economy is officially in recession and money is tight. Opinion polls suggest the Conservatives are heading for a polling-day pummelling when the election is held, and the state of the economy is the principal cause of voter discontent.
Gordon Brown, Byrne’s old boss and the last Labour prime minister, says it should come as no surprise that the electorate is unhappy. “In 2010, I predicted a decade of austerity when we left office. We have actually had a decade and a half of austerity.”
Brown says that what motivated the Conservatives in 2010 was the idea of a small state, to be achieved through austerity and debt reduction. But austerity did not work. Slow growth meant deficit targets were missed and the public finances suffered from a chronic malaise. Productivity growth in the past 14 years had been the weakest since the Industrial Revolution, the former prime minister says. “We no longer have stop-go, we have different levels of stop, with crisis after crisis.
“Britain is a low-growth, low-productivity, low-investment, low-wage economy. And that means higher levels of poverty, destitution and inequality. We are entering a doom loop,” Brown says.
Hunt’s case is that since 2010 the UK has grown faster than Spain, Italy, France, Germany or Japan, and that after hitting a 40-year high of 11.1% in October 2022, inflation is coming down fast. Last year’s autumn statement included 110 measures designed to boost growth.
Voters may take some convincing that the Conservatives can again be trusted to run the economy. Living standards for workers are on course to be lower at the end of this parliament than when it started in 2019. Real average wages – pay adjusted for inflation – are no higher today than they were 16 years ago.
What is more, after 14 years the Conservatives can no longer blame their difficulties on their legacy from Labour. Over the past 45 years, parties have enjoyed long interrupted periods in office: 18 years for the Tories between 1979 and 1997; 13 years for Labour from 1997 to 2010; 14 years for the Conservatives since then. After that length of time, governments are judged on their own record, and the one Hunt is defending is markedly worse than the one the Conservatives could boast of in 1997. Back then, growth was much stronger, debt was much lower, and the balance of payments was in surplus.