who plan to talk about the economy
over the next 100 days. Here is a very simple fact. [3] GDP per head (a much
better guide to average prosperity than GDP itself) grew at an average rate of less
than 1% in the four years from 2010 to 2014. [1] In the previous 13 years (1997
to 2010), growth averaged over 1.5%. So growth in GDP per head was more than
50% higher under Labour than under the Conservatives, even though the biggest
recession since the 1930s is included in the Labour period!
You have all read, and perhaps written, that the Conservatives
will focus on the economy, because they think that is their strong point.
Compared to their performance on other issues, maybe it is their strong point.
But relative to the previous administration, this simple fact suggests
otherwise.
George Osborne says: “Britain has had the fastest growing
major economy in the world in 2014.” However GDP per head in the UK in 2014
remains below 2007 levels, but it had exceeded those levels in the US and Japan
by 2013. The UK is not bottom of the league in these terms only because the
Eurozone’s performance has been so poor. That GDP per head growth under 1.9% in
2014 can be trumpeted as a great success when it is no more than average growth
between 1971 and 2010, and when we should be recovering from a huge recession,
and when there are signs that this growth may not be sustainable,
shows how diminished our expectations have
become.
In terms of a historical comparison between the record of this
government and the previous administration Labour has no case to answer,
because its performance is miles better. I am sure a supporter of the current
government would say at this point that they had to clear up the mess that
Labour created. But just think what such an excuse implies:
(1) The
Great Recession was in 2009, so it is included in the Labour government’s
growth average, not that of the current government. You can see the impact of
the recession on the average (the red line) in the chart below. [2] Are they
really saying that the mess Labour left was worse than the impact of the global
financial crisis!?
(2) This
excuse implies that bringing the government deficit down rapidly (austerity)
meant that GDP growth is bound to be lower. This is something that the
government’s critics have long argued, and which the OBR agrees with [4], but
the government has always denied. Are they now admitting that austerity was
(really) bad for growth?
(3) If
a government was elected just after a major recession, you would normally
expect the exact opposite from these figures to be true. The new government
would benefit from the recovery from the recession, while their predecessors
average would be weighed down by the recession itself. So in any normal world,
you would expect GDP per head to have grown much more rapidly over the last
four years than any long run average. The fact that it has grown by
considerably less means that the government should have a lot of explaining to
do.
Growth under Labour, including the Great Recession, was 50%
better than under the Coalition. So please, if you want to make your reporting
on the economy over the next 100 days objective, use this fact. If the
Conservatives win this election because enough people believe that they are
more competent than the previous government at handling the economy, it will be
a devastating verdict - on the UK media and its journalists.
 |
| Quarter on previous year's quarter growth in UK GDP per head, 1997Q2 to 2014Q3 |
[1] The ONS data can easily be found here.
The fourth quarter data is not out yet, so I have taken the ONS data updated on
21st January, and assumed growth of 0.5% in the final quarter, which is the
first estimate of GDP growth in that quarter. That is obviously an
overestimate, as it assumes no population growth in that quarter.
[2] The chart uses quarter on previous year’s quarter growth
rates for the actual data (no estimates), and the average shown there is simply
the average of these growth rates.
[3] A tweet from Ann Pettifor
inspired this post, but of course responsibility for it is entirely mine.
[4] The OBR estimate, somewhat conservatively, that austerity
reduced GDP growth by 1% in both FY 2010-11 and 2011-12. That alone would raise
the average growth in GDP per head over the four years from 0.9% to 1.4%. Research
by Jorda and Taylor suggests
austerity had larger and more prolonged effects.
