John Humphrys asks: What does the future hold following the economic 'good news'?
George Osborne has had to wait a long time to be the deliverer of good news. But finally, on Thursday, he became just that. The British economy, the Chancellor told the House of Commons in his annual Autumn Statement, is now growing more than twice as fast as was expected as recently as last spring. And with this good news comes more: the government’s deficit is coming down faster too. But how rosy a future does now lie ahead for us all?
The new growth figures from the independent Office for Budget Responsibility will have seemed to Mr Osborne as a final vindication of his economic strategy. His political opponents had said his austerity policies were strangling growth and that he would have to change tack. But the re-emergence of economic growth in recent quarters has muted that charge and the OBR’s raising of its forecasts for this year and next seem to put paid to it.
Back at the time of the Budget, the OBR predicted that the economy would grow by 0.6% this year and 1.8% next. Now those forecasts have been raised to 1.4% and 2.4% respectively.
A direct consequence of the increased growth is that the government’s deficit is set to fall faster too. This year the government will have to borrow £9bn less than it thought it would back at the time of the Budget (though still a hefty £111bn) and the Chancellor was able to bring forward the date when he expected there to be no deficit at all. In 2018/19 the OBR forecasts a small surplus.
The Chancellor was anxious to stress, though, that Britain wasn’t out of the woods yet. There was still need for continuing austerity – government departments have been asked to find an additional £3bn of new savings over the next three years. The political message he wanted to get across was that his policies were bringing about a ‘responsible recovery’ and that only by being continuously vigilant on spending could the rosy picture he was painting actually come about. In his peroration, he said: “Britain’s moving again: let’s keep going” [ie ‘with this government and its policies, not Labour’s’].
These good economic figures did not, however, leave Ed Balls, the Shadow Chancellor, with no ammunition to fire. He pointed out that the recovery was way behind what the Chancellor himself had forecast when he first came to power in 2010 and that as a consequence the government had had to borrow nearly £200bn more than it had budgeted for. (According to the government’s 2010 forecast it should be borrowing only £60bn this year.)
But his main attack focused on his claim that most people aren’t feeling the benefit of the increased growth. That’s because wages and incomes aren’t keeping up with rising prices, hence what Labour has called ‘the cost of living crisis’. Labour claims the new OBR figures show that this is set to get worse not better next year.
The government is acutely aware of the salience of this charge in many voters’ minds. So the Chancellor took measures to try to mitigate the effect. Next year’s fuel duty rise has been scrapped and rail fares will not be allowed to rise more than the rate of general inflation.
But it’s the government’s longer-term plans that may take the gilt off the gingerbread, especially for younger voters. The Chancellor announced that the date when the state pension age will be put up to 68 is to be brought forward from 2046 to the mid-2030s, and that it will rise to 69 in the mid-2040s. This means that people currently in their forties will have to work longer than they’d expected and that the young, just starting work now, will have to soldier on till nearly seventy.
The government justifies this by pointing to increased life expectancy. The fact that we’re all living longer means both that it becomes ruinously expensive for governments to try to offer state pensions at current retirement ages, but also that we can still expect to receive the pension for a long time even with a later starting age. The government claims its new plans will allow people, on average, to live up to a third of their lives on a state pension. And Ros Altman, the pensions specialist, points out that young people, starting work in their early twenties and retiring at 70 will be working for about fifty years, which is no different from the length of time worked by pensioners taking their pensions now at 65, having started work at fifteen.
But the young tend to look at all this rather differently. Compared with their parents and grandparents they see themselves as already discriminated against. Unlike those older generations, the young are burdened with student debt, have a tougher time (at the moment) finding work, can’t afford to buy the houses their parents were able to buy at the same age, and are crippled by historically high rents. Now they are told they will have to wait till nearly seventy before they’re entitled to a state pension. Their predicament is summed up in the sobering fact that theirs is the first generation that cannot expect to be richer than the one before.
This, then, is the longer-term context in which George Osborne’s optimistic message is likely to be read. Whether the better news in the immediate future on economic growth and the falling deficit will be sufficient to eclipse the more chilly long term prospects the young will have to face is perhaps what the next election will hang on.
What's your view?
- Do you think the rosier forecasts on growth and the deficit vindicate George Osborne’s strategy or not?
- Do you think the government still needs to pursue tight policies on spending?
- Do you share Ed Balls’ view that most people will fail to enjoy the benefits for the faster growth?
- Do you think Labour could do better or not?
- And do you think the government is right to defer the state pension entitlement in the way it is doing?
