Hey Britain, put away your miserable Basics baked beans, let’s order pizza and bang out the gak to celebrate our resurgent booming economy. The economy grew a whole 1.9 percent in 2013 – the highest of any “mature” economy in Europe. In other words, all the cuts we’ve been going through are totally justified, something that Conservative politicians have been telling us ever since the figures were announced. Not that we're quite out of the fiscal swamps just yet – George Osborne insists that the job is "not yet half done" – so we'll all have to endure a few more cuts before we can be totally sure that our hospitals can afford to keep us alive and our councils can keep taking our rubbish away. But, if the economy is actually growing, then things should begin to look up in terms of living conditions, right?
Nope. To understand why not, we need to look at where our economic growth is coming from. According to Moritz Kraemer of Standard and Poor, the “largest contributor to the UK’s recovery has come from private consumption, fuelled by declining household savings rather than rising real wages or productivity”. In other words, people are pissing away their life savings, or getting themselves into debt to buy stuff, rather than buying more stuff because they can actually afford it. Which kind of undermines the idea of the “recovery” being sustainable.
This week, to widespread scoffing, Conservative Party chairman Grant Schapps attempted to rebrand the Tories as the "Worker's party". As part of this repositioning, he said they were trying to deliver a "classless society". He said that Britain will be a place "where you can go as far as your talents and hard work will take you, where work – rather than benefits – is what pays". It looks like they're on course to make the bit about benefits not paying happen, and work will probably leave you better off than trying to struggle on whatever's left of the welfare system once they're done reforming it. As such, there is ostensible encouragement to be taken from unemployment figures that point to more people returning to work than they have done for 16 years. But will work really pay for the workers of Britain's "classless society"? Will it pay for you? And, more to the point, will it pay well?
Probably not. A lot of the growth in employment is due to an increase in self-employment – a category which has seen a 20 percent decline in real pay since 2006. But things aren't looking great for people who aren't their own boss, either. Everyone knows that austerity means cuts to government spending on welfare and public services. Depending where you find yourself on Britain’s pyramid of fortune, that might mean being hassled to sign a petition to save your local library as you pop to the shops, or not being able to afford to pop to the shops at all because your benefits have been cut. But the other thing about austerity is that it’s adding to the bottom of that pyramid, making more people poor at the same time as it taking away the support that poor people have been relying on. Which kind of puts paid to the idea of the creation of a "classless society" – unless by the lack of class you mean that everyone in Britain's middle and lower classes will end up swimming in the same grey mush of toil and impoverishment.
Austerity doesn’t just mean that the state will give you less money and services, but that your wages will go down, too. It’s about a return to profitability for private enterprise and making Britain “competitive” in the “global race”. George Osborne said on a trip to China last week that the next budget would mean that, “around the world, wherever you are, you can't help but see ‘Made in Britain’". On the one hand, it seems to make sense to rebalance the economy away from city boys playing confusing numbers games towards people actually making real stuff and selling it to people in other countries – something that all the major parties agree on and which has not been achieved yet. But the thing about those “Made in” labels is that they all too often name a country where people have wretched lives because factory owners can’t be bothered with basic fire safety, let alone decent wages. And why would those factory owners bother to move to Britain unless they can pay crap wages here too? The weather?
For now, while there are more jobs, they are almost universally in low-pay service work. That is why over half of the 13 million people living below the poverty line in the UK were in working families. At the beginning of last year, the average inflation-adjusted pay packet – that is, the amount of money you have to, er, buy stuff – was 6 percent lower. If you are in your twenties, that figure rises to a staggering 12 percent. If that sounds a lot, that’s because it is. This month the Office for National Statistics announced that our “real” wages had been falling consistently since 2010, the longest period that had happened since records began 50 years ago.
While the new “model” means that growth can carry on in the short term if the employment stats continue to rise, it would have nowhere to go without increases in productivity and output (GDP) per hour worked in the UK economy. The Bank of England (BoE) is still forecasting low inflation for this year. That tacitly admits what many of us know but what Mark Carney and George Osborne won’t publicly admit: average real wages are going to fall or remain stagnant in 2014. At the moment, the BoE is saying wages will rise this year but more people working, higher pay and low inflation can’t all happen at the same time.
If you want an example of how economic “success” doesn’t equate to people being paid more or having a nicer time at work, you can find it in the UK car industry. It returned to profit last year, but it’s increasingly characterised by agency staff and temporary contracts. Booming sales have not meant much to most workers, with the average wage for almost a third of the industry’s workforce falling by 7.5 percent in the last few years. That is because, “everybody is taking advantage of weak regulation to hire lower-paid, less permanent workers”, as Roger Maddison from Unite the union put it. That is the UK growth model in one sentence. The story is the same for organisations as diverse as car manufacturing plants, universities and the Royal Opera House: the pay for those not at the top is being hammered down.
Downing Street and the Bank of England will feel more than vindicated with recent growth data. From Westminster and the City, the poverty no longer matters because the economics have come good. But even Simon Kuznets, the economist who devised the methodology by which to calculate GDP, was keen to point out that it was not designed as a measure of public welfare. If anything, recent data that measure both economic and social outcomes would point to it being the complete opposite. What does a “recovery” mean when it’s based on falling wages, accompanied by record numbers of evictions, surging use of foodbanks and increases in child poverty? Even an increase in interest rates by a couple of percent would leave one in six homeowners “on the edge”. It is that combination – of a likely increase in rates, with wages refusing to move upwards – that would not only see a downturn in growth but more social misery. Most people have just about been holding on since 2008. Don’t underestimate how quickly that could change.