Cityvisitor blog

An equitable balance? The landscape of the UK under the coalition government

Often seen as swimming against the tide in the mainstream of UK politics, coalition governments have never been popular with the British people. Before the present arrangement was concocted between the Tories and the Liberal Democrats, the last time a coalition occupied the corridors of Whitehall the world was convulsing to the march of the Nazi war machine.

The more things change it seems, the more they stay the same: but in this case a threat to the UK came not from a military attack but from fiscal profligacy. When the coalition lurched hesitantly into power, the UKs public finances were around £156 billion in arrears(1). For Conservative politicians weaned on the need to levy minimal tax, shrink the state and let the private sector pick up essential public services, this was an anathema. Nonetheless, the suspicion remained that the programme of cuts announced immediately in the wake of the Liberal/Conservative pact were motivated more by ideology than necessity.

In the 2010 review that aimed to fix government spending levels until 2014-15, Chancellor of the Exchequer George Osborne commented that Labour had left the country on the “verge of bankruptcy” and despite vocal opposition to this claim coming from many quarters of the political and academic spectrum, the intention to carry on with the austerity measures in the face of criticism was clear.

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Unemployment

Upon entering office the coalition had announced initial cuts of £6.2 billion(2), some of which would come from reducing “Whitehall waste” and reshaping local government budgets. Buried amongst all the parsimony were pledges to reinvest some of the £500 million of the predicted savings into funding further education colleges and the creation of 50,000 apprenticeship places for young people. Effectively this was an attempt to promote growth by investing in learning and skills – but have these initiatives made any difference to unemployment figures? The short answer is an emphatic no.

According to the Office of National Statistics, the unemployment figures at the time the Labour government left office, stood at 2.47 million in the period March to May 2010. The latest available figures for June 2012 show an increase, with the number now standing at some 2.61 million people – 8.2 per cent of the economically active population(3).

Part of the reason for this upward trend is the strong “base core” of long-term unemployed. The Institute for Public Policy Research has called long-term unemployment the  “hidden crisis” of the slow economic recovery and also pointed to the huge disconnect in positive responses to job applications between those aged under 30 and those aged over 50 years.

The combination of a workforce that features eight million over 50 year olds and thousands of young people struggling to get started on the career ladder means the problems are set to continue, despite the government backed work placement programme. Many commentators have attributed the upward trend of youth unemployment to the coalition’s conscious decision to scrap Labour’s future jobs fund, a policy initiative that provided subsidised work schemes. Recently published statistics would support this contention: in 2008, two years before the Conservative/Liberal government took office, 6,000 young people were claiming benefits. That figure has skyrocketed to just shy of 50,000 and some forecasts are predicting this is set to burgeon over the next two years(4).

The Big Society

If unemployment and a sluggish labour market are the unwelcome side-effects of the credit crunch, then what of the government’s pledge that we are “all in it together”? This media-friendly sound bite gained some currency and became convenient shorthand for understanding the coalition’s underpinning philosophy that we’d all borrowed more than we could reasonably afford – and now we had to pay the price.

The obvious difficulty with this assertion was the all too evident disparity between the ordinary working man (or non-working men) and the wealth of the white, middle-class millionaires introducing austerity measures that would not hurt them at all; but more than that, the squeeze on living standards was biting very hard and was really beginning to hurt. People were forced to borrow to keep up their standard of living, jobs were disappearing rapidly and what credit was available was starting to come at a much higher price than for many years.

Many retail businesses were disappearing from the nation’s high streets, their owners forced out of business by increasing overheads, weak consumer demand and the non-availability of credit at sensible rates.  Familiar names, including Focus DIY, Barratts, Habitat, Best Buy and Lombok are just a few of the victims to date. The number of vacant retail premises on the streets of Britain continues to increase.  Stockport has topped the poll with 30 per cent of its shops standing empty(5).

In May 2010 the total UK personal debt had reached an astonishing £1.46 trillion pounds – or more than the GDP of the country. At the end of May 2012 the figure was just as bad, with the Office for Budget Responsibility indicating that assuming the number of households in the UK stays the same, total household debt will climb to £2.044 trillion in 2017. In real terms this will mean the average household will owe £77,719 – a £22,236 increase on the current figure. For a country that is, according to the International Monetary Fund, the seventh richest in the world by GDP, many see this is as an abject failure of successive government’s ability to control borrowing and maintain tighter controls on spending(6).

The bad news is that the next generation probably won’t have it any easier. For young people who wish to invest in their future the outlook seems particularly bleak.  Despite introducing tuition fees when they were returned to power in 1997, Labour’s £3000 fee cap passed by the commons in 2003 was scrapped by business secretary Vince Cable in November 2010.  From September 2012 universities will be able to charge up to £9000 a year – a move that has been heavily criticised by Labour and other interest groups. The university admissions service recently released figures that indicate applications for higher education in this country are down by 8.9 per cent, with as many as 15,000 applicants reconsidering their options after doing the maths(7). As Shabana Mahmood, Labour’s Shadow Minister for Higher Education commented, “most students will be paying off their debts for most of their working lives.”

The situation seems little better in healthcare. The coalition’s determination to press on with root and branch reform of the NHS has met with fierce condemnation by politicians and members of the medical profession alike. Criticising the “disastrous decision to spend £3 billion pounds on an unnecessary re-organisation”, Andy Burnham, the shadow health secretary, was keen to emphasise that David Cameron’s pre-election promise that there would be no structural reform of the health service has been shattered by recent events, including what amounts to a 0.02 per cent cut to the NHS budget(8).  For a country with a growing population that is living longer and consuming more, the implications for the current provision of a quality service and care in old age are serious.

For a government already riven by fractious disagreement, these areas of contention are an unwelcome distraction from their main aims of pushing through what they consider an essential legislative programme. Unfortunately for the coalition, the debate is not just confined to health or education, as the disparity between the cost of living and wage inflation has hammered the less well off and the middle classes.  Nowhere is this better illustrated than at the petrol pumps, where the cost, per litre, leapt to a record high of £1.42 in March and April 2012, up from £121.61p just before Labour left office in 2010(9).

The net result

The coalition’s approach to cutting the deficit has been staunchly defended by the Prime Minister and the Chancellor. Describing the deficit reduction plan as “the rock” on which the recovery will be built, George Osborne has not deviated from the line that this is a necessarily painful period that will secure jobs and growth in the long term. Despite this the UK economy remains a slumbering leviathan that only shows flickering signs of recovery.

Recent comments by Rachel Reeves, Shadow Chief Secretary to the Treasury have left commentators in no doubt about the left’s view of the failure of coalition policy to address the economic situation. Referring to NIESR figures that indicate the UK economy contracted by 0.2 per cent in the second quarter of 2012, Reeves pointed out that Britain “is one of only two G20 countries in a double-dip recession” and highlighted the effect the lack of sustained growth is having on jobs and borrowing(10). The government’s response to these accusations has seen them largely pointing the finger at the banks. Business secretary, Vince Cable, could only opine that banks are at fault for stifling British industry by “throttling” business lending in the quest to maintain short-term profits. Despite a progressive attempt by Labour to open up the debate, tabling ideas that include breaking up the five leading banks and instituting new “challenger” banks run by the private sector that will offer lower borrowing rates, the coalition’s ability to transmit capital investment to business has been fitful at best.

The impression of juddering uncertainty that pertains at the moment has been exacerbated by the recent policy u-turns announced by the government – the most prominent of which was the so-called pasty tax. The decision to levy VAT on freshly-baked goods was dropped amid an embarrassing media scrum following heavy criticism that the price increases would hit the lowest paid sectors of society.

References:

(1) http://www.guardian.co.uk/business/2010/may/21/uk-budget-deficit-smaller-expected

(2) http://www.direct.gov.uk/en/Nl1/Newsroom/DG_187927

(3) http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/june-2012/statistical-bulletin.html

(4) http://www.guardian.co.uk/business/economics-blog/2012/apr/13/youth-unemployment-rising-work-programme

(5) http://www.bbc.co.uk/news/uk-england-lancashire-16926379

(6) http://www.creditaction.org.uk/helpful-resources/debt-statistics.html

(7) http://www.timeshighereducation.co.uk/story.asp?storycode=420520
(8) http://www.andyburnham.net

(9) http://www.guardian.co.uk/environment/fossil-fuels
(10)http://www.labour.org.uk/disappointing-niesr-forecasts

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