Cable’s reservations about economic recovery echoed by unions
Minister’s remarks at odds with Cameron’s welcome for strong growth
Business secretary Vince Cable: “The US subprime mortgage crisis and its British equivalent were built on the shaky foundations of encouraging mass home purchase in inflating markets, and we know where that led. It must not happen again,” he warned. Photograph: PA
The UK economy is enjoying its fastest rate of growth since the onset of the financial crisis in 2007, with government figures yesterday estimating that gross domestic product rose by 0.7 per cent in the final quarter of 2013. That takes the annual rate of growth to 1.9 per cent, placing the UK among the developed world’s best-performing economies.
But is it the right sort of recovery? Government minister Vince Cable, for one, doesn’t think so. In a speech that must have infuriated his coalition colleagues, the business secretary told a City audience on Monday night that “the shape of the recovery so far has not been all that we might have hoped for”.
Cable is concerned that it is based on the shaky foundations of rising consumer debt and an overblown housing market – the same sort of toxic combination that led to the last boom and bust. “The US subprime mortgage crisis and its British equivalent were built on the shaky foundations of encouraging mass home purchase in inflating markets, and we know where that led. It must not happen again,” he warned.
He reminded his audience – members of the Royal Economics Society – that a third of UK mortgage debt is held by households who have borrowed more than four times their income, leaving them hugely vulnerable to rising interest rates.
The much-vaunted rebalancing of the economy has not materialised so far and Cable gave a clear warning that the government’s £30 billion austerity round planned for post-2015 cannot come “at the expense of public service and the most vulnerable in society”.
The TUC’s Frances O’Grady is firmly in the Cable camp – not only is it the wrong kind of recovery, it’s also “two years too late”, she said. “The recovery has yet to reach whole swathes of the country or feed into people’s pay packets . . . Unless the short-term boost provided by house prices and consumer debt is transformed into investment, rebalancing and higher living standards, the danger is it will prove unsustainable.”
Unite, Britain’s largest trade union, is also concerned, saying the GDP figures disguise what they call “a parallel Britain” of poverty wages, insecure employment and the explosion of food banks. It was, the union said, a two-tier recovery that is not being shared by millions of working people.
Cable’s coalition colleagues could have done without his intervention on the eve of data showing the UK’s strongest economic performance in six years. In the now-obligatory tweets that greet good news, prime minister David Cameron said yesterday GDP figures “are another sign that our long- term economic plan is working – more growth means more jobs, security and opportunities for people.”
Chancellor George Osborne, in an apparent sideswipe at Cable, tweeted: “Growth is broadly based, with manufacturing growing fastest. The job is not done & the biggest risk to recovery would be abandoning the plan.”
Manufacturing rose by 0.9 per cent in the quarter, but the services sector remained dominant, growing by 0.8 per cent. Construction contracted by 0.3 per cent.
While the latest economic data is encouraging, the UK has still to recover to pre-crisis levels. The economy remains 1.3 per cent smaller than it was in 2007 and the pace of recovery is the slowest in more than 100 years. For many, the recovery is meaningless – millions of households have seen their incomes squeezed in recent years as wage rises fail to keep pace with inflation.
Cost of living crisis
While inflation last month fell to 2 per cent, finally meeting the government’s target, it remains more than double the average wage growth of 0.9 per cent, propelling the cost of living crisis to the top of the political agenda.
The recovery has also been skewed towards London and the southeast – four out of every five jobs created in the private sector between 2010 and 2012 were in London, according to the Centre for Cities think tank. Its annual Cities Outlook report underlined concerns that the capital is increasingly sucking investment from the regions, widening the gap between London and the rest of the country.
The near-217,000 jobs created in the capital between 2010 and 2012 was almost 10 times the number added in Edinburgh, the second-fastest- growing city. The report, based on government statistics, shows that for every public sector job created in London, two were lost in other cities.
Whether they live in London or in the regions, for millions of Britons the GDP figures are irrelevant, and will remain so until consumers feel the the recovery in their pay packets.
Fiona Walsh is business editor of theguardian.com