The British economy’s long bath

This was a watershed month for the UK’s slow recovery, with a number of things finally getting back to where they were before the recession. In July, GDP, the employment rate and the number of full-time jobs edged above 2008 levels. The FT did a celebratory piece this weekend with some great charts from Chris Giles.

When you look at the per capita figures, though, things don’t look quite so good. The population has risen since 2008, so, once you divide it up, 2008’s GDP doesn’t go as far.

Screen Shot 2014-07-28 at 12.55.28

The employment figures tall a similar story. The rate might be back where it was before the recession but the net increase in jobs has been almost entirely due to part-time and self employment.

Screen Shot 2014-07-28 at 13.01.40

As Michael remarked:

Put plainly, what it shows is that the recovery of the employment rate to previous levels has been driven entirely by growth in numbers of people who aren’t full-time employees. That doesn’t mean there haven’t been any new full-time employee jobs created, but it does mean that no more have been created than have been lost. The population has grown considerably since 2008, yet the economy has been able to provide additional employment only in the form of part-time employment or self-employment.

Much of this additional employment doesn’t pay very well. Real average earnings are still 10 percent lower than before the recession or, when you include all those self-employed people, probably more than 12 percent lower.

Screen Shot 2014-07-10 at 16.43.58

Apparently, George Osborne thinks he is going to get a big tax boost in January when the self-employed pay their contributions. Given what has happened to self-employment earnings in recent years, though, such a recovery would have to be miraculous. As Philip Inman says:

[A] bigger rise from self-assessment receipts in January 2015 is far from certain. Wages remain depressed and it is not clear how many skilled, well-paid jobs have been created. More importantly, the biggest boost to employment comes from the 700,000 self-employed people who have pushed employment totals to new highs. The Treasury can only guess at their impact. It doesn’t know how many are in low-paid, part-time work. It doesn’t know if they will earn enough to pay tax at all.

The Resolution Foundation’s report last week showed that, seven years after the banking crash, many people are still in considerable financial distress.

Screen Shot 2014-07-28 at 13.58.26

It warned that a rise in interest rates to 3 percent could double the number of households facing difficulty paying off their mortgages. We can’t really talk about a strong economy if a rise to what we used to think of as a low-ish base rate is all it takes to tip a couple of million people over the edge.

What the country needs now is an increase in secure, dependable, basic rate tax-paying full-time employment, of the sort that enables people to provide for their families without the need for in-work benefits. But, as the Migration Advisory Committee noted earlier this month, this is just the sort of employment that has been in decline in recent years.

Screen Shot 2014-07-28 at 14.12.36

Recovery there may be, then, but this is still a country of stagnating wages, high debt and a lot of precarious employment. That isn’t something that is going to be fixed quickly.

Where we go from here is anybody’s guess. Even the people who are paid to understand all this stuff have no idea. Full-time employment seems to be increasing and, if this were a normal recovery, we would expect pay to start rising soon. If the optimists are right and the economy continues to grow at 3 percent per year, things will start to look a lot better. Even the 2015 Dilemma won’t be quite as bad.

So far, though, this has not been a normal recovery so predicting that it will turn into one would be a bit rash. Just because some things have got back to their pre-recession levels, it doesn’t mean we are back to normal. As Frances says, it’s still a bit early to break out the bubbly.

Back in 2009, WPP boss Martin Sorrell predicted a bath-shaped recession; a sharp fall, a bump along the bottom, then a slow rise. If you look at the per capita GDP graph, he was spot on. What he probably didn’t realise at the time, though, was just how long a bath it would be.

This entry was posted in Uncategorized. Bookmark the permalink.

6 Responses to The British economy’s long bath

  1. SK says:

    The number of households not able to withstand a rate rise could be due to other things as well (see perhaps how banks provided loans or people got into the property-mania). At least these people have an appreciating capital to use if they sell.

    On the other hands tenants are paying (now) up to 40% of disposable income in rent. And their number are increasing and they have nowhere to fall if they get evicted. A large % of them have families and this % will keep increasing..

    Perhaps time to focus on this segment of the society?

  2. Mike Sivier says:

    Reblogged this on Vox Political and commented:
    Analysis of the state of the economy shows the authorities were premature to celebrate a return to pre-crisis levels of GDP. The population has risen since then, so the money now in the economy does not go as far; the employment rate might be where it was before the recession by the net increase in jobs is almost entirely due to part-time and self employment, neither of which pays as much as full-time employment (on average). Real average earnings are estimated to be more than 12 per cent lower than before the recession. So where has all the money been going?
    It seems George Osborne is reckoning on a big tax boost in January when self-employed people provide their tax returns. We must all make a note in our diaries and see how well THAT turns out!
    The final words make it clear that even people who are paid to understand these figures have no idea where to go from here – so all the government’s fine talk is twaddle.

  3. Reblogged this on amnesiaclinic and commented:
    Hmmnn… the figures the government are using are really on the rise in part-time jobs and self-employment. And how many of those are paying less than a living wage and are on zero hours contracts??
    Far too early to break open the bubbly – Frances is correct!

  4. Dipper says:

    The underlying problem is that western economies cannot support the living standards to which they aspire, and were achieved through empire. The mirage was sustained by massive borrowing, and 2008 was the point when that could not be sustained. The financial crisis was not a temporary blip, it was when reality finally arrived.

    The main parties still have an imperial mindset – the tories born to rule an empire, labour taking the proceeds of empire and distributing to a british workforce, neither having noticed that the supply of wealth from the empire has dried up. Neither party is ambitious for the working classes. There are very few institutions that invest in working class achievement, and even their education is now primarily a profit opportunity, not a commitment we make to the next generation.

    Lasting sustained growth will only happen when the cultural arguments change. When governments commit directly to invest in British working people so they can earn their way to prosperity instead of regarding the electorate as passive beneficiaries of their policies. GDP parity has only been achieved by importing workers. The government celebration shows they view economic success as something they create for the people, not something the people create themselves.

    The main signs of continued economic failure will be a lack of realism in the political debate. Sterile arguments about cutting taxes versus protecting the NHS, and two would-be chancellors waving their PPE lecture notes at each other shouting “I’m supereconomist!” “no I’m supereconomist!”

    The supporting numbers will be a deficit that never seems to fall, a balance of payments that never seem to improve, export growth that never picks up, investment figures that never increase, no growth in wages. I’m expecting to see these trends maintained for a while yet.

  5. beastrabban says:

    Reblogged this on Beastrabban’s Weblog and commented:
    Despite the return in employment levels to 2008, the graphs printed in the Financial Times celebrating Osbo’s supposed success actually show that this is still a country of stagnating wages. In real terms, wages have fallen by 12 % since this squalid crew took power. Osborne is expecting a big tax boost in January from the self-employed, but this is frequently low paid, part time work, and so no-one really knows how well this will work out. And if the interest rate rises about 3 per cent, the number of people struggling pay off their mortgages will double. And the economists really can only guess at how things will go on from here. In short, Osbo and the FT are telling porkies when they say everything will be fine and rosy. It doesn’t matter what they say, the figures and charts they use show the opposite.

  6. loopeyange says:

    Reblogged this on loopeyange and commented:
    Brilliant piece! – I’m sick to the back teeth of Tories spouting off facts and figures that only suit themselves – it’s been blatantly obvious to anyone – especially those seeking work – that the ratio of jobs out there, are by far zero contract, self employment, or part time. These charts SHOW what is really happening.

    I’m now wondering if the General Election will be brought forward? …lump the blame on the next government, when declarations are due in come January?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s