It's Official. Austerity Is Failing.

This is an old refrain, but as I once said at a Council Budget Meeting, it's the good old tunes that get the people up dancing. Last week the ONS reported that the Government had to borrow £24.2bn in the first 2 months of this financial year. As ever, you could be forgiven for missing this as it didn't get much attention. This is about £2bn more than forecast and makes it harder for the Chancellor to hit his borrowing target of £96bn for the whole of 2014/15. Whilst we can quibble about a few months' figures, the bigger picture is clear – the Coalition Deficit Reduction Plan is failing to deliver. The fact that deficit reduction has stalled is pretty clear from this chart I've pinched from one of Jonathan Portes's tweets:

When the Coalition came to power in May 2010, the deficit was around £157bn. By November 2011, some 18 months later, they had managed to get it down to around £120bn. Today, 2 and a half years later, the deficit is about £107bn. This is very far from 'eliminating the structural deficit by May 2015, otherwise we will turn into Greece', story we heard so much about at the beginning of this Parliament.

What's more, the 25% reduction in the deficit that was achieved in the early part of this administration was due to the massive cuts in public capital spending, that's things like flood defence, schools and social housing to you and me. This is something that is now generally seen as a mistake.  Again, this chart I have taken from www.economicshelp.org speaks for itself. 

The reason I keep going on about this is that, although Austerity has failed to deliver deficit reduction, it hasn't failed to deliver hardship for many of the most needy people as the rise in the use of food banks and insecure employment, amongst other things, demonstrates. What's more there is far more to come. Local government is only about halfway through its cuts programme. In Lewisham, this means we made £95m worth of cuts between 2010-14 and will have to make another £95m worth between 2014-18. This second wave of cuts will have to be made from a base budget of £268m, half of which is spent on children's and adults' social services.

I won't labour the cuts message. What I will say is that it would be one thing if the Coalition had belatedly decided to protect its capital spending and told us in local government that we needed to cut our spending instead. If we were now halfway through our cuts programme and had seen the Budget Deficit halve from £157bn to less than £80bn as a result while capital spending was protected, and there was therefore a realistic prospect of eliminating it by 2018 when the programme was complete, then we might feel regrettably that Austerity was a price worth paying. However, we are not in that place. On the contrary, our cuts appear to have been for almost nothing as far as reducing the deficit is concerned. It is, therefore, particularly soul-destroying to go through it all over again, knowing that the reward is unlikely to be worth the pain. I leave you with this well known and, I think, apt quote:

The definition of insanity is doing the same thing over and over and expecting different results.

Why Am I Poorer Than My Parents?

Over the last few weeks, some commentators have been saying that the housing market has been cooling. They make the argument that, although prices have gone up, activity is dropping off as buyers are baulking at what they are being asked to stump up. I suspect that this view is being put about by market insiders who are desperate to try and stop the Bank of England taking action to take some of the heat out of the market. Just before the onset of the Great Recession, Chuck Prince, the then Chief Executive of Citigroup, famously said:

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

I think mortgage lenders and estate agents in particular are determined to try and keep the music playing for as long as possible. If you believe in capitalism, then why complain? Markets know best after all. Self-regulation is the best form of regulation. Profit maximising companies are the best generators of social value and there will be a lot of social value created when, as the ONS announced today, house prices in the UK went up 9.9% in the year to April 2014, up from 8% in the year to March 2014. London is particularly blessed as prices rose 18.7%.

Meanwhile, back on planet earth, ordinary people wonder where this is all going to end. What do the Very Serious People mean when they talk of a slow-down? If the annual rate of increase in house prices in London falls by 50% this year, will there be no need to worry? Is a rate of growth of 9.4% more sustainable than one of 18.7%, in the way that one bullet between the eyes is less lethal than two? If the market is slowing, no one has told Foxtons. Yesterday we received another letter asking if we wanted to rent out our property as they have 'Corporate tenants urgently seeking properties'.

It's hard to get a sense of how far the world has changed, especially in London, and how far people's life chances have diminished and inequality has risen, by simply looking at house price rises. I think you get a much better idea when you look at the lives of your parents. My Mum and Dad came from Deptford. My Dad left school with no qualifications and was a white collar member of the working class. He worked for about 20 years as an assistant transport manager at Lovell's Wharf in Greenwich. The docks were in decline and pay for the office staff was always poor as, unlike the dockers and drivers, they weren't unionised. Nonetheless he was able to buy a small three-bedroom Victorian terraced house in Crofton Park with, I believe, a mortgage from Lewisham Council (times really have changed!) Just before Lovell's closed for good he managed to get a job at Lloyds Bank because at this time, the late 1960s, they were looking for 'mature men with business experience'. He worked there for just over 20 years when he was forced to take early retirement. He never rose very far, finishing his working life running the section that dealt with staff mortgages at the staff branch at a Head Office centre in London. Yet about 15 years after buying his first house, he was able to buy a 3 bedroom 1930s semi-detached house, with garage and big garden, down the road in Ladywell. When we all lived there our neighbours were a BBC technician and his family, teachers, nurses, the man who ran a small greengrocers in Ladywell village, and the postman. 

Sadly Mum and Dad both died. We sold the house just under two years ago for about £350,000. This puts this kind of basic property completely out of the reach of ordinary working people who could afford them with relative ease in the early 1980s when my parents bought their's – I think they paid around £36,000. My parents never had a great deal of money, yet they could live a life of comfort and security in their own good-sized yet modest property, a life unimaginable to many of today's much better educated, professional young people, let alone those on average earnings. Oh, and by the way, a similar house in an adjoining street has just gone on the market for £650,000.

When today's young people, today's Generation Y or Generation Rent, realise that they have no chance of living a life as good as their parents, and that an economic recovery, however robust, won't remedy the situation, I wonder what their response will be.

UK's Recent Economic Performance: Reality Check

There has been a lot of fuss in the media about the UK economy's return to rapid growth. We are told that the UK is experiencing one of the highest rates of growth of any country in the OECD. The Coalition is spinning this as evidence that Austerity has worked.

Yesterday the ONS published a chart which I think puts these claims into context:

Its own description of the UK post-2008 performance is worth quoting in full:

The subsequent economic recovery has been the slowest in post-war history and has also been one of the weakest in the G7 (Figure 1). UK real GDP increased by just 1.2% per annum between 2009 and 2013, the third lowest rate in the G7, and remains 0.6% below its pre-downturn peak while all other major economies have surpassed this milestone, with the exception of Italy. 

The UK economy has grown a measly 6% from it's recessionary low. The US, Canada, Germany and even Japan, have grown by more than 10%. The US economy is now some 7% bigger than it was at the start of the Great Recession, while we are still smaller. Surely the question to the Coalition is not, 'How have you managed to generate such stellar performance since 2013?', but 'Why has the economy performed so badly, by comparison to others, since 2010?'

So when you hear the next story about the UK's economic turnaround, have another look at the chart.