‘No money’ could be Hunter’s own letter to next chancellor Larry Elliott

The past 14 years have been a nervous period for the British economy. Record low interest rates, industrial-scale money creation by the Bank of England, Brexit, millions of workers furloughed during the pandemic, the biggest fall in output in at least a century – all this, and Record number of chronically inactive people – chronically ill health. Not bored yet.

Finally, as Jeremy Hunt puts the final touches on next week’s budget, there’s a sense of déjà vu. When Liam Byrne left the Treasury in 2010, he left his successor as chief secretary a note (intended as a joke) that read: “I’m afraid there’s no money left.” Byrne’s comments have come back to haunt the Conservative Party after nearly a decade and a half of poor economic performance.

The chancellor is scrambling for cash to fund the much-anticipated giveaway, under pressure from Rishi Sunak to deliver tax cuts ahead of the election. The economy is officially in recession and money is tight. opinion poll The suggestion is that the Conservatives will take a big hit on polling day, with the state of the economy being the main cause of voter dissatisfaction.

Byrne’s former boss Gordon Brown, the last Labor prime minister, said voters’ dissatisfaction was not surprising. “In 2010, when we left office, I predicted a decade of austerity. In fact, we’ve had fifteen years of austerity.”

Brown said the Conservatives in 2010 were driven by the idea of ​​a small country, achieved through austerity and debt reduction. But austerity has not worked. Slow growth means deficit targets cannot be met and public finances remain chronically weak. The former prime minister said productivity growth over the past 14 years was the weakest since the Industrial Revolution. “We no longer have stops and starts, we have varying degrees of stops, crisis after crisis.

“The UK is a low-growth, low-productivity, low-investment, low-wage economy. That means higher levels of poverty, abject poverty and inequality. We are entering a doom cycle,” Brown said.

Hunt’s point is that the UK’s economy has grown faster than Spain, Italy, France, Germany or Japan since 2010, and inflation is falling rapidly after hitting a 40-year high of 11.1% in October 2022. Last year’s Autumn Statement included 110 measures aimed at boosting growth.

Economists say George Osborne is wrong to impose tough austerity measures on still fragile economy

It may take some convincing for voters to once again trust the Conservatives to manage the economy. Workers’ living standards are certain to be lower at the end of this parliament than at the start of 2019. Real average wages (wages adjusted for inflation) are no higher today than they were 16 years ago.

What’s more, 14 years later, the Conservatives can no longer blame their difficulties on Labour’s legacy. Over the past 45 years, the parties have been in power longer: 18 years for the Conservatives from 1979 to 1997; 13 years for Labor from 1997 to 2010; and 14 years since then . After this period, governments will be judged on their record, and Hunt is defending a government that is clearly worse than the one the Conservatives boasted about in 1997. Back then, economic growth was much stronger, debt was much lower, and the balance was much better. There is a surplus in payments.

Likewise, the economy appeared to be slowly recovering in 2010 after the shock of the near-collapse of the global banking system two years ago. Economists say David Cameron’s chancellor, George Osborne, made a mistake in imposing tough austerity measures on a still fragile economy.

Gerard Lyons, Boris Johnson’s economic adviser when he was London mayor and now chief economic strategist at Net Wealth, said: “The whole period after 2010 was one of the big fiscal mistakes. “Austerity was wrong and poorly implemented. The ability to borrow cheaply was a huge opportunity for us but we never took it.”

Lyon also criticized the Bank of England for keeping interest rates low for too long.The official borrowing cost is Reduced to 0.5% in March 2009 and has remained below 1% for the next 13 years. “Cheap money is an absolute disaster. It leads to asset price inflation, rising inequality, zombie companies and inflation.”

Mr Lyons said Britain’s divisions had widened over the past 14 years and were not just between north and south. “This is London versus the rest of the country, cities versus rural areas, coastal communities versus inland communities, homeowners versus renters, older versus younger people, skilled versus unskilled.”

Although politically dominated by one party, the period since May 2010 is neatly divided into three distinct periods: the austerity years at the beginning; the Brexit years in the middle; and the final pandemic years. Jagjit Chadha, director of the National Institute of Economic and Social Research think tank, said there is a thread running through it.

“The supply-side management of the economy was very poor after the financial crisis and was undermined by the way Brexit was done. That meant we were unable to deal with COVID-19 and the cost-of-living crisis in the way we might have. As global economic risks become more Just the same, the economic risks have also become greater.

“Wealth and income inequality have widened. There is a growing number of working poor who require state support. This has led to structural budget deficits and a continued squeeze on public investment, further weakening the supply side of the economy. Our political masters have yet to address these question.”

Lyon supports Brexit and firmly believes that if the opportunity is seized, it will have a positive impact on the economy. Even so, he said the three-and-a-half years between the June 2016 referendum and the December 2019 general election, when it was unclear on what terms the UK would leave the EU, created political instability that dampened investment. Within months of Brexit being finalized, the economy was feeling the impact of the pandemic.

All of this adds up to a feeling of a country lurching from one crisis to another without ever addressing the underlying structural problems that have been evident for decades.

As early as 2003, the then Governor of the Bank of England, Mervyn King, said that the British economy had experienced a good decade, a decade of no inflation and sustained expansion, and that Lady Luck was smiling on Britain.

That was no longer the case five years later, when the UK was one of the countries hardest hit by the global financial crisis and never really recovered in the 16 years since. Before 2008, the economy doubled in size every 32 years. The Office for Budget Responsibility now says that will take 40 to 45 years to achieve, and based on current trends, even that looks promising. One surprising positive is that despite all the measures taken by the economy, unemployment remains low.

Rachel Reeves, Hunt’s Labor shadow, said the party that wins the next election will inherit the most horrific legacy of an incoming government since World War II. The chancellor disagreed with that assessment. Voters may not.