The state of the economy has consistently ranked among the top two or three issues for the British electorate during the general election. In a populus poll, 69% of voters said that the economy was ‘very important’, with 92% saying either it was ‘very or fairly’ important. There are several issues that are the main focuses and concerns of the Chancellor and the government as a whole (as well as the shadow chancellor and the opposition).
GDP and GDP Growth
GDP, or Gross Domestic Product, is the total value of all goods and services produced within a country. Often, GDP (and GDP Growth) is used as an (fairly crude) indicator for the strength of an economy as a whole. It is perhaps the most important indicator for the government, and often the thing by which the economy is assessed by the mainstream media and the British public.
Conservative view on GDP & Growth
The Conservatives would argue that Britain’s growth has been an economic success story. Britain has the highest growth in the G7, and the growth figures were revised over the course of the coalition’s time in government to show that the UK did not enter either a double-dip or triple-dip recession. A recession is defined as a fall in GDP for two consecutive financial quarters.
Opposition view on GDP & Growth
The opposition, mainly Labour but also the SNP, Plaid Cymru, the Greens, and perhaps UKIP, would argue that GDP and growth is not as positive as the government would make out. Perhaps the biggest criticism would be that growth is fairly unbalanced: London has grown disproportionately compared to the rest of the country, as has the South compared to the North. Another possible criticism is that the growth has often come in the form of a housing bubble. What this means is that because housing prices increased so much under the coalition, a lot of the growth is based on that rather than more ‘real’ economic activity, e.g. people buying consumer goods.
Another thing worth mentioning is that between 2010 and 2012, we saw very little growth at all, perhaps as a result of the cuts that the coalition government made to public services in that time. Opponents of austerity will argue that this was the root cause for the poor growth, which was partially remedied when Osborne took to a less painful economic plan in 2012.
Debt and Deficit
One of the original promises of the Coalition government was to eliminate the deficit in the parliament between 2010 and 2015. This is not to be confused with the debt. The deficit is the difference between national income and national expenditure over the course of the year whereas the debt is the total amount owed by the Treasury. So, if the country runs a deficit, the debt goes up over the course of the year, but if the country runs no deficit (i.e. a balanced budget or a surplus), the debt will go down over the course of the year.
Conservative view on the debt and the deficit
The Conservatives argue that they have halved the deficit over the course of their first parliament is government. By making a series of cuts to public spending, known as austerity, the Coalition government successfully managed to get the deficit down while keeping the NHS and foreign aid ring-fenced.
Opposition view on the debt and the deficit
The opposition will argue that the Coalition government originally planned to eliminate the deficit by 2015, and they have only halved it (there are controversies with the claim that they even halved it!). The Conservatives have failed to meet the target they set for themselves. To add, the Conservatives borrowed more in five years than Labour did the whole time they were in power.
Unemployment is the total number of people who are currently not in work. With their welfare reforms, one of the Coalition government’s top aims was to get more people into work.
Conservative view on unemployment.
Unemployment has been one of the economic indicators that the Conservatives have been pointing to the most as proof of their successful time in government. To their credit, unemployment fell significantly under the coalition government, from about 8.5% in 2011 to about 6% in 2014. This marks the highest level of employment since ONS records began.
Opposition view on unemployment
Far too many of the jobs being created are either low-paid jobs or are a type of employment called ‘underemployment’: people working fewer hours than they would ideally like. About 700,000 people in the UK are on zero-hour contracts as their main contract, in other words, contracts where they are not guaranteed any hours even if they would like them.
Inflation is the measure of how much the price of goods in the economy are increasing. The CPI (Consumer Price Index) is the main way by which we can check inflation. Inflation currently sits at -0.1%, which is not technically inflation at all, but deflation, which means that prices are decreasing.
Conservative view on inflation
The Conservatives view very low inflation as a good thing. Historically, the problem has always been that inflation is too high, inflation being too low has very rarely been a problem. The Conservatives argue that with inflation so low, people can afford more of the things they need, and having low inflation is a big step towards preventing/stopping a ‘cost of living crisis’. The deflation we are currently seeing, say the Conservatives, is not worrying because it is prompted by a fall in oil prices rather than any structural problem in UK spending habits.
Opposition view on inflation
Some might argue that our inflation is worryingly low at the moment. Indeed, Mark Carney, the governor of the bank of England was forced to write a letter to the Chancellor explaining why inflation was so far below the target of 2%. What we certainly don’t want is a situation like Europe, where we enter real deflation. The main reason deflation is a bad thing is that it often leads to consumers delaying purchases on the basis that prices are likely to fall in future, which leads to less spending and less growth. It also can lead to a vicious cycle, where consumers don’t spend their money, which causes prices to fall, which causes consumers to hold on to their money for longer because they predict prices to fall further, which in turn does cause them to fall further, etc.
Another point is that the three rounds of Quantitative Easing (essentially printing money) administered by George Osborne did not result in an increase in inflation, so the question remains: if we do fall into deflation, and we know that QE will not help bring inflation up, what can we do as a counter-measure to falling prices?
The state of the British economy is not a simple one to analyse. There are arguments for and against austerity, and statistics that both support and refute the idea that the Coalition did a good job on fixing Britain’s economy. If you want to read further and get a better understanding of the problems that Britain’s economy faces, I would strongly recommend reading Paul Krugman’s long Guardian piece The Austerity Delusion, Simon Wren-Lewis’ economic blog mainlymacro, and Martin Wolf’s columns in the Financial Times.