Are we really out of the mess we got ourselves into six years ago? Can it be true that we are the fastest growing economy in the developed world? It would seem so, according to the statistics. But how are we achieving this? It is certainly not coming from the manufacturing sector, an area which Mrs Thatcher as well as her successors neglected in favour of the keep-your-hands-clean service economy. It’s coming from two quarters. First is an increase in investment from business.
At the height of the recession, when there was no money for anything, medium and large businesses were sitting on £75 billion of liquidity – twice the defence budget – which in the right climate they were ready to release. That climate, which is principally one of confidence, has finally come. The second factor which was depressing the whole of the economy was a moribund housing market. When houses start moving again it has a tremendous knock-on effect right across the board. Tired old carpets are thrown out; new kitchens and bathrooms installed; more stylish furniture acquired; dodgy roofs repaired; gardens landscaped and solar panels ordered; double glazing resumed; painting and decorating starts; the DIY stores hum; the list goes on and on.
But important as houses are, we mustn’t obsess about them. There are other things – like the ones which would earn us shed loads of foreign exchange, i.e. manufactured items. We were once so good at manufacturing and can be again. But if there is one area where there is huge room for improvement it is productivity: it is our Achilles’ heel. Why we are so sluggish here beats me. If we can get this up this summer of rejoicing – weather-wise and economy-wise – may open the sluice gates and propel us into a new era of prosperity.
That high risk policy of quantitative easing – essentially printing money – appears to have worked for us, but it didn’t work for the Japanese. They left it too late to begin and as a result entered what has been called the ‘lost decade’ of the nineties. In fact it has been more like two lost decades. They’ve never recovered their old elan. Our own emergency package to survive the financial crisis was more deftly handled, first by Mervyn King (though he was somewhat late dropping interests rates) and then by Mark Carney, both governors of the Bank of England. Perhaps our success has been part due to the City of London’s historic financial expertise
But alongside this, and despite their other cataclysmic failings, we must give credit to Gordon Brown and his chancellor, Alastair Darling. Once they realised the enormity of the crisis – on the Monday following that dire weekend when it struck and the ATMs would have dried up – they moved quickly and decisively to recapitalise the banks. As Wellington said after Waterloo: ‘It was the closest run thing you ever saw in your life’.
Brown’s successor in Downing Street was on a steep learning curve after his chancellor’s earlier silly mantra of ‘sharing the proceeds of growth’, and when he eventually wised up the results were there for all to see. But interest rates cannot stay as they are – it is so unjust to the prudent saver who for years has been bailing out the feckless spender. They must rise, and soon. When it comes it must be small and incremental, like a quarter of a per cent every couple of months; a policy of slowly, slowly catchy monkey, so to speak. This will help cool the overheating housing market.
We don’t have to worry too much about irresponsible lending as in the past, leading to wholesale repossessions, because the criteria today to get a loan and the deposit required has been massively tightened. Some complain that the hoops you have to jump through are as many as to adopt a child.
But two things, above all, are needed to sustain the recovery: first, a massive house-building programme to meet the demand that years of unrestricted immigration have imposed. This, too, will cool house price inflation and re-balancing our economy by boosting manufacturing; and second, markets should then be found for those goods beyond the still Doldrums-plagued Euro area. The obvious target ought to be that vast zone of good will to us, the former empire. With our shared history, common institutions and legals systems and, of course, language, it is calculated that we have a 21% financial advantage over our competitors.
New Year after New Year for half a decade now we have entered it with a sense of deep foreboding. There has been no joy anywhere. We clung together in families during the Christmas festivities hoping against hope that our jobs would still be there in a year’s time. But this year we seem to have had a festive period in which much gloom has been banished.
Just six short months ago, the pointers were still showing southwards. Now, they tell us we are on an upward trajectory unmatched almost anywhere in the Western world.
The French, who five years ago were pouring scorn on our economic model, extolling their own socialist variant, are now having to eat their words. Theirs is the model that isn’t working. Indeed, they are increasingly being described as ‘the sick man of Europe’ – and that’s saying something when you consider all those other sick bailout EU states. The Economist recently branded them the ‘ticking time bomb’ of Europe.
Whatever you say about the Cameron government, with all its cock-ups and string of bad calls in terms of the prime minister’s personal lack of judgment which continue apace, it bit that most necessary of bullets in setting about rebalancing the books and shrinking the ballooning government payroll. The world looked on and approved. Credit rating agencies backed off downgrading our prospects while they continued to downgrade those of our neighbours à la France.
Sooner or later, our fast-expanding economy will start feeding through into pay packets and people will start feeling better off. Inflation is low and likely to stay close to target, so even modest pay rises above it should be felt. My own great fear, however, is of what will happen when interest rates start to rise, as surely they must. They have never been so low or for so long. Will we see huge numbers unable to keep up payments on those previously cheap mortgages and masses of repossessions? Hopefully those inevitable pay rises and the continuing downward costs of filling up at the pump will help to bridge the gap. The more enterprising, growth-orientated new governor of the Bank of England, Mark Carney, will also play a useful part helping us to find a way through.
The main thing is that we have growth again. Without it you are sunk. Government receipts are rising, government outgoings are falling and a virtuous circle is now being created.
The growth is mainly in the service sector in which we as a country have always excelled. Not for nothing did Napoleon describe us as a ‘nation of shopkeepers’. But services does not only cover retail; it covers insurance, banking, shipping and a host of others which we used to call ‘invisible earnings’. And what would be the cherry on the top is if we could boost our engineering capabilities. It was once what we did better than anyone else at, and we have not lost our skills: look at how well auto manufacturing is doing. We have jettisoned – painfully, I know – old and clapped out industries, preferring to let them go to low cost, low skilled economies while we concentrated on the clever stuff like aerospace, architecture, biomedicine, computer science and pushing pioneering research into all of the above via our world renowned academic institutes. So alone in Europe we have every reason to be optimistic. Trade outside the Eurozone is expanding, and if we can better rebalance our economy by engineering our way back to excellence, so much the better.
Fracking will help since there will be a lot of jobs there, but we, with our stricter environmental laws, will avoid the undue damage to the countryside that Uncle Sam has suffered. We will, however, share with him a dramatic fall in energy prices as well as enjoy security of supply and see less of our precious earnings going to undeserving, corrupt states in the gulf region.
And close to that region is poor benighted Syria and its suffering people. While we worry about ourselves, shouldn’t we move heaven and earth to relieve their terrible distress?
The Chinese have a very good saying: ‘may you live in interesting times’. Well, the period ahead is certainly going to be interesting. Are hoards of Bulgarians and Romanians going to pour over our frontiers this year and ‘do a Poland’ on us, blowing a massive hold in Cameron’s pledge to reduce incomers to the tens of thousands? Funnily enough, I’m sure our people would actually welcome making an exception for a quota of genuinely wretched Syrians, as UKIP’s leader, Nigel Farage, is betting. And how Europe’s credentials would soar among Muslims if all 28 EU members agreed their own quotas! We should press the issue.
Is UKIP going to sweep the board in the May Euro elections? Are the Scots going to take the high road back to Scotland in September? Are the Lib Dems and Tories going to turn on each other in their efforts to get back to normal politics before the election and render government business impossible? Is Red Ed going to find himself in Downing Street with one of the chief architects of our misfortunes as his chancellor, because so many Tories have deserted to UKIP? Is dreadful Clegg going to remain as deputy prime minister, having thrown in his fair-weather lot with Labour? All of these conundrums and more will be revealed in the next few months, and not too long after that the question of whether we stay in Europe, should the Tories win a majority. I suspect the bookies will be tearing their hair out giving odds on any of these vexatious questions.
On a different and more tragic key, how many of the celebrities now arraigned and set for trial will go down to long prison terms? For those who do, what a sad end to otherwise illustrious careers. What will be the fate in this forthcoming year of public figures such as Ken Barlow, Max Clifford, Freddy Starr, Rolf Harris, Dave Lee Travis, Gary Glitter, Jimmy Tarbuck, Paul Gambaccini, Stuart Hall (again)? What a can of worms the monstrous Jimmy Savile opened up. Truth to tell, there can’t be a surviving pop idol – and think how many and distinguished they are – who didn’t succumb to the allures of those legions of groupies who threw themselves at them over the years. And did they ask to see a birth certificate in each case?
Having failed to do his duty half a century ago, plod seeks to exonerate himself by doing it now. But what about those NHS managers who failed to protect the innocents in those hospitals such as the one who gave Savile the keys to Broadmoor? And what about all those BBC bigwigs who we know turned a blind eye? Are they all to be let off the hook?
But back to our own prospects, there remains one very black cloud which can still rain on all our parades: we have not seen the end of the Eurozone crisis. Yet a great positive should give us cause for hope; the one country which has the capability of resolving it is now in a position to do so. Angela Merkel is now safely back in office having won the September election. She is now free to take whatever decisive action is called for to stabilise and reform the European juggernaut.
So in these ‘interesting times’, let’s hold our nerve and hope 2014 comes up rosy. I certainly hope my readers take heart, hold onto their hats and enjoy the ride. I know I will. Happy New Year.