David Prosser: If public spending is behind the recovery, what happens when we cut it?
Consumer spending fell back – and that wasn't because people were saving more for a rainy day, which might have reassured us, as the savings ratio fell too
Tuesday 13 July 2010
The headline number for the performance of the UK economy during the first quarter of the year may have been left unchanged by the Office for National Statistics (ONS) yesterday, but the data on which it is based was revised – and not in a good way.
Growth of 0.3 per cent during the first three months of 2010 was hardly an achievement to celebrate, even before this latest update, but the ONS's figures suggest even more of that pick-up than previously thought was accounted for by Government spending. It rose three times faster in the first three months of the year – at 1.5 per cent, rather than 0.5 per cent – than the ONS had initially estimated.
On the other hand, the ONS now thinks that household consumption – consumer spending – actually fell back slightly during the period. And that wasn't because people were saving more for a rainy day, which might have reassured us – the savings ratio was down too.
Just to add to the gloom, the ONS has also had to revise downwards its estimate of the UK's exports – these fell by 1.7 per cent during the first quarter, the worst figure for a year.
Put all that together and this is the picture: Britain's economy has come out of recession only because of a boost to public spending. The private sector has not benefited from a return to growth in consumer spending and nor is it picking up much help from the weak value of sterling, which might ordinarily have been expected to help exporters.
These are backward-looking figures, of course, but there is not much reason for optimism about the way the picture may have changed since the end of March – or how it might develop further during the months ahead.
On exports, for example, our most important market, the European Union, is not performing any better than us and the eurozone's financial crisis may have damaged confidence and demand further. Not much hope there, then. As for consumer spending, higher taxes, depressed wage settlements and elevated unemployment hardly augur well. And let's not even talk about government spending, previously the only source of growth in the economy, which is now set for unprecedented cuts.
Back in April, when the first quarter growth figures were unveiled, 0.3 per cent seemed pretty lacklustre. It may not be long before we're looking back on such highs with great fondness.
BT to reverse its pension charges?
Who is responsible for BT's £9bn pension scheme funding deficit? While the answer is at first sight obvious – the company itself, of course, both morally and legally – there is a complication, a tricky little issue that a week-long High Court hearing began examining yesterday.
Back in 1984, when the Conservative government of the day proposed privatising BT, one concern was what the sale might mean for the company's pension scheme members. In the private sector, what would happen to these savers in the unlikely event of their employer going bust? To assuage such concerns, Mrs Thatcher's administration pledged to stand behind BT workers' pensions should it ever prove necessary to do so.
More than a quarter of a century on, what's not clear is what that promise actually meant. Did it cover only pension entitlements built up prior to privatisation? What about the pensions of staff who have joined BT since it was sold off? Should the pension enhancements that the company has offered at various times, often to sweeten redundancy deals, fall within the crown guarantee?
The best-case scenario for BT is that the High Court rules the 1984 promise was all-encompassing. The company reckons that would imply the Government was effectively standing behind around 75 per cent of its liabilities.
The principle is not purely hypothetical. While the issue of the crown guarantee only becomes practical in the event that BT goes bust, the company is in the process of trying to persuade the Pension Regulator to clear its plans for closing its whacking deficit. Since it wants to do so over a 17-year period, much longer than the watchdog generally feels comfortable with, there is some doubt that BT will get the sign-off it needs.
If, however, the High Court rules that the Government is ultimately responsible for three-quarters of BT's pension promises, the Regulator might then be persuaded to take a more relaxed view about the company's plans. If the case goes against it, on the other hand, BT might find the Regulator's resolve suddenly hardens.
Nuclear energy will be finite too
One of the fascinating nuggets in the latest Chatham House report into energy security, published this week, concerns nuclear power, rather than fossil fuels, where we already know there is good reason to be worried about the forthcoming energy gap. It says that at current rates of production, we will run out of the uranium needed for the process of generating atomic energy within 80 years.
In fact, the timescales may be much shorter. While the amount of electricity generated from nuclear plants – around 14 per cent globally – has been broadly constant for 20 years or so, that's likely to change sooner rather than later. Many countries around the world, including the UK, plan to step up nuclear power production as they contemplate dwindling fossil fuel resources and ever tougher climate change regulation.
Let's not be alarmist. Nuclear technology is evolving, there will be new uranium finds and other elements are possible fuels for these power plants in any case.
Still, the Chatham House warning is a useful reminder that while nuclear power may help us solve some of the energy policy challenges facing us over the next century, it is not a panacea. More renewables, please.
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