Ignore George Osborne’s hollow boasting – thankfully, better things are happening at the Bank of England

How will retired folk behave with more control over their finances?

Share

The Chancellor opened his Budget speech in the House of Commons last Wednesday as follows: “I can report today that the economy is continuing to recover – and recovering faster than forecast. We set out our plan. And together with the British people, we held our nerve. We’re putting Britain right.”

The question for us to consider here is whether that is true. Let’s not forget that Mr Osborne lost the much-hallowed, but still not restored AAA credit rating that he told everyone in 2010 was a central plank of his plan. So to cut through all the hyperbole and taunting, I want to put this all in context.

I present a little evidence on GDP per capita in the first chart. This is up from £5,971 in Q2 2010, when the Coalition took office, to £5,997 per quarter in Q3 2013, which is the latest data we have. So GDP per person living in the UK rose by 0.4 per cent in total over these 14 quarters, or by an average of 0.028 per cent a quarter. This compares with an average growth of 0.71 per cent a quarter over the 41 quarters from Q1 1998-Q1 2008 under Labour. So growth under Labour was 25 times higher than under Mr Osborne. Real GDP per capita remains 6.4 per cent below its level in Q1 2008, which inevitably will not be restored before the May 2015 election.

So much for all the claims of victory; the war has been lost.

Even though there has been a modicum of growth in output over the last few quarters there has been no feel-good factor. The reason is that output is being spread over a bigger population. The second chart shows the rapid growth in the population since 2004, when 10 mainly eastern and central European countries joined the European Union. Population growth in the UK since 2005 (0.59 per cent a year) is now back to the levels it was when the baby boomers were having kids in the Sixties (0.66 per cent a year) and approximately double the rate in the 1990s (0.29 per cent).

In 2012 we had the Omnishambles Budget. This time around we had the Bingo and Beer Budget (BBB), named for the disastrous tweet by the Tory party chairman, Grant Shapps, “to help hardworking people do more of the things they enjoy”. This went viral on Twitter and was a public relations disaster.

A big part of the BBB was the freeing up of pensions that Mr Osborne claimed would assist with savings. However the OBR is forecasting the opposite, that the savings rate will plummet from 7.2 per cent in 2012 to 4.2 per cent in 2015 and to 3.2 by 2018.

The concern is that there was no consultation on these changes and the behavioural consequences are unclear, which means their impact on the public finances remains uncertain. How will retired folk behave with more control over their finances? Mr Osborne has provided us with no analysis or studies on likely responses.

Paul Johnson of the Institute for Fiscal Studies was critical of the fact that Mr Osborne was “implementing a set of definite and permanent tax cuts that look to have been matched by more unspecified spending cuts, some changes in the timing of tax receipts, and our old friend tax avoidance measures”. He went on to claim that “the liberalisation of pension rules is expected to lead to more tax revenue over the next few years. But that depends on highly uncertain behavioural assumptions about when people take the money”.

He concluded that it was “a Budget which leaves us with as little sense as we had before of quite how the very large public spending cuts still in the pipeline will actually be delivered … Without wanting to be seen as patronising, it is important to point out that increased choice could lead to more mistakes. People at 60 or 65 are known to underestimate their own life expectancy, and especially the likelihood of living to extreme old age. They may overspend early in retirement.”

Conclusion on the BBB? Same old same old: we are doing great, all is well, it was Labour’s fault and we’ve got to keep on doing the same stuff, vote Tory. But it isn’t fine, as the economy has flatlined over nearly four years. So not impressed, although I did like the reduction in the employer national insurance contributions for youngsters under 21.

Then there was all that stuff at the Bank of England where Mark Carney has wielded the big broom. In this column on 13 June 2013, just after Mark Carney was appointed, I argued that “the expectations are high, but it is going to be hard for Mr Carney … to deliver very quickly as the Old Lady of Threadneedle Street moves even slower than a massive, Capesize cargo vessel” and will “have to sweep clean at the top”.

Nine months later and bingo. A new, highly qualified deputy governor, Nemat “Minouche” Shafik, looks a truly fantastic addition. She has an incredibly impressive CV with a Masters degree in economics from LSE and a PhD from Oxford, with periods as an academic at Wharton and Georgetown. She was deputy managing director at the  International Monetary Fund, and before that spent three years as Permanent Secretary at the Department for International Development, as well as a spell at the World Bank. I bet it didn’t take the interview committee long to work out she should get the job; the best candidate and a woman besides. Nice one.

In addition I thoroughly welcome the appointment of the smart and original-thinking Andy Haldane in the job of chief economist, with enhanced powers across the Bank. By the summer there will not be a single member of the 2008 Monetary Policy Committee who wouldn’t listen to me and missed the Big One, the once in a hundred years Great Recession. Sitting in America it wasn’t hard at all to see it coming across the Atlantic. Thankfully they are all gone. Better to be lucky than good, but Mr Carney seems to be both lucky and good.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Business Analyst - Surrey - Permanent - Up to £50k DOE

£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***ASP.NET Developer - Cheshire - £35k - Permanent***

£30000 - £35000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***Solutions Architect*** - Brighton - £40k - Permanent

£35000 - £40000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Senior Research Fellow in Gender, Food and Resilient Communities

£47,334 - £59,058 per annum: Coventry University: The Centre for Agroecology, ...

Day In a Page

Read Next
 

Taking on Ukip requires a delicate balancing act for both main parties

Andrew Grice
Today is a bigger Shabbes than usual in the Jewish world because it has been chosen to launch the Shabbos Project  

Shabbes exerts a pull on all Jews, and today is bigger than ever

Howard Jacobson
Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker