The prediction by the Centre for Economic and Business Research (CEBR) this week that the British economy could overtake -Germany’s by 2030 went down as well as a potent eggnog during the festivities. But before we have even had time to lay down a decent New Year’s hangover, a cold shower has arrived from the Institute for Public Policy Research (IPPR), which points out that, long before we reach the sunlit uplands of European supremacy, the policies of our present government risk plunging us head first back into the valley of out-of-control debt.
The Independent enjoys good news as much as anyone, but the IPPR’s grim warning is based not only on hard statistical fact but also on a canny reading of the obsessively short-term way our rulers’ minds work. Gordon Brown’s belief that the Noughties’ boom would not end in a bust looks ridiculous now, but booms do not have to go on indefinitely to have the desired electoral effect.
The economic uptick over which George Osborne was crowing in his Autumn Statement is real enough, and very welcome. Inflation has fallen to a four-year low of 2.1 per cent, providing at least temporary relief to household budgets squeezed year after year by record low wage growth.
And the prediction by the Office for Budget Responsibility (OBR) that the British economy could grow next year by as much as 2.4 per cent is greeted with open-mouthed envy and incredulity across much of the eurozone, where the risk of Japanese-style deflation and its accompanying misery continue to stalk the land.
But the bad news contained within the good is that our recovery is déjà vu all over again. As the IPPR observes in its analysis, the return to growth we are enjoying is not proof that we have rooted out the sources of our age-old problems, but that once again those problems are being conveniently masked by a new housing price bubble.
Through the years of austerity, British households have cut debt as a share of their income to about 140 per cent, but the OBR fears that it could rise to hit 180 per cent by 2018. And the engine that will pull us clear of debt is still weak: unemployment is stubbornly high, investment low, our export performance weak, and 2013 will be the 30th successive year in which the UK posts a deficit on its current account balance.
Meanwhile, George Osborne’s Help to Buy mortgage scheme has contributed to house price inflation which is now averaging 6.5 per cent across the country and has reached double digits in London.
In 2011, Mr Osborne told the Conservative Party Conference: “We have to help business create tomorrow’s jobs… We’re going to get Britain making things again.” But he has funked that challenge, resorting instead to the age-old stratagem of priming the housing market. That may, as he clearly believes, be enough to get his party through the next election, but it will end in tears.