December 10, 2013
UK recovery fails to convince
Report from UK for the Herald
Since the failure of high street banks in 2007 and from the bursting of the housing bubble in 2008 to the occurrence of a recognized financial crash, the United Kingdom has been suffering from a recession. This recession has had a serious impact on businesses large and small, on employment and on all finances, both public and private.
Hundreds of thousands of graduates emerge each year into a market in which employment opportunities are shrinking but in which they must find work to support those who have retired or are unemployed. This much, sad as it seems, can be agreed on by everybody who lives in the UK.
The financial crash and the recession have also had a dramatic impact on politics and how politics is practiced in Great Britain. The recession finished off one prime minister and intensely influenced both the 2010 election and its eventual winner, David Cameron.
Politicians, economists and the media have worked hard in their distinct but overlapping arenas in order to find the answer, even as the population has been warned that there will be no quick fix.
The pressure to find solutions has dominated the national debate, and persists in doing so. In fact, normally as soon as one group puts forward a solution, its merits and drawbacks are rapidly dissected in public, torn at by snarling packs of opinion-makers, a scrap of meat, fed to increasingly hungry wolves.
In this environment, the electorate and the taxpayers of the UK seek honest, open ideas that can take the country forward. Unfortunately, the same environment and its pressures do not encourage well thought -out proposals, and often lead to a tendency for the mishandling, misunderstanding and misrepresentation of reality.
The last week has seen examples of all three, the undermining of ideas put forward in good faith as reliable solutions to particular issues, only for reality to seep in. The first incident was the crumbling and untoward blame game that took place on September 5 with an audit report on the coalition government’s Universal Credit programme.
Universal Credit was first announced in 2010 by the Department for Work and Pensions (DWP), led by former Tory leader Ian Duncan Smith, and was designed to encourage the unemployed to seek work more actively by redefining the system for welfare benefit recipients.
Launched as a direct attempt to tackle the benefits system, which the Conservatives blame for sapping huge amounts of funds and which Labour supports in principle, the trials for the programme were to be held in four towns ahead of a planned nationwide launch in October.
Three years later, with the launch imminent, only one of the trials (in Ashton-under-Lyne) went ahead on schedule, for a limited amount of people, with the remaining three launched in the summer. The October 2013 date was scrapped, with a Spring 2014 date pencilled in.
According to the National Audit Office (NAO) report, the delays were due to under-developed IT systems that could not support the amount of claims that were expected to be made of it. Over 70 per cent of the £425 million already spent on the programme has gone into IT.
Furthermore, media scrutiny of the programme has alleged that the new system, instead of reducing the amount of people claiming benefits by increasing employment, would actually have the effect of making work conditions harder for the self-employed and those already struggling.
The programme had always been set ambitious targets, but an internal DWP memo leaked by The Guardian on August 2 revealed that department members working on the Universal Credit implementation were “incredulous” as to how it was being organized and run.
In its report, the NAO stated that the DWP’s plans “were driven by an ambitious timescale, and this led to the adoption of a systems development approach new to the Department. The relatively high-risk trajectory was not, however, matched by an appropriate management approach. Instead, the programme suffered from weak management, ineffective control and poor governance.”
Duncan Smith responded to the report in a grilling in Parliament on September 5 in which he defended the programme and placed the blame squarely on civil servants, whom he had “lost faith in” and replaced with outside assistance earlier in 2013.
Facing Labour attacks regarding the programme, described by his opposition counterpart Liam Byrne as a “Titanic-sized disaster” with an estimated cost of £2.4 billion, Duncan Smith blamed the blind optimism of those employed by the DWP to implement the programme, although mutterings have suggested that the minister’s attachment to his flagship plan also contributed.
While Duncan Smith clings to the idea that Universal Credit will be implemented in 2017, for many the disintegration of the programme is indicative that those in charge are not entirely realistic about what they are up to.
Another who has been shown to be out of his depth in the last week is the “superstar” Bank of England Governor Mark Carney. In Carney’s first public statement since jetting in to take over the Central Bank, the governor presented his strategy of forward guidance, stating that interest rates, at a historically low 0.5 per cent, would not rise until unemployment levels dropped to seven per cent or below. In justifying maintaining this rate, the Bank of England stated that it did not expect employment, currently at 7.8 per cent, to drop to this level until 2016.
However, reports on September 5 revealed stronger growth than expected, with many economists expressing their belief that, at the current pace of recovery, this target would be reached by the first quarter of 2015, with some suggesting that the fourth quarter of 2014 could also be possible.
Although the growth news is positive for the UK, it is worrying that Carney, the highly-paid governor imported from Canada, was unable to predict the same rise that everybody else can allegedly see and as a result may be forced to review his figures. The UK desperately needs someone in the job with a clear understanding of the problems and the solutions; this is not a good start.
Carney’s purported inaccuracy in terms of financial predictions stands in contrast with the Chancellor of the Exchequer George Osborne who made a speech on September 10 in which he declared “victory” after two quarters of growth (with 0.7 per cent growth in the second quarter and a potential one per cent growth in the third). Speaking at a construction site, the chancellor said, “those in favour of plan B have lost the argument,” adding that there were “tentative signs of a balanced, broad-based and sustainable recovery.”
Osborne was cautiously congratulated by some sectors of the media, but the problem with claiming victory is that it is a political, short-term, impact strategy. It is also a strategy that depends on interpretation, and on sustainability.
The coalition government’s deficit reduction policies may have worked thus far, but there is no guarantee that they will continue to do so especially if interest rates increase sooner rather than later when the Bank of England checks its figures.
The essential issue here is that the United Kingdom is still in recovery, and while this is the case, the country needs leaders to implement policies that assuage the difficulties that affect the general population.
With large-scale, expensive welfare blunders, a potential misunderstanding of the economy by the man responsible for the Central Bank and a generous reading of his own success by the politician in charge of the nation’s finances, trust is not being transmitted.
The media’s role in the message and how it is disseminated cannot be ignored, but it would be helpful if somebody at the top could show that they know what they’re doing.