Is the economy really that bad?

Recent economic data has fueled debate over whether Labour’s economic legacy is as bad as the party claims. Tony Yates examines the state of the UK economy, arguing that the truth may lie somewhere between the two parties’ positions.

After the general election, the newly appointed chancellor, Rachel Reeves, gave Labor a ’It has become the worst situation since World War II’. Opposition members have suggested that Labour’s pre- and post-election narrative on the state of the UK economy does not match recent encouraging data. ew Conservative MP Nick Timothy, in a post, said, ’Labor lies to youIn response to newly released numbers on growth.

Latest data from Office for National Statistics The economy is estimated to grow by 0.6% in the second quarter of 2024, following growth of 0.7% in the first quarter. Annual CPI inflation has fallen sharply since former prime minister Rishi Sunak introduced his five pledges – one of which was a promise to halve inflation – and 2.2% in JulyDown from a peak of 11.1%. Sunak said the pre-election figures are encouraging signs.The plan is working’.

Who is right? Is the economy in bad shape or not? The truth probably lies somewhere between the two parties’ objections.

To begin with, the claim that Labor has had the worst conditions since WW2 is not credible. GDP per capita has increased [Morethanafactorof4since1945[1945முதல்4காரணியைவிடஅதிகம். Life expectancy at birth is about 15 years higher than it was in 1945. By the end of WW2, government debt was a ratio of GDP. 270%. Now that ratio is approx 89%.

Labor’s claim that they are taking over after a period of economic mismanagement is well founded in analyzing what happened from 2010-2024. Although growth appears to have returned in the last two quarters, GDP per capita has barely increased 5.6% since 2007Just before the financial crisis, 17 years was the longest period of virtual stagnation. During that period, life expectancy increased inexorably, Plateau. A number of NHS metrics worsened, including – which Labor promoted in its general election campaign – numbers on NHS waiting lists. These are up from around 2.5m when the Tories took over in 2010 Over 7.6 meters by the end of 2023.

The perception of economic mismanagement was sharpened by the brief premiership of Liz Truss, who resigned after 49 days amid financial market panic, as her October 2022 'mini-budget’ included tax cuts for high earners. With promises of government borrowing and regulatory and planning reform. While government debt to GDP looks much healthier now than it did after WW2, it still stands at around 70% of what the Tories inherited in 2010.

The implication in Labour’s campaign use of these facts is that they were all the previous government’s fault. But there is debate about how much was due to policy choices and how much was due to bad luck on the part of the incumbent.

The stagnation may be at least partly due to the legacy of the financial crisis, Brexit and the severity of the UK economy being hit by the pandemic. Although the Tories subscribed to a regulatory system, the financial crisis came under Labour’s watch. Brexit was embraced by Labour, who, while saying 'Brexit needs to work’, rejected any changes that would significantly reduce its economic impact. For this reason, they are reluctant to insist that Brexit is the cause of our woes, despite the fact that there is considerable consensus (if not unanimity) against its management. Affected England trade.

The epidemic was not caused by the Conservative administration, but rather recent UK Covid-19 investigation It pointed to a lack of strength/spare capacity in our health system as a contributor to the UK’s adverse experience. For example, one consequence of restricting funding for spare capacity, particularly in intensive care, is that the NHS has had to lock down the economy for long periods of time to control the flow of acute cases. (This would have greatly increased covid mortality).

Other countries (Italy, for example, or Japan) have had long periods of stagnation for reasons that economists can only guess at, but cannot say with much confidence. GDP per capita varies greatly across countries. Some of these are communities that continue to make bad choices and lack support for policy improvements that are known to work. But, at the same time, why this spread came about and what to do about it is a live and unresolved debate.

Similarly, UK stagnation will not be so easily ended by a new Labor government. Pinning the blame squarely on the Conservatives is controversial, and if we can’t find out what was done to bring it about, we can’t confidently predict what policy changes will change it. It is difficult to improve long-term growth and income per head, otherwise these improvements would have been made. So even if England’s long-term performance has been poor, it is not the fault of the previous administration.

Who is right, there is futility in debate. The Conservative Party is facing an inward turn at the moment, consumed by a leadership contest centered on membership. However, voters overwhelmingly seem to have bought Labour’s version of events – so the Conservatives lost. As time goes on, the memory of 2010-2024 will fade and the debate over which way the next election will return will no longer be about Labour’s historical legacy, but what it has done since it took power.

By Tony YatesIndependent economist.