The transformation of Britain’s economic fortunes since George Osborne delivered his first budget in June 2010, amid the rubble of the worst financial crisis for a century, could not be more dramatic.
Even the Chancellor, who held his nerve and carried on with his austerity programme amid the desolation caused by the meltdown of the global banking system, must at times be pinching himself.
He couldn’t in his wildest imagination have believed that, of all the advanced nations in the world, Britain would by now be leading the way in growth and job creation — and, to cap it all, on the eve of the 2015 election.
Chancellor George Osborne, who held his nerve and carried on with his austerity programme amid the desolation caused by the meltdown of the global banking system
Nor could Osborne or any of his advisers have anticipated they would be gifted the prize of a near 50 per cent drop in the price of oil since last July. True, the collapse in the oil price may mean temporary difficulties for Britain’s North Sea oil production.
But, as the independent Office for Budget Responsibility notes, the impact of the transfer of wealth from the oil-producing countries to oil-consuming countries has been profound.
It’s not just that the fall in the price of petrol at the pumps feeds directly through to the income of ordinary households, putting more spending money in their pockets.
It also acts like an enormous tax break for business, which boosts new investment in plant and machinery as well as the amount of capital available for future expansion.
Indeed, the prospect for the UK has changed so dramatically since 2010 that Osborne was able yesterday to make a claim that would once have been dismissed as utterly implausible — that within 15 years, Britain could overtake Germany to become Europe’s largest economy.
The situation could not be more different from that on the day the Chancellor delivered his first budget. Britain was then struggling to emerge from the most calamitous fall in output since World War II — a fall of 4.9 per cent in 2009, the last year of Labour rule.
On the most optimistic of assumptions, recovery was predicted to be an anaemic 1.2 per cent in 2010 — and Britain failed to achieve even that.
The prospects for free-wheeling Anglo-Saxon capitalism looked desperate — indeed, many thought it doomed as a result of the reckless behaviour of the banks.
Some forecasters, including the Bank of England, pictured, and Goldman Sachs, believe the economy could grow even faster
Britain’s eurozone neighbours watched on from the Continent, claiming the global meltdown was nothing to do with them — it was a problem for the City of London and Wall Street.
They eschewed the emergency medicine of banking reform and massive quantitative easing administered by the Bank of England and the U.S. Federal Reserve. This proved to be a fatal miscalculation in Brussels, Paris and Berlin.
As Britain laid the foundations for what has proved to be a remarkable upturn, the eurozone crisis erupted, leading to five years of falling economic growth, surging unemployment, a broken banking system and the lowest value for the euro since the single currency was created in 1999.
It is too early for triumphalism given that we still have a terrifying black hole in the public finances — a legacy of Labour’s catastrophic public-sector borrowing and national debt.
This means a new Tory government will have to deliver £25 billion-worth of public spending cuts from government departments and welfare over the next two years.
Or, to put it another way, two more years of hard grind if government finances are to be fully stabilised, a budget surplus is to be achieved and government debt, as a proportion of national output, significantly reduced.
The fact is, this onerous task will be made far easier by the buoyancy of the economy.
Following the economy’s 2.6 per cent growth in output last year, the forecast for 2015 is 2.5 per cent — an increase from 2.4 per cent predicted in December’s autumn statement.
Only now, five years after the euro-crisis erupted in Greece, is the eurozone getting to grips with the problems of the financial crisis
Some forecasters, including the Bank of England and Goldman Sachs, believe the economy could grow even faster.
This growth eases George Osborne’s budgetary problems because it generates more revenues in income tax, corporation tax and VAT receipts.
Just as important — as the Chancellor pointed out — is the financial impact of lower-than-predicted unemployment. The creation of jobs in Britain’s economy under the Tory-led coalition has been truly spectacular. Some 1.9 million jobs have been created — 143,000 in the three months to January 2015 alone.
Every new job means the Government faces a lower bill for Jobseeker’s Allowance and welfare payments, which is a net boost to the Exchequer.
Contrast this with euroland. Last year, growth across the eurozone was a miserly 0.9 per cent, and George Osborne was able to claim yesterday that British output expanded by twice that of Germany. Even more startling is the difference in unemployment rates in the UK and its Continental neighbours.
Britain’s jobless rate, at 5.7 per cent of the workforce and falling, is similar to that of the United States. In the eurozone, unemployment stood at 11.3 per cent in January of this year. Astonishingly, it is 23.4 per cent in Spain, one of the few European economies showing signs of springing back to life.
Only now, five years after the euro-crisis erupted in Greece, is the eurozone getting to grips with the problems of the financial crisis.
The UK launched a series of measures to lift us out of the doldrums, including industrial-scale quantitative easing, printing £375 billion or almost a quarter of national output. Interest rates were cut to the bone at 0.5 per cent and the banking system was rescued.
Osborne gave an extra boost to all this through schemes to bolster the housing market such as Help-to-Buy
A functioning banking system is critical if consumers and businesses are to get the credit they need to survive, then to expand.
Osborne gave an extra boost to all this through schemes to bolster the housing market such as Help-to-Buy. This has now been enhanced with yesterday’s Help-to-Buy ISA that rewards thrift for young people seeking to climb the housing ladder.
It is only in the last month that the European Central Bank in Frankfurt finally decided it should follow the lead from Britain and the U.S. by printing money in order to pull the region out of its slump.
Meanwhile, much of Europe’s banking system is still in disarray and unable to provide the credit the business community needs. On top of this the eurozone, unlike Britain, is lumbered with inflexible labour markets that make it unattractive to hire new workers.
Encouragingly, there are the first signs that, despite the mess in the eurozone, which is our largest export market, Britain’s so-far disappointing trade performance is starting to pick up.
In the first month of this year, the deficit on goods and services shrunk from £2.14 billion in December to just £616 million, with export volumes climbing by nearly 6 per cent.
There is still an enormous distance for the British economy to travel before the ‘feel-good’ factor reaches all sections of society and all regions of the country. Yet by any measure, the life-saving treatment the Chancellor has administered to the nation’s finances since 2010, when he first picked up the wreckage left by Labour, is working better than anyone dared hope.