The costs of this error go far beyond immediate hardship. George Osborne’s years of lost growth are a permanent setback to real incomes and are doing lasting damage to our economy’s productive potential.
New analysis I presented yesterday to the Resolution Foundation shows that the real disposable income of the average UK household is expected to be £1,700 lower in 2015 than forecast in 2010 – before the chancellor’s austerity measures had hit confidence, employment and earnings.
Even these figures are based on the Office of Budget Responsibility’s (OBR) March forecasts, released before we knew the economy was in a double-dip recession.
More worryingly, the longer this goes on, the more difficult it will be to turn the situation around.
Confidence in our economy is so low that businesses are holding back investment, and banks are cautious about lending. The OBR’s projections for the chancellor’s hoped-for renaissance in business investment have been repeatedly pushed back. Every delayed investment is a permanent setback to the UK’s ability to raise productivity and competitiveness.
And there is evidence that the slowdown is eroding the UK workforce’s productivity and future earnings potential. Skills investment is under pressure. And the scarring effects of joblessness translate directly into lower lifetime earnings and living standards. These effects worsen the longer someone is unemployed.
The longer businesses postpone investment and the longer people are unemployed or underemployed, the less productive and competitive our economy will be in future, and the lower our long-term rate of growth.
There must be tough decisions on tax, spending and pay. Government must be ready to take action to support jobs and incomes, and stimulate business investment. Our plan includes accelerated investment in infrastructure and tax breaks for firms that take on new workers.
We need an active government strategy to encourage investment in high-value sectors. I am working with Ed Balls and Chuka Umunna to identify the levers we could use – from a more strategic use of government procurement powers, to promoting apprenticeships and incentivising innovation, to examining how a British Investment Bank could improve the flow of finance into productivity-raising investments.
There is much more that an active government could be doing to get our economy moving again, and to secure our ability to pay our way in the world in the future. But the longer the economy is allowed to languish in its current weakened state, the harder that job will be.
Rachel Reeves is Labour MP for Leeds West and shadow chief secretary to the Treasury.