Everyone knows that one month’s GDP figure is of limited significance. The chancellor’s critics should not make too much of the publication of an estimate for May that is 0.1 per cent lower than the previous month. There is an element of random walk in the monthly statistics, which in any case are subject to revision.
But Rachel Reeves’s opponents have been encouraged to try to make more of the numbers by her overclaiming when the random walk wandered in the opposite direction. It was only two months ago that Ms Reeves claimed that the economy is “beginning to turn a corner” on the basis of figures that suggested the economy grew faster than the US, Canada, France, Italy and Germany in the first quarter of this year.
Indeed, she and Sir Keir Starmer made so much of the numbers for that quarter – a matter of a few tenths of 1 per cent variation around nondescript averages – that they claimed to be able to restore the winter fuel payment to millions of pensioners… happy days were here again.
It was all spin and no substance. The underlying picture is of slow growth – and even slower or negligible growth in real GDP per person. As the Office for Budget Responsibility warned this week, there has been no underlying change in the productivity of the British economy in the first year of the new government, and the public finances remain “vulnerable” to the smallest of shocks.
Ms Reeves and Sir Keir have been caught out by their hyperbole, overstatement and emphatic promises. Growth was the central “mission” of the new government, and some of the right policy changes were made. The Independent approves in particular of the de-nimbyfication of planning law and the change in the fiscal rules to allow more borrowing for productive investment.
But these are changes that will take years and years to yield benefits. The prime minister acknowledges this when he talks of a 10-year programme of national renewal. But then he and his chancellor fall prey to the temptation to promise jam tomorrow and pretend to have “fixed the foundations”.
This obsession with day-to-day headlines transfixes all governments. They all overclaim achievements and use statistics selectively – but at a cost to public trust.
This government has also bowed to backbench pressure, which has won out in certain special interest areas, over and above public finances and policymaking. Attempts to slow down the growth in spending on disability benefits have been dynamited by backbench Labour MPs, who are now on the warpath and looking for other savings to the taxpayer that they can stop.
Today, Ms Reeves abandoned her plan to cut the tax perk for cash ISAs (individual savings accounts) in the face of opposition from the personal finance industry. She has added to uncertainty in the financial services industry by U-turning.
Ms Reeves and Sir Keir need to take stock. They need to raise their eyes beyond today’s headlines and look to what they hope to achieve over the whole five-year term – and over 10 years, if they can persuade the voters that they have made a good start.
They need to subject their policies to a more rigorous growth audit than hitherto. The anti-growth elements of Angela Rayner’s Employment Rights Bill have been postponed until 2027; a further delay until the twelfth of never would be a good idea. No one has yet been able to make sense of the costs of Ed Miliband’s plan to decarbonise the electricity supply: that too would be a good idea before too much more money is spent.
And the chancellor needs to be honest about the tax rises that are coming in the Budget, which are necessary because the public finances were left in a terrible state – and because the economy has not yet “turned a corner”.
She needs to think carefully about those tax rises and avoid wealth taxes that will drive away wealth creators. She needs to learn the lesson of the rise in employers’ national insurance contributions, a growth-suppressing tax. All taxes are growth-suppressing, it might be argued, but some are more inimical to growth than others.
Above all, she needs to be straight with people that it will take time before living standards can be expected to rise sustainably.
