More with less

Big economic set-piece speeches in Parliament are haphazard affairs, the Autumn Statement especially so. After soaking up an hour of economic data, the press pack pours itself into the Lower Gallery, where a man from the Treasury re-reads, line-by-line, the spread-sheet setting out the detail of Government spending commitments.

Each journalist is handed a large packet, inside which is a pile of documents, telephone-directory thick. People stand, eyes glazed, looking at the sheaves of numbers. A cynic might suggest that this was to the advantage of the government—that the choking volume of data helps to prevent its thorough examination, allowing the Treasury to impress its views on a press pack that is unable to counter them.

And the Treasury’s top-line message of the Autumn Statement was that growth is back. The Chancellor wheeled out the figures at the beginning of his statement and the back stage briefers hammered them home to the press afterwards.

But now, having read the telephone directory of details issued on the day, it is not growth that shines out as the pivotal economic issue. It is productivity.

Since the 2008 crisis, productivity—which is output per hour—has dropped by around 16 per cent. The real consumption wage has also fallen, even more so than productivity (the real consumption wage is wages measured against consumer spending.) With this decline in productivity and wages, living standards have also begun to fall. The spike in global commodity prices also drove up prices in the years following the crash, and the decline in the value of sterling also pushed up the cost of imports. These helped to drive up prices, which in turn caused the consumption wage to decline further.

There is little that the government can do to affect large, external factors such as trade, international commodity markets and currency flows—the hope must be therefore that productivity will improve. Only in this way will the consumption wage begin to rise and the cost of living begin to ease.

This is the situation as outlined on p67 of the Office for Budget Responsibility’s “Economic and Fiscal Outlook” which formed part of the Autumn Statement bumph. But on p68 comes what is perhaps the most significant political assertion in the whole document. In paragraph 3.101, the OBR states that: “We expect the weakness of real wage growth to persist into 2014 before picking up gradually to match productivity growth.”

“We do not expect real take home consumption wages to reach their pre-crisis peak until late 2015.”

This is not a prediction that affluence will return. But the General Election will take place on 7^th May 2015 and if by that point the government can show that wages are rising, and hence that living standards are improving, then they will have neutralised Ed Miliband’s most significant line of attack, which is that Britain is experiencing a “cost of living crisis.”

If there is such a crisis, then the OBR seems to be suggesting that by Election Day it will be showing signs of averting.

So put growth to one side. Before things can get any better, productivity must improve. If it does so, then wages and living standards will follow.

In short—can Britain do more with less?