2nd December 2014
The Conservative Party’s manifesto pledge to “balance the books” is looking increasingly unattainable, Dr Giulia Faggio, lecturer in economics at Westminster Business School has warned.
Reflecting on the options available to the Chancellor in tomorrow’s Autumn Statement, Dr Faggio said that George Osborne is standing between a rock and a hard place.
She said: “While the UK economy is in reasonably good shape he wants to announce tax cuts and increased public investment on Wednesday to signal to voters, in the run up to next year’s general election, the good work that has been done by this government but he needs to make good the Conservative manifesto pledge from the 2010 election ‘to balance the books.’
“With government borrowing at more than £2bn a week this is increasingly looking like a broken promise which he is unable to repair.”
Dr Faggio said that this failure has been exacerbated by a stagnation in real salary levels – the share of wages in GDP is now at the lowest level since Q1-1998. It is hoped that salaries will The hope that pick up in Q1 2015, but this may be too late for the Government.
She added: “The Chancellor will emphasise in his statement that the UK recovery is both the result of buoyant consumer spending (it rose by 0.8% quarter-on-quarter in Q3 – the strongest quarter in four years) and strong investment spending (it grew 1% quarter-on-quarter in Q3).
“He will also stress that Q3-2014 is the eighth consecutive quarter in which the quarter-on-quarter gain in investment has exceeded the gain in consumer spending – the longest such run since the mid-1960s.”
However she said the Chancellor may live to regret the announcement to reintroduce the fuel stabiliser system, which was shelved in 2011, if oil fell to $75 a barrel.
“This could mean a fuel increase of about 1.7 per litre which would not be well received by the UK’s 38 million drivers. With Brent crude standing at just above $70 a barrel today this is a problem that the Chancellor could do without in the build up to his big day,” said Dr Faggio