UK 'not out of the woods' despite exit from recession
by Alex Wild
The news that the UK economy grew 1 per cent in the third quarter is welcome but the government must not rest on its laurels – it is still spending too much and taxes are cripplingly high, says campaign group
Economic growth should always be welcomed. Especially so given the constant stream of dire news we have had over the last few years. The 1 per cent growth figure announced today was the strongest result in a single quarter for five years and exceeded the expectations of most analysts. It will doubtless come as a huge relief to the coalition government after last week's 'omnishambles'.
These figures should, however, be viewed with caution. The integrity of new growth figures is always somewhat dubious and when the revised figures are released, there will probably be movement in one direction or another. The one-off lift from Olympics has passed and the working days lost during the last quarter to the Jubilee bank holiday need to be factored in to any conclusions one might draw. Add to this the fact that the economy has grown from a low base, the seemingly eternal eurozone crisis and the United States' approach to the edge of a fiscal cliff, all of a sudden things do not look so rosy.
The government must not rest on its laurels: one quarter of growth does not mean we are out of the woods and much remains to be done. Beyond the headline figure, the numbers show the construction sector continuing to contract and drag on the wider economy. Other than this and utilities, all other sectors saw growth from the last quarter, from which we should take some comfort.
Alarmingly though, the only sector to have grown in each of the last four quarters is 'government & other services'. This is untenable: a real, sustainable recovery will only materialise with tax reform, deregulation and trimming the fat from our bloated state. While some positive steps have been taken, the fiscal consolidation has mainly come in the form of tax hikes and reduced capital expenditure. It is current spending that must be tackled.
For all the media sensationalism and political point-scoring over spending cuts, the government is still spending £1.8bn of our money every day and living far beyond taxpayers' means. At the same time, taxes remain cripplingly high and ludicrously complex. This is stifling growth and allowing both individuals and corporations with the means to hire expensive accountants and lawyers to reduce their tax bills. While politicians are keen to chastise the likes of Jimmy Carr and Starbucks, their reticence to reform our dysfunctional system grows evermore tiresome.
Voters are, for the most part, unaware of just how dire the country's fiscal situation is. A major reason is that the words debt and deficit are widely confused, misused and misunderstood by politicians. The reality is that debt is still increasing and Chancellor of the Exchequer George Osborne is likely to fail to achieve his stated goal to have debt falling by the end of the current parliament. Today's news is positive. More positive than expected. But the underlying weaknesses in our own and the global economy, combined with burdensome taxes, are preventing a full recovery.
Alex Wild is a research associate at the Taxpayers' Alliance campaign group