Economy

Should the 10p tax rate be brought back? Should the top rate be higher, or lower? Can the personal allowance be raised further? Is a mansion tax a good idea? Should the fuel duty rise be scrapped? These are the questions that are rearing their heads again — as they do every six months or so, in the run up to a budget or autumn statement. The problem is that they are all considered — in so far as they're considered at all — in isolation. We focus on one aspect of the tax system, fiddle with it a little, then move on to another.

Today's borrowing figures show that the government had a surplus of £11.4 billion in January. But before we get too excited, a bit of context is in order. There's (almost) always a surplus in January, thanks mainly to self assessment and capital gains tax receipts. And today's figure includes £3.8 billion transferred from the Bank of England's Asset Purchase Facility to the Treasury. Stripping that out gives a £7.6 billion surplus — an improvement on the £6.4 billion surplus in January 2012, but not enough to make up for higher borrowing in the rest of the year. Total borrowing in the ten months of the year so far is £97.6 billion (excluding the Royal Mail pension and APF transfers) — £5.3 billion higher than in the same period last year.

Today's jobs figures are pretty unambiguously good news. The number of people in work rose by 154,000 in the last three months of 2012 to a new record high of 29.73 million — surpassing pre-recession peak by 158,000. And unlike other recent rounds of employment growth, this wasn't driven by a rise in part-time workers (their number actually fell by 43,000). But there are still a couple of reasons cause to greet this good news with caution. Rising employment at a time of economic stagnation has come at the expense of earnings. Adjusted for CPI inflation, average weekly earnings have fallen by 7 per cent in the last five years, back to 2004 levels. And the Office for Budget Responsibility doesn't expect them to start rising again until late-2014.

Doom and gloom is all around. This is another winter, if not of discontent, then certainly of persistent grumbling. Optimism is as rare as a Scottish victory at Twickenham and, frankly, just as fanciful a thought. That, at any rate, is today's conventional wisdom. Fleet Street looks to a Triple Dip recession and ponders what side dishes will best complement the Chancellor's broiled reputation. And yet, and yet, I wonder - hesitantly, I grant you - if all this is quite accurate. Fleet Street, like Westminster, is often fighting the last war. Worse still, it tends to presume that what has happened will continue to happen and that present trends will last forever and a day and so on. No wonder the press is always surprised when this proves to be not the case. It is almost touching.

Now we know why David Cameron delivered his Europe speech on Wednesday. It’s time for bad headlines again: the GDP figures just announced show that the British economy is contracting yet again — by 0.3 per cent in the final three months of last year (see above graph). Now, you’ll hear a lot of people tell you today that quarterly data does not matter. The ONS say this is a fallback from the Olympics, which sucked economic growth forward. And they’re right: the ONS usually revises quarterly data, often dramatically. What matters more is the long-term trend, and this is pretty appalling. It now seems inarguable that Britain is going through the worst recovery in history. Slower and longer even than the 1930s.

News of 800 job losses at Honda’s Swindon factory are making the headlines — factory closures always do. They can leave scars that never quite heal, and for those affected it will be no comfort at all to know that there are today more people working in the UK economy than ever before. But it's true. As the below graph shows, the British economy is not actually shedding jobs at a particularly high rate. Even during the boom years, there were about 1,500 redundancies every day. What mattered was that the number of jobs created was greater. But there is an in-built new bias, because the jobs created tend to happen on a far smaller level and don't make headlines. Factory closures do.

The number of people in work in the UK hit 29.6 million in August-October – the most ever — according to today's figures from the Office for National Statistics. So despite GDP still languishing 3 per cent below pre-recession levels, employment has fully recovered, with half a million jobs created in the last year: The rise in employment has been thanks to the private sector more than making up for the job cuts in the public sector.

'We've done quite a good job at demonstrating the limitations of economic forecasting,' half-joked Office for Budget Responsibility Chairman Robert Chote at the start of his Treasury Select Committee appearance this morning. And he spent a lot of his answers emphasising those limitations, while robustly defending himself against charges that the OBR is just making it up. His challenge was to explain to sceptical MPs why we should pay attention to the OBR's new forecasts, given that their previous ones have missed by so much. For the OBR's economic forecasts — rather than its forecasts for the public finances — Chote admitted that 'we don't have access to any information that other forecasters don't.

We've only had two days to digest it, but the early signs from YouGov are that George Osborne's Autumn Statement has gone down a lot better than his March Budget. The Chancellor's personal ratings are still dire – just 24 per cent think he's doing a good job — but that's a lot better than 15 per cent five months ago. His approval rating had tanked after the Budget, but Osborne does seem to have turned that around: And the government's approval rating on the economy similarly seems to have been helped by the Autumn Statement, and is back up to pre-Budget levels: Though a 35 per cent approval rating on the economy is not exactly great, it's notably better than the government's overall approval rating, which is currently just 26 per cent.

1. Growth evaporating. The Office for Budget Responsibility once again downgraded its growth forecasts for 2012-13 and, for the first time, also did so for 2014-16. Despite that, the OBR is still slightly more optimistic than the average independent forecaster: 2. A seven year slump. On the OBR forecasts, it will now take until the end of 2014 to get back to where we were before the crash. In the 1930s, it took 'just' four years to recover: 3. Slower deficit reduction. The weaker economic outlook means the government will be borrowing more than expected. When George Osborne delivered his first Budget in 2010, the OBR predicted he'd get the deficit down to £20 billion in 2015-16. It now says it'll be £82 billion.

Hiring Mark Carney may just be George Osborne’s best move since becoming Chancellor. Britain badly needed a break from the failed economic consensus which still hangs around the Bank of England like a bad smell. In August, The Spectator implored the Chancellor to mount a global search. When Carney ruled himself out, I gave up hope and resigned myself to Paul Tucker, who would be likely to keep Britain on its current Faustian monetary path paved with freshly-minted banknotes. Instead, Osborne has succeeded in hiring one of the best-qualified of all the Queen’s 137 million subjects — from a country that knows a thing or two about economic crises and how to handle them.