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All the way back in 2010, the Tories and Lib Dems were elected to government just a couple of years after the financial crisis of ‘08. One of their main aims was to steer the country out of recession and towards economic prosperity.
With another general election just 9 months away, have their austerity measures succeeded? Unsurprisingly they talk positively about their progress and claim they’ve put the country back on track. But is that really the case?
GDP, or gross domestic product, is a way to measure a country’s economic worth. The more the economy produces, the higher its GDP will be. If you were to use this in isolation to describe a country’s economic health, the UK is starting to look pretty good.
The big dip after the recession is pretty obvious. But as you can see the GDP has, more or less, been steadily rising. In fact, the UK is forecast to reach its pre-recession peak this year. So, that’s all good, right? The country isn’t in tip-top shape, but surely it’s just a matter of time until the recession seems like a distant memory. Well, unfortunately, just using GDP can be misleading.
The problem lies in the fact that our population has been growing, meaning that while our GDP has increased, it is spread amongst more people. When you factor in the UK’s population the picture isn’t so rosy.
When you put together the UK’s income, product, and spending and then divide it by the population, you can see we’re far off pre-recession levels. This kind of measurement gives a much more accurate snapshot of the economy, which is exactly why politicians (Conservative politicians in particular) would rather stick to the straightforward GDP measurement. From the above graph, it’s clear we still have a way to go.
This is why the government’s line that things are on the up doesn’t tally with the increased use of food banks and emergency food supplies. In 2009, 3,109 food parcels were distributed in the UK. By 2013 that number had increased by over 400% to 12,961. In 2011, 3 days of emergency food was given out 130,000 times. The latest figures put that number over 900,000. In 2013, this happened in the North West region more times than across the entire country in 2011.
There’s other data we can use to test the health of the country. Employment is a big one, of course. That is currently looking pretty good for the UK. As we can see from these employment figures, more and more people are working. As of June, just over 2m of the population were unemployed compared to the 2.6m we saw in October of 2011. There’s no denying that’s progress, but there are some questions to be asked about the rise.
A big chunk of the latest rises in employment have come from the self-employed. This means more people are becoming freelancers or starting their own business, which should be good news. But it’s worth considering why these people are going it alone. Are they doing it because they think it’s the right time or are they doing it out of desperation?
An RSA report offers a positive outlook of the self-employed, but that might not be the case for everyone. While technically you might be employed, it would be hard to argue a freelancer struggling to find any work is in a better position than they were when they were unemployed.
We’ve discussed the numbers on the blog before and in that post we suggested the newly self-employed aren’t just the unemployed desperately grabbing after any crumbs of work they can find. Sure, the government could use them to mask unemployment, but it’s also not true that the majority of the self-employed are poor and struggling.
It’s worth taking a look at insolvency and company creation figures to see how these eager-business types are faring out there. For a start, the number of new companies in the UK has been growing rapidly over the past few years.
The current number of active companies registered with Companies House has passed the 3m mark and reached 3,048,928. But if the majority of them are going to fail it doesn’t really mean much in the long-term. Luckily, the insolvency data gives us good reason to look to the future positively.
Here we can see the massive spike that took place prior to and during the start of the recession. After that, apart from a rise in 2010, insolvencies have been steadily falling. This is a good sign as it means companies aren’t folding shortly after their inception – they’re actually surviving. That tallies with the employment figures as there’s more people running their own business, which means more jobs for everyone else.
So, now we know that employment has risen and there’s plenty more of us in work. That’s something to celebrate, but what about our wages? Are they as healthy as they used to be before the recession? Unfortunately not.
If you were to look at the average weekly earnings of the populace, it would seem good. That number has been steadily rising for a long time, even during the crash. So, how does that work? Why did things seem so bad when our wages were going up? Well, just like with the GDP statistics, they don’t reveal the whole truth. Looking at people’s average wages means nothing if you’re not factoring in inflation.
As you can see, since the end of 2009, inflation has been rising faster than our wages. This means that even though the number on our paychecks has been going up, what we can buy with it from the supermarket has been going down. When it comes to money, bigger numbers don’t necessarily mean you’re richer. According to this data, we’ve all been getting poorer for nearly 5 years straight.
So what’s the answer? Is this a recovery or not? To be awkward, it’s a yes and no answer. There’s more of us working nowadays, but a lot of us have had to branch out on our own to find the work. Our GDP is on the up, but it’s not increasing in proportion to our growing population meaning there’s less to go around. Meanwhile, our wages are bigger, but our cupboards a bit barer.
If this is a recovery then it’s an unbalanced one. It’ll be some time before everyone is feeling better about the future, but the general picture is one of slow improvement rather than decline. Things are looking up, we’ve just got a long way to go.
Over the last few months of 2017 and the whole of January, client managers are busy reminding people of upcoming deadlines and things they’ll need to do to make it easy for them to keep on top of their Self Assessments.