David Cameron on Britain’s unsustainable growth
In a major speech on the economy today, prime minister David Cameron condemned Labour’s growth strategy.
The previous government, he told journalists, “thought the good times would go on forever; the economy would keep on growing and they could keep on spending. But the truth about that economic growth – and the tragedy – was that it was based on things that could never go on forever.”
Labour’s economic growth was based on financial services, immigration, and government spending, says Cameron. None of these drivers was sustainable:
“Their economy was based on a boom in financial services, which at its peak accounted for a quarter of all corporation tax receipts. But this was unsustainable because the success of financial services was partly an illusion, conjured from years of low interest rates, cheap money and a bubble in the price of assets like houses.
Their economy was based on a boom in immigration, which at one point accounted for a fifth of our annual economic growth. But this was unsustainable because it’s just not possible to keep bringing more and more people into our country to work while at the same time leaving millions of people to live a life on welfare.
And their economy was based on a boom in government spending, with some budgets doubled or even trebled in a decade. This was not sustainable because in the end, someone has to pay for all that spending.”
So far, so good. If Cameron had gone on to say that the UK would therefore be abandoning a growth model of the economy, it would have been a great speech. If he’d outlined a more sustainable way of growing the economy, I’d have settled for that. But he did neither of those things, promising budget cuts instead.
Cutting the deficit and ending the upward spiral of Labour’s debt is a great start, but what is the vision for the ongoing prosperity of the country? How will we enjoy further growth without rising house prices and financial speculation? Government borrowing and spending has been reckless, sure, but so has private borrowing and spending. Average household debt is almost £60,000, and almost two thirds of the UK’s economy depends on consumer spending. What will the new Conservative government do about the unsustainable levels of private debt? How will the new growth strategy break the link between economic growth and CO2 emissions, another unsustainable element of the last decades’ growth? Is there a strategy to wean the economy off cheap oil, which subsidised our economy through the North Sea until 2005?
In short, Cameron is quite right to highlight the flimsy nature of our economic growth under Labour, but if he thinks that there some sustainable alternative way of maintaining growth, he is mistaken.