The government is failing in its pledge to rebalance the economy, which is now more dependent than ever on financial services, according to the latest TUC economy report.
The TUC report shows that on the eve of the recession the UK economy had four key imbalances: low levels of investment, an over-reliance on financial services, a North-South divide and widening wage inequalities that had resulted in no pay growth for low and middle-earners for five years, despite the economic boom.
These imbalances helped cause the crash and are now holding back our chances of economic recovery, says the TUC.
The current government came into office pledging to rebalance the economy, an aim supported by the TUC. However, the report shows that progress on achieving this has been painfully slow over the last two years and in some cases has got worse.
The report looks at the UK’s poor record of investment over the last 30 years and shows that the proportion of the economy accounted for by exports and investment is currently no better today than it was five years ago at around 13 per cent.
The over-reliance on the financial services sector, which was close to overtaking manufacturing in terms of output on the eve of the crash, has also continued. The most recent growth figures showed business and financial services growing by 0.8 per cent on last year, while manufacturing contracted 3.1 per cent over the same period.
The report also analyses regional labour market trends to judge progress on closing the North-South divide. After peaking in March 2011, the gap in employment rates between the North East and South East has closed to eight per cent – though this is still bigger than when the coalition came into power in mid-2010, when it was seven per cent.
Finally, the report looks at the proportion of national wealth going into wages. Real wage stagnation, particularly for those on low and middle-incomes, led to an unhealthy reliance on household debt and credit during the economic boom.
But the share of national wealth going to wages has continued to fall in recent years, with real wage falls causing the biggest squeeze in living standards for nearly a century. Worst still, the Office for Budget Responsibility expects this to continue until 2016.
Rebalancing the UK economy so that growth is more evenly more spread across industries, throughout the country and across the workforce is absolutely vital towards a sustainable economic recovery that everyone benefits from, the TUC argues.
The TUC is calling on the government to take bolder steps to encourage this rebalancing, including a more active industrial policy to support new industries, a state bank to improve the UK’s poor investment record and an end to self-defeating austerity that is widening the North-South divide and contributing to the current living standards squeeze.
TUC General Secretary Brendan Barber said: ‘Having seen the damage caused by our over-reliance on the City, everyone agrees that our economy needs to be better spread across industries and throughout the country.
‘But so far progress towards achieving this rebalancing has been woefully slow and in some cases is going in the wrong direction.
‘We desperately need companies to invest more of the £750bn they are sitting on, for new industries to grow outside of London and the South East, and for workers to share more fairly in the benefits of this growth.
‘But none of this will happen of its own accord. The government has a key role to play but has so far lacked the ideas and willing to make the bold reforms needed to rebalance our economy.
‘Our economy needs to grow – but growth alone will not be enough. We need to see the right kind of economic growth so that more people benefit from it and the country becomes more resilient against future economic shocks.’
