North needs to embrace new growth

Jan 26 2010 by Sarah Green, The Journal

TODAY the latest GDP figures will be published which are expected to show the UK to have moved out of recession in the last quarter of 2009.

Despite this, for many it will still be tough. In light of this CBI has looked at the UK’s economic prospects urging politicians to focus on growth. Without this, unemployment will not fall to its pre-crisis levels, and the life chances of a generation of young people will be seriously impaired. Without growth, it will be impossible to restore the public finances to health, no matter how far spending is cut. Without growth, businesses will look elsewhere in the world to invest, and the huge investment that is needed in our country’s infrastructure – in power generation, transportation and the like – will be in jeopardy.

What the private sector wanted from politicians in the run-up to the coming election was a commitment - which is to restore macroeconomic stability as soon as possible.

We must recall how quickly the UK recovered from the last recession in the 1990s where people speculated a generation without growth, however within five years the economy had bounced back. Achieving an annual growth rate of 3% over the next five years would yield about 300,000 more jobs and an added £35bn reduction in the public sector deficit than would be achieved if we only grew at 2%.

How future growth is achieved will be very different to the past decade. Then, the story was all about rapid increases in government and consumer spending, both of them supercharged by record levels of borrowing. That game’s over.

Over the last five years, roughly two thirds of all the new jobs created were driven by the public sector. Some of those jobs are bound to be lost in the squeeze that is coming in public spending, whoever wins the election. If the economy is to move forward, the slack will have to be taken up by the two other major components of the economy, in the private sector investment and trade.

And if the conditions are right, growth in the private sector has the capacity to offset falls in public sector employment. That’s exactly what happened in the mid 1990s, when the economy grew by more than 3% a year despite a crunch on government spending. The task will be harder this time round, but there are still 23 million jobs in the private sector compared with six million in the public. A little bit of growth in the former can more than compensate for quite a fall in the latter. Which is a message which the North East in particular needs to embrace.

Sarah Green is regional director of CBI North East