The Treasury was so surprised by the revised estimates of the British economy that it took three hours to respond after the Office for National Statistics (ONS) published its findings yesterday morning.
The new figures tell a dramatically different story of the past few years. Instead of the UK lagging behind other rich countries as we came out of the pandemic recession and Brexit, our economic performance was similar to that of most other countries and the third best in the G7.
At a stroke, we are richer than we thought we were, by a significant amount. At a stroke, a large part of the Labour attack on the government’s record has fallen away. Keir Starmer will have to welcome the good news through gritted teeth, but at least he can console himself that it suddenly makes his absurd “mission” to secure the highest sustained growth in the G7 almost believable.
Rishi Sunak and Jeremy Hunt, on the other hand, need to be careful with their triumphalism. The chancellor – once he had been alerted to the rewriting of economic history – had a whack at “the declinist narrative about Britain and its long-term prospects”, but he and the prime minister need to keep a lid on their excitement because these are complicated numbers and most voters do not feel better off.
No doubt there will be conspiracy theories about how the government massaged the figures – compiled by the independent ONS – to its advantage. Such theories ought to be harder to sustain because the government was so obviously taken by surprise yesterday morning. But it is possible that many voters will simply refuse to believe them.
The explanation for the revisions is that it is hard to measure economic activity during such a sharp dislocation as that caused by the pandemic, so the numbers should have had a “provisional” warning on them until what the ONS calls “richer data” were available.
This means that the international comparisons are not the last word on the subject because other countries might revise their estimates – we have revised ours first and may find ourselves pushed down the rankings again.
But in the meantime, what Hunt calls the “narrative” will shift. Not much in the short term, because the prevailing mood about the economy will continue to be driven by what people feel about their own cost of living. There is also what one anonymous cabinet minister called the “cycle of fatigue”: the feeling that nothing works, all the public services are backlogged, the schools are falling down, and the Conservatives have been in power for too long.
The last time there was a revision of official figures of such significance is instructive. Denis Healey, the Labour chancellor, complained after the 1976 IMF crisis that he had been forced to beg our allies for a loan because the Treasury’s forecast of revenues and spending had been too pessimistic. It later turned out that he needed only half the money he had asked for, and was able to repay it more quickly than expected. Yet Dominic Sandbrook, the historian, concludes that even if the Treasury had got it right, the markets wouldn’t have believed it, and would have demanded a “symbolic display of contrition” for earlier fiscal incontinence in any case.
It may be that the electorate has already decided that it wants a symbolic display of contrition from the Conservative Party, whatever the GDP numbers say. It will take a lot to change the “cycle of fatigue”, but these new figures make it possible for Sunak and Hunt to tell a quite different economic story going into an election – and public opinion can be fickle. As inflation comes down (probably after another bump up in the next figures), and wages start to rise ahead of prices, some voters may decide that the country is not going to the dogs after all.
The new numbers are also likely to mean that forecasts of growth will be revised upwards, meaning that Hunt may have more scope to do that old trick of cutting taxes and raising spending just before an election.
That said, the revised figures do not alter several gloomy truths about our economic future. The reality is that in the long term taxes will have to go up simply to maintain decent public services – a reality underlined by the Institute for Fiscal Studies analysis on Wednesday of the implications of the NHS workforce plan. Where Gordon Brown once complained that Tony Blair had “stolen his effing Budget” by announcing higher NHS spending, the IFS says the workforce plan steals a decade’s worth of budgets.
Another reality is that the British economy is suffering from a chronic labour shortage, while 5 million working-age people are on benefits, many of them suffering from long-term illness or disability.
But it is slightly easier to face these problems if we are richer than we thought we were. And it is slightly easier for Sunak and Hunt to fight an election claiming that things are getting better. But they need a lot else to go right for them to have any chance of breaking the electorate’s cycle of fatigue.