Better wages and business investment only way to secure economic recovery

Published on Tuesday, 06 March 2012 11:13
Posted by Scott Buckler

Stronger wage growth and incentives to unlock the £724 billion 'cash pile' currently held by UK companies - equivalent to around half the size of the economy - offer the only hopes of a sustainable economic recovery, according to a new TUC report published today

The TUC's second quarterly economic report focuses on the main expected drivers of economic growth in the coming years - household consumption and business investment - and what can done to boost both.

The report shows that around half of GDP growth in the years after 80s and early 90s recessions came from household consumption. But with real wages falling for the last two years and another rise in household debt not sustainable, the prospects for a new consumer boom are looking increasingly unlikely.

Strong wage growth is the best way to boost consumer spending, the report says, and is a key priority for unions. However with unemployment at 2.67million and under-employment at nearly seven million, wage-led growth is unlikely to happen in the next few years.

Investment therefore needs to be the main driver of economic growth and the TUC wants the government to create greater incentives for companies to invest in this month's Budget. The Chancellor should take the lead by reversing the planned 46 per cent cut in public investment by 2014-15, which will drag growth and hold back private sector job creation.

The report says tackling the UK's poor track record on investment and boosting bank lending to non-financial or real estate firms should be high on the Chancellor's priority list.

With companies currently holding a record £724 billion in currency and deposits, the government must use the tax system, credit easing and a state investment bank to channel this cash into investment.

The TUC is calling on the Chancellor to put investment at the heart of next month's Budget with the following policies:


  • greater capitalisation of the Green Investment Bank, including the power to borrow, so that it can make a greater contribution to green growth
  • a new state investment bank with lending targeted at small and medium-sized businesses
  • faster movement on the implementation of 'credit easing' to help businesses
  • a greater focus on wider reform of the banking sector to boost lending to non-financial or real estate firms.

TUC General Secretary Brendan Barber said: 'Consumer spending has got the UK out of its last two recessions. But with real wages still falling and the tax burden rising, the prospect of a spending boom fuelled by anything other than increasing household debt is looking unlikely.

'The Chancellor's austerity measures have restricted any direct government help in boosting growth. This strategy is self-defeating and should be reversed. But we also need businesses to lead our recovery. Their £724 billion cash pile is an obvious place to start.

'Companies need confidence and incentives to invest their cash. The Chancellor must do all he can in his upcoming Budget to encourage this. Clear proposals on credit easing, a far more ambitious Green Investment Bank and recognising that public investment cuts are self-defeating must be at the centre of the government's plan for growth.'

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