Christine Lagarde's inspectors should see that Britain is crying out for investment, not more austerity
Dear IMF officials,
Don't be blinded by a single ray of sunshine. Britain may have avoided a triple-dip recession, but all the other economic news is weak at best.
At the heart of the problem are the country's ultra-conservative banks and building societies. Either they are short of funds or reluctant to lend to all but the most financially secure borrower. As Vince Cable put it yesterday, they are working on a "pawnbroker business model" demanding "heaps of collateral" that he likened to a gold watch.
The result is that few small and medium-sized businesses can access the cheap credit on offer from the Bank of England.
Homebuyers are in a similar fix. Some estate agents report that cash buyers make up almost 50% of the house purchases in recent months. Housebuilding remains at levels not seen since the 1920s.
As you pointed out on your visit last year, the Treasury has room for manoeuvre should it want to promote growth. The trouble is that all the fiscal loosening this year will just go to overstressed hospitals, a bigger pension bill and a school system coping with a baby boom. There was little extra in the last budget for investment.
Among the voices over here calling for a more cautious approach to austerity are the former City regulator Lord Turner, who warned yesterday that the slowdown caused by aggressive cuts could trigger a cycle of debt.
"I think the difficulty is that when the public debt levels go up in the crisis you feel you've got to get that under control …" said the former Financial Services Authority chairman. "But if you try and get it under control quickly, by cutting public expenditure or increasing taxes in the short term, you can enter a cycle where the very process of trying to get your debt levels down mean you never get the debt levels down."
You may decide that unemployment at 7.8% is lower than the eurozone average of 12.1% and therefore not too bad. But when combined with figures for underemployment, enforced self-employment and part-time working, a large percentage of the British workforce is not working at full tilt. Employment has risen to an all-time high of 30m, but only because of a rising population.
Which brings us to wages. Average pay rises have remained stuck at 1% while inflation has stubbornly refused to drop below 2% and now rests at 2.8%. Recent industry surveys have put pay awards at nearer 2%, but this still leaves an income gap that eats away at living standards. Until consumers are back on their feet, the UK economy is going to suffer. Businesses are sitting on their hands, waiting for confidence to return.
Even those firms that can access credit are wary of making major investments while the government plays a waiting game, hoping for something to turn up.
Of course, the IMF is compromised by its demands for tighter austerity in the eurozone. It is hard to lecture Britain about missed growth opportunities after backing policies in Brussels that have sent an entire continent into recession. Such a volte face would seem to contradict a stance that has successfully impoverished so many in Portugal, Greece and Ireland.
But surely you can see that the UK is crying out for investment that, in the first instance, could be pursued with public money. These are not Japanese-style investments, like the concreting of river beds, that create short term construction jobs but are of no lasting benefit. The UK needs houses, power plants and railway upgrades. They may not be glamorous but they are necessary, create jobs and get the wheels of the economy moving again.
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