Friday, 28 November 2014

Black Friday, Red Alert

Luke Thomas on an American import to a deep-rooted UK problem 

Hold on to your trollies! A relatively new American import has, for the past two years, been causing a huge stir on the UK high-street – that is, the apocalyptically named ‘Black Friday’. In the States, the Friday following the Thanksgiving celebration has ‘traditionally’ been greeted with widespread sales, deals and offers by most retailers, who take advantage of the frugal spending behaviour of shoppers in the run-up to the Thanksgiving celebration. Like the ‘traditional’ Boxing Day sales in the UK, Black Friday for many American retailers is the busiest shopping day of the year, and provides them with the greatest returns.

The promise of extensive savings – particularly on pricey electronic items - has already led to unedifying scenes of chaos in a number of shops, like this one in a London Tesco. Injuries, including broken bones, are not uncommon, and the police have been forced to intervene to keep public order in a number of cases.

Beyond the dangers to life and limb, we should all be extremely worried that yet another paean to consumer spending is taking hold so steadily in the UK, and those of us on the Left should be shouting a loud warning. But why should this be?

All that glisters … 

Increased consumer spending is not in and of itself a problem, but in the current economic context it is of enormous concern – or at least, it should be. While our fragile growth has at last restored real GDP to pre-crisis levels – 6 years after the onset of the recession! – this has heavily relied on consumer spending. The Independent’s Economics Editor Ben Chu provided this breakdown of the contributions that business investment and household consumption have made to our GDP growth over the past seven quarters.

As you can see from the chart, the ‘households’ sector (which covers consumer spending) has consistently outstripped ‘business investment’ in making a positive contribution to GDP, and in the very last quarter has leapt ahead, making over double the contribution of ‘business investment’.

It’s the Stupid Economy

When we look at consumer spending over the longer term, a few astonishing things jump out at us. This chart from the ONS shows that retail sale volumes didn’t drop during the recession, and the value of those sales climbed steadily over almost the whole period. More worryingly, after a flat period over the brunt of the recession and recovery, retail sale valuesare now climbing sharply again.

While consumers are splashing out as never before, what’s happening in other economic sectors? Sadly there has been none of the rebalancing of the economy which we so desperately need. While the service sector has carried on its inexorable climb, construction and production are in a sorry state, and were clearly harmed by the introduction of austerity measures in 2010, as ONS data shows:

Eat, drink and be merry

Enough about the economy for a moment – the really troubling data concerns the consumers themselves. It’s well known that average weekly earnings have plummeted while prices have risen, and the knock on effect is that there’s less spare cash to go around, as you can see from the following ONS chart:

The consequence of this is that consumers have stopped saving as much as they should, something which was briefly reversed during the recession as people became more wary with their money (again via ONS):

With spending rising, wages falling and savings shrinking, consumers are in a very precarious situation indeed – more precarious even than before the last recession.

The Long-term Economic Plan

The Tories will naturally point to any positive economic indicator that comes up (including the jobs growth, and rising GDP) as evidence that their plan is working. But let’s be frank – the plan had nothing to do with the majority of workers, nothing to do with rebalancing the economy away from services, and was only faintly concerned with increasing GDP as a means of winning votes. The real plan was to produce a low-wage, low tax economy that benefited the wealthy and the biggest businesses, and in this regard, their plan has been a roaring success.

To demonstrate this, I’d like to leave you with possibly the most staggering chart of all from the ONS, which shows how receipts from taxes on products and production (like VAT and excise duties), and receipts from income and wealth (like income tax and corporation tax) have changed since 1988. 

For much of the period shown the two have tracked each other closely, but they diverged during Labour’s years in power, as wealth and income taxes outstripped taxes on products and production. Since the Tories came into power, a sharp divergence in the opposite direction has happened, and taxes on products and production now contribute far more to government coffers than do taxes on wealth and income. This has been achieved by cutting income taxes at the top and bottom of the payscale, cutting corporation tax, and hiking VAT by 2.5%. The former tax cuts benefit the wealthy most, while the VAT rise clobbers the poor the most, as they spend most of their income on VATable goods and services.

To reiterate, the upshot of this is that consumers are bearing the burden of economic stability once again, while corporations and the wealthy are being let off the hook in the most extraordinary way. 

We mustn’t celebrate Black Friday as any sort of indicator of the economic health of the UK; we should be sounding a very loud red alert of the devastation ahead.

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