Public sector cuts are set to become “increasingly painful” and the economic recovery could take up to another eight years, says City AM editor Allister Heath.
Heath (pictured) was speaking to delegates at the Charity Investment Forum hosted by Civil Society Media yesterday.
He told delegates that: “The UK economy has only barely started to readjust to where it needs to be.”
Characterising the current state of the economy he said it is made up of “the good, the bad and the ugly”, where "there is some good, but there is also a lot of bad and even more ugly".
He predicted that: “It’s going to take at least another five years, maybe another seven or eight years before we return to some sort of normality.”
Heath explained that public spending cuts had only just started, with only between one quarter and one third of the cuts having been implemented. And that up until now most of the cuts had been focused on capital expenditure, but as the current expenditure items start being cut things will become “increasingly painful”.
Speaking about the handling of the economy by Chancellor of the Exchequer George Osborne, he said that the decisions in the first two years mostly affected the private sector. But "now he’s beginning to make the really painful public sector austerity cuts, and I think that’s been a disastrous strategy and one which is unravelling".
He added that there was the “pernicious problem” of zombie firms that are only able to survive because interest rates are so low and described this as a “massive ticking time bomb”.
In Heath’s opinion the country has “become complacent” about the problem of the public finances, with 90 per cent of people unaware that the national debt is set to rise this year.
To improve the economy he said “more ambitious policies” – such as encouraging infrastructure spending by the private sector – and “a lot of luck” – recovery in the Eurozone – were needed.
The good
It does not look like the UK will be plunged into a triple dip recession, he told delegates that: “It looks like the economy grew a tiny little bit in the first three months of the year.”
Heath said that there were some positive signs in the UK economy most notably that employment had risen. Despite redundancies in the public sector net employment has risen by 630,000 and the total number of hours worked has returned to the same levels as 2007. However total output, GDP (gross domestic product) is below the level that it was in 2007 meaning that “every hour worked produces less than it used to”.
He added that there were signs that the UK was starting to trade more outside the Eurozone.
