David Cameron and Nick Clegg’s coalition government had thought that their recession slaying, debt busting chancellor had finally killed off the downturn by means of a ‘death of a thousand cuts’. But the outcome of the first meeting of this parliament by the Treasury Select Committee may pull them up short.
Giving evidence was Geoffrey Dicks, one of the gang of three that head up the new Office for Budget Responsibility (OBR). The other two being the soon-to-leave Sir Alan Budd and Graham Parker.
According to Geoffrey Dicks millions of UK workers will face a fall in their standard of living over the next four years. He said that, despite small wage increases, because of inflation most will experience real drops in their purchasing power over the coming years. Over the next three years according to OBR figures earnings will rise about 2% every year, but inflation (RPI) will go up over 3% every year over the period. His words were backed up by ONS figures that put June’s CPI figure at 3.2%, which is well over the Bank of England’s 2% target.
But Dicks also said that, although it was not a certainty, the recent budget had increased the risk of a second down stage to the recession. The public sector cuts and increased tax would cut into the growth forecast and will have "logically increased the possibility of a double dip".
Sir Alan Budd was also grilled over the OBR’s overly optimistic growth forecasts of 1.2% this year and 2.3% next year. Sir Alan said this was in line with most expectations but it was a very volatile situation with a high chance of a deviation of 1% either way.
The true independence of the fledgling OBR has also come under scrutiny with figures seemingly rushed out to coincide with PMQs. Sir Alan’s departure after only three months in the chair has also raised some eyebrows although Budd himself says that was always the plan.