Hunting for a way out of Britain's double-dip recession
- 9 July 2012
- From the section Business
With Britain now in a double-dip recession for the first time since the turbulent 1970s, Panorama's Adam Shaw offers an analysis of the nation's ability to revive its finances and asks if the poor are increasingly being left behind.
We have indeed been here before. The last time we found ourselves in such dire economic times, the result was social unrest and political upheaval. So could today's crisis destabilise the country in a similar way?
It is already having a severe impact on the lives of many ordinary people.
Hayley Gay is a school administrator raising two sons on her own in south London. She said there are months when she has to make the choice between new school shoes for her children or high-quality food for their dinner table.
"I don't feel we're on the poverty line by any means but I do feel we have to economise on everything we do. We either buy food or the school shoes and sometimes the shoes have to be bought. And therefore you downgrade on some of the food."
Hayley's circumstances are not exceptional. One in five UK families admit they are now financially living on the edge.
Fall in earnings
One of the biggest financial strains for working people is the cost of housing. In the 1970s average house prices were three times earnings. Today, that figure is more than five times - and in London it is worse than that.
Poorer people spend a higher proportion of their income on basic products like food and fuel - which are among the things that have gone up the most.
While average inflation has been relatively modest over the last few years - currently sitting at about 2.8% - the cost of many of the things we buy daily has gone up dramatically. That daily cup of coffee is around 30% more expensive than it was just four years ago - roughly two and a half times the rate of inflation.
Over the past year or so fuel and utility bills have rocketed. Gas is up 16%, childcare is up nearly 6%.
And alongside rising prices, average real earnings fell by more than 3% in 2011 according to the Institute for Fiscal Studies. That represents the biggest one-year fall in 30 years.
Alongside the daily struggle to make ends meet, there is a growing feeling that the rich have never had it so good.
The share of income of the top 1% doubled between 1970 and 2005.
Some of Britain's highest earners say their incomes are justified because they are in turn creating wealth for everyone - producing jobs, businesses and money that would otherwise not be there - the so-called "trickle-down" effect.
Crispin Odey is the founder of Odey Asset Management and one of the new class of super rich in Britain - the Sunday Times Rich List in 2010 reported that he took home more than £36m.
Mr Odey said it is time for Britain to forgive the bankers and move on.
"We will only basically save ourselves if we start forgiving the bankers because we have got to allow banking to be profitable. If banking is profitable people will lend money. If people will lend money, the economy will grow."
But do those handsome - some would say eye-watering - rewards at the top actually trickle down to the rest of us on the lower economic rungs?
Economist Stewart Lansley does not think they do.
"If we have an economic model which increasingly concentrates the fruits of that economy at the summit, at the very top, then what happens is you strip demand out of the economy. You effectively create consumer societies without the capacity to consume."
Therein lies the clash of opinion. While Mr Lansley claims the rich are feathering only their own nests, Mr Odey laid out what he sees as the choice.
"Do you want a vibrant economy in which there is change and where there is improvement and there is a general sort of entrepreneurism? In which case you are going to get these inequalities. Or do you want a much more stable society that does not, might not move at all?"
What is clear is that the gap between rich and poor has grown faster in Britain than in any other developed country in recent decades, according to the OECD.
Though the UK's latest employment figures show a slight drop overall, more than a million under-24s - or one in five - are still out of work.
The consequences of cutting off a generation from work and opportunity could be severe. Though the causes were complex and hotly debated, Britain caught a glimpse of what that kind of social unrest might look like last summer when many city centres descended into riot.
The visibly growing gap in inequality in society is adding to a sense of tension and anger with some of the disadvantaged feeling increasingly lost and isolated.
In the 1970s Britain's answer to the economic chaos was to identify the unions as a common enemy and embrace the free market instead.
This time it seems we have a new common enemy - the bankers.
And even though the sense of frustration and anger which led to such radical change in the 1970s is once again knocking at our door, this time round, there is no obvious radical alternative.
Panorama's Britain on the Brink: Back to the 70s? BBC One, Monday, 9 July at 20:30 BST and then available in the UK only on the BBC iPlayer.