GDP figures offer hard evidence for political narrative

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Media captionPaul Mason interviews Chancellor George Osborne and assesses whether the economic performance which has put a spring in his step is likely to last

Chancellor George Osborne put in a night shift in anticipation of today's GDP figures. He visited a bakery, a road works gang and then the night shift at Tesco's enormous distribution centre outside Rugby. Here he did what politicians do when given a hi-vis vest: he drove a fork-lift truck.

By daybreak the cause of this outbreak of energy was clear. Britain's economy is growing again. By 0.6% from April to June - and 1.4% year on year. And for the first time since 2010 all four main sectors of the economy were in positive territory, with the service sector in the lead.

But the figures from the Office for National Statistics contained a down-side. Measured by size, instead of growth rate, there is still a long way to go until recovery.

The UK's output is still 3.3% below its peak before the crisis. And though growth has returned, the real value of wages has been falling for 40 months in a row.

Today's annualised growth rate is about half what the economy should achieve in normal times - and it has taken three years for the coalition to achieve this. So, I asked Mr Osborne, should we cheer or weep?

"The numbers today are better than forecast," he said. "Britain is holding its nerve, we're sticking with our economic plan, the economy is on the mend, still got a long way to go as we go from rescue to recovery. I know for families things are still tough, things are still difficult. And that's why I'm absolutely determined to build an economy that works for everyone.

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Media captionShadow chancellor Ed Balls tells Newsnight that GDP growth does not amount to an economic recovery

Mr Osborne has consistently refused to accept that his government's policy has contributed to the prolonged stagnation. So I asked him, would he be taking any credit for today's good figures?

He said it was "hard working families who have come through this period" who should get the credit. And he pointed out that today's GDP figures also confirmed the initial bout of economic destruction went deeper than we thought.

"The numbers today confirm we had one of the deepest recessions in our history and one of the deepest recessions in the world, but Britain is now on the mend, and yes, of course there's still a long way to go."

When chancellors ride fork lifts, just as when defence secretaries get into tank turrets, there is a certain breed of journalist that gives a wry smile and hits Google. And I am one of those. The spending power of the average family has fallen by something like £1,300 the Coalition came to office - eroded by wage restraint and over-target inflation. So did Mr Osborne know how much the forklift driver working nights was earning?

He said: "Well, I suspect it depends on how much overtime and the like they do, but they won't be on a huge salary. I'm absolutely clear, that we've got to help these people and taking lower paid people out of tax, that's why we're increasing the personal allowances, everyone's tax-free allowance is greater, freezing people's council tax and the like - so everything I can do to help people here working the night shift and the day shift, it's all about helping those hard working families."

A bulletin board discussion among agency workers last month put the figure at £9 an hour including night shift bonus - which is around £18,000 a year. Tesco later told me a fork-lift truck driver "can earn around £19,000 for five day shifts or just under £22,000 for night shifts".

Mr Osborne is well aware that low pay and falling real incomes could create a double problem for the Coalition: one economic and one political.

The political one is clearest. From my Twitter feed during last night's Newsnight report on the different faces of economic recovery - from booming Soho to busted Eccles in Salford - I received a stream of abuse from people who claimed I was complying with government spin for even using the word recovery.

This reflects a much wider feeling, confirmed by the other economics journalists who were in the room with the chancellor, that many of our viewers and readers just do not feel the recovery at all. So the political problem is one of narrative: it might feel like a recovery in the few square kilometres between Sky News HQ, my office and the ITN building, but it does not in large parts of real Britain.

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Media captionWatch Paul's film from Wednesday's Newsnight showing how a journey north reveals the UK's skewed economic recovery

The economic problem is all too clear if you look at what happened to previous recoveries. The one they expected in 2010-11 was choked off by high inflation. Lacking the ability to raise interest rates, the Bank of England could not suppress inflation imported into Britain through the devaluation of sterling, and as this ate into people's spending power, it choked off growth. Since then we've had a tangible real fall in family incomes, as people have traded off staying in work for lower wages, and inflation has not abated.

If growth, such as it is, leads to a new round of inflation, the non-recovery of spending power could be a major headache. Mr Osborne said:

"First of all, the people here, like the people across the country, have been hard hit by the recession, the very sharp fall in our economy that happened just before I came to office. Of course, this government has had to pick up the pieces, take some difficult decisions.

"But I would say everything we've done is trying to help the people working hard and wanting to get on in life, helping those families who of course have had a difficult time because of what went wrong in our economy and that's why we've got all the things we're doing - like helping that fork-lift truck driver you mentioned, with personal allowance, tax free allowance, council tax, fuel duty, all of those things we can do to help and above all, helping him or her stay in their job by helping businesses like this to compete in the world."

As the chancellor toured Tesco, the Archbishop of Canterbury was laying into the payday loans firm Wonga, promising to set up credit unions in opposition to the high-interest lender. Since the people reliant on payday loans are the same kind of people who work nights for £18k, did the chancellor feel like joining in with Justin Welby?

He said: " I do think that pay day lending has got to be better regulated which is why I've created the Financial Conduct Authority, a powerful new consumer regulator which didn't exist before but is bringing the regulation of this industry into its ambit. And look, I'm all for families having real choices about where they can borrow money and that's why I'm all for seeing credit of the kind that the archbishop is talking about and actually we've taken quite a few steps to bring that about."

I think today marks more than just an economic turning point. The chancellor now has hard evidence for his political narrative, which is that contrary to Labour's expectation, hard austerity has not tanked economic growth. It may in future hit growth - as most of it is still to come. But there's a confidence about the narrative emerging from good economic news and better poll ratings.

Keen watchers of Labour politics will not have missed the fact that Osborne's photo opportunity came with a Tesco workforce organised by unions whose members pay the political levy to the Labour Party. For now.