Former Chief Secretary to the Treasury David Laws, the Liberal Democrat MP for Yeovil and now Minister for Schools and the Cabinet Office, explains why he believes the gloom-mongers have been wrong on the economy
2014 is set to be the last full year of the present Parliament, and both coalition parties face the challenge of doing two different things at the same time – working hard together to sort out the country's economic and social problems, while also setting out two distinct sets of proposals on which the parties will fight the next General Election. It should all make for an interesting political year.
Of course, the big issue which has dominated this Parliament, and which will help determine the result of the next election, is the issue of the economy.
We started 2013 with continued anaemic economic growth, and public sector borrowing which was still far too high. Critics of the coalition Government claimed economic recovery would never come, and that the economy would "flat-line" or fall back into recession.
The gloom-mongers have turned out to be completely wrong. The latest economic statistics show that growth accelerated markedly from this spring onwards and appears to have continued right through to the end of the year.
Growth this year has been stronger than expected, at just under 1.5 per cent, but with much stronger growth in the second half of the year.
There has been other good news. Inflation has come down, and petrol prices have fallen back from their highs (helped by the coalition Government cancelling all Labour's planned increases in petrol taxes).
Employment has done particularly well. Indeed, the UK has seen a net increase of over 1.4 million jobs in the private sector since the last General Election. Employment is now higher than it was before the recession hit us, and is at its highest ever level.
Because the coalition Government has made savings in public spending, we have now reduced the deficit – annual government borrowing – by over one third in just 3.5 years. That is good progress, though clearly there is much more to do.
Of course, there remain some darker economic clouds still around in the sky, and we need to watch these carefully in 2014. Other economies, particularly in the European Union, remain weak – and this is holding back our exports, which rose only by around one per cent this year.
Too many of our exports presently go to the other European countries which are not doing well at the moment. That is why the Government is doing more to encourage and support exports to areas such as China, India, Latin America and Asia-Pacific.
The other big issue which we need to address is living standards. Eventually, economic growth will raise people's incomes and make us all feel better off. But this is taking time. Pay rises in the public and private sectors remain generally low, and average earnings have risen by only around one per cent this year. With inflation at two per cent, it is no wonder that household budgets are tight. That is why the Government is doing more to support incomes at this time. I am particularly proud that in April 2014 the tax-free personal income tax allowance will rise to £10,000 per year, from just £6,500 in May 2010. That delivers on the Liberal Democrat manifesto pledge to allow people to keep more of their incomes before they start paying tax.
A £10,000 tax allowance was our target for the end of the Parliament – a target that David Cameron said in 2010 was unrealistic and unachievable! But now that we have reached £10,000, and with household budgets stretched, there is a strong argument for going further and increasing the allowance to £10,500 or more by April 2015. That gives direct help to low and middle income households, and it ensures that it pays to work.
The coalition Government is also freezing petrol duty for the entire Parliament, and seeking to keep council tax down. Council tax doubled under the last Labour Government, but in most areas it has been frozen under the coalition. These measures will help household incomes and growth. We cannot be complacent, and we must do all we can to continue to support the economy in 2014. But this year has been a year of real progress and we can and must build on this next year.