By Ben Simmons

Stronger wage growth and incentives to unlock the £724 billion 'cash pile' currently held by UK companies - equivalent to around half the size of the economy - offer the only hopes of a sustainable economic recovery, according to a new report published today (Tuesday) by the trades Union Congress (TUC).

The TUC's second quarterly economic report focuses on the main expected drivers of economic growth in the coming years - household consumption and business investment - and what can done to boost both.

The report shows that around half of GDP growth in the years after 80s and early 90s recessions came from household consumption. But with real wages falling for the last two years and another rise in household debt not sustainable, the prospects for a new consumer boom are looking increasingly unlikely.

Strong wage growth is the best way to boost consumer spending, the report says, and is a key priority for unions. However with unemployment at 2.67million and under-employment at nearly seven million, wage-led growth is unlikely to happen in the next few years.

Investment therefore needs to be the main driver of economic growth and the TUC wants the government to create greater incentives for companies to invest in this month's Budget. The Chancellor should take the lead by reversing the planned 46 per cent cut in public investment by 2014-15, which will drag growth and hold back private sector job creation.

The report says tackling the UK's poor track record on investment and boosting bank lending to non-financial or real estate firms should be high on the Chancellor's priority list.

With companies currently holding a record £724 billion in currency and deposits, the government must use the tax system, credit easing and a state investment bank to channel this cash into investment.


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