The world is experiencing a transition period. Previous beliefs in the power of democracy and capitalism to create a world of perpetual economic growth and prosperity are dead. Such assumptions could even be considered wholly naïve looking at the bleak state of affairs around the world.
A global pandemic, followed by Russian conflict with the West has shattered any hope of the prosperous utopia once believed possible by idealists. With global forecasts suggesting an economic crisis beyond anything seen in the last few decades, tough choices are going to have to be made by not just the UK, but the world. This could be seen as the reckoning time for capitalism.
In the UK, we have felt the effect of this economic crisis more than most, with The Bank of England recently forecasting the longest economic recession since records began. To those of you who don’t know, a recession essentially refers to a sustained period of weak or negative growth in a country’s GDP. Mounting state debt is another concern alongside this bleak economic outlook, and the UK government has made it clear that balancing the books by reducing Britain’s debt is going to play a key role in their future economic policy.
Jeremy Hunt (the UK’s new Chancellor) has constantly referred to the very tough decisions he is going to have to make to pursue his ‘balancing the books’ agenda, claiming nothing is off the table in his budget to be announced on the 17th November. Many commentators believe this is a reference to renewed austerity measures, dubbed austerity 2.0.
Austerity has become a dirty word in the UK. Essentially, the term refers to political-economic policies which aim to reduce a governments budget deficit by decreasing public spending, while increasing taxes if this is necessary. After the global financial crash in 2008, David Cameron and George Osborne pursued such measures beginning 2010.
The logic of austerity sees excessive government debt as unsustainable, as interest on this debt eventually swallows too large a share of the budget. Due to the fact that debt is caused by a large governmental deficit, austerity aims to play a part by reducing the deficit through spending cuts. A deficit is essentially a situation whereby government spending exceeds government revenue.
Cameron and Osborne’s pursuit of austerity followed the above logic. Therefore, they set an agenda to eliminate the deficit over a 5-year period, while also aiming to reduce the UK’s national debt as a percentage of GDP. Public spending cuts meant less money for vital public services, less financial support from the government for initiatives such as universal credit, and a reduction in development and infrastructure projects across the country. It was expected that such cuts would amount to £110 billion.
David Cameron accounted for the reduction of public service funding through his idea of The Big Society. This was a belief in the role of grass-roots organisations, charities and private companies as public service providers instead of the government being the sole provider.
The question is, did austerity work?
This all depends on what you consider the true goal of austerity. It is true that by 2015, deficit as a percentage of GDP had reduced to half of what it was in 2010, and Britain’s debt to GDP ratio had began falling. During 2017, there was an overall budget surplus on day-to-day spending for the first time since 2001. Therefore, if you consider success to entail a moderate balancing of the books, hats off to Cameron and Osborne, they achieved a modest deficit reduction through austerity measures.
However, to what expense did such a policy come at? When you look at general economic growth, the UK has not achieved much. Many highlight the fact that austerity actually suppressed economic activity, and this resulted in slow growth and high unemployment during the Cameron years. Not just this, but the ‘Institute for Government’ think tank has recently provided research which proves how ineffective austerity is at reducing overall government expenditure. This is due to emergency cash injections into public services which occur later on as a result of having their funding, and therefore their ability to function, massively reduced. Preventative funding is one of the first victims of most austerity measures, deemed unnecessary for the day-to-day functioning of public services during non-crisis moments.
Therefore, from an economic standpoint, austerity seems counterproductive. It is now clear that making people poorer, and reducing the ability of public services to tend to the basic needs of a population is not a good way to bring about spending, growth and prosperity, which would ultimately bring money into the government through taxation. Less government tax revenues as a result of austerity measures surely go against the overall objectives of such a policy.
More importantly, austerity had appalling outcomes on public health, homelessness and poverty in Britain. The number of children in ‘relative poverty’ was 600,000 higher in 2019 than it had been in 2012, the number of people sleeping rough on any one night across the country more than doubled between 2010 and 2016, and one study has found that over 330,000 excess deaths during the past 12 years have been directly liked to austerity. Beyond this, education services saw the closure of 800 libraries, and museums have degraded, harming Britain’s cultural commodities.
Based off this, it cannot be argued that austerity is the moral thing to do. The evidence points to the fact that it does not grow the economy, it in facts slows its growth, and it leads to a reduction in the quality of living for millions.
So, I ask again, austerity successfully reduced the deficit, but to what end?
The fact that the current government is thinking about austerity 2.0 is a failure of understanding and reconciliation. Public sector wage cuts and staff reductions are even less viable now than they were in 2010 due to rampant inflation, and underlying issues with staff retention and recruitment in the public sector. There’s already a shortage of 50,000 nurses and 12,000 doctors. Why would paying them less in real terms attract people to the job? In short, it wouldn’t. The problems we see today will remain and even get worse if the current government decides to pursue a damaging course of public spending cuts.
Austerity in the 2010-2019 period should be a stark warning to the government not to initiate such a policy during the midst of a recession. Not only is it economically counterproductive, but it goes against the compassionate society Britain should stand for. Jeremy Hunt, if he plans to go ahead with austerity, is making a grave mistake.
The recession will not go away on its own, but austerity has never been, and still is not, the right solution.