Is austerity over?

Is austerity really over? That depends what you mean by austerity, of course. Certainly the aggressive deficit reduction targets that George Osborne set and kept missing have been abandoned. As the Resolution Foundation’s Adam Corlett pointed out before the election, going by the OBR’s most recent forecasts, it is now unlikely that the deficit will be eliminated before the middle of the next decade.

This means that the cuts to public service spending will not be as severe as they were in the first half of this decade. As this next chart, from the Institute for Fiscal Studies shows, real terms public service spending is forecast to increase slightly during the next few years. However (and its surprising how often this gets missed in discussions about public spending) the population is forecast to rise so spending per person is still likely to fall.

Departmental expenditure limits since 2007–08Once you take out capital investment, there is a sharper fall in the amount left for day-to-day public service spending. The Office for Budget Responsibility expects it to fall by around 6 percent by 2022.

The trouble is, these shallow cuts will come on top of deeper ones made earlier in the decade. A report by the Institute for Government earlier this year warned that the ability of the public sector to maintain services while cutting budgets has “run out of steam”. Warning lights are flashing in the NHS, in schools and in local councils. Even this scaled back austerity might be enough to tip some public services over the edge.

And what of the other half of public spending, social security? This, too, is set to fall, as this IFS chart shows.

However, it might not fall by as much as the government thinks. Look at this chart closely and you will see that, in spite of the employment rate being at a record level and benefit entitlements having been reduced, working-age benefits are still slightly higher relative to national income than they were before the financial crisis. A combination of low wages and high housing costs means that, even though they are in paid employment, many people still rely on some form of state support.

This is unlikely to change much over the next few years. When George Osborne planned these benefit cuts, he assumed that the economy was set for a period of steady growth for the rest of the decade. That now looks very optimistic. Since the Brexit vote, the OBR has downgraded its growth forecast.

Inevitably, this will have an impact on earnings. The Resolution Foundation does not expect average pay to return to its pre recession level until the next decade.

Furthermore, it forecasts that the combined effect of low pay, inflation, high housing costs and benefit cuts will lead to a significant fall in income for those in the lower half of the income distribution.

Until now, our tax and benefit system has been doing a reasonable job of levelling out the UK’s income inequality. If these cuts go through, all that will change.

Which is why I’m not convinced that they will. The question of cuts to tax credits was kicked down the road when there was a row about it in 2015. At the time I suggested that the distress caused by the cuts might be politically damaging and could even cause social unrest. Looking at the mood of the country at the moment, that looks even more likely now than it did a couple of years ago. The government backed off in 2015. Is a minority government, mired in Brexit negotiations and with a slowing economy, likely to show more resolve?

But if the government can’t cut the cost of benefits, it either has to borrow more, increase taxes or make even deeper cuts to public services. Perhaps that is why the chancellor has made gentle hints about tax rises. If they happen, it is unlikely that they will only hit ‘the rich’.

So, while  George Osborne’s aggressive deficit target has been abandoned, when it comes to people’s experience of public services and the tax and benefits system, austerity is far from over. Taxes may rise and benefits will almost certainly be cut. The public sector will find it ever more difficult to provide services to a rising population. Such is the brutal arithmetic of public spending. After the cuts of the last few years, even the relatively mild ones to come are going to hurt.

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12 Responses to Is austerity over?

  1. Remember the Tax Credit cuts reversal never affected Universal Credit calculations – so the continued rolling out of Universal Credit will continue to cut spending

  2. sdbast says:

    Reblogged this on sdbast.

  3. gunnerbear says:

    How about chopping greedy b*****d pay in the town halls…..

    Or chop s***te like NHS Trusts spending huge amount o’ cash on wasters in PR, likewise the Police could do the same. Why is the NHS employing the sort of people who p**s money away on this type o’ garbage….

    You just know that rather than spend cash on nurses wages, Leftie F**kwitz would rather employ another Diversity Officer to add to the tribe of non-jobbers draining the public sector o’ vast, eye-watering sums of cash.

    • JohnM says:

      Taxpayers alliance. Funded by tax-avoiders and companies that pay for things like illegal employment blacklists etc…is it still under investigation?
      If you want less “diversity spend” you should maybe change a few laws…and..ermmm..that would save local councils mucho money as well.
      It may be illegal under EU law, but still..we’re leaving (maybe)

      Click to access nhse-specific-duties-equality-act.pdf

      We’d rather spend money on other things too…like security to protect the staff…loads get assaulted, and insulted. Many more since the brexit vote (AKA the national suicide vote)…
      As it is, the amount spent is insignificant.
      It is however still large enough to attract complaints from right-wing bigots intent on masking their wish to seize control of the last source of massive amounts of cash…or just be a—-holes (like you)
      Have a nice day y’hear…

      • gunnerbear says:

        You can attack the source but the fact still remains – the public sector is the last refuge of the over-paid, otherwise unemployable tool holding a job like Diversity Officer that brings nothing to the table – it’s not even productive.

        I’ve no objection to altering the law to make the penalties for attacking NHS staff steeper – – but perhaps the NHS might be less stressed if we stopped letting in the unemployable dross of the world….

        And then you give it away, whining about ‘national suicide’ – you’re a Remainiac – we’re leaving the EU – and that’s going to be awesome….think about that, leaving the EU….and we’ll still trade, still be able to fly, still be able to import and export but the scum of the ECJ (who hate the UK) will no longer have any real control over the UK. Then once we’re out of the EU, HMG can tackle immigration because HMG knows if it doesn’t (as there will be no EU to blame) it will be an ex-HMG…

      • gunnerbear says:

        Seize control o’ the cash – no, just spend the cash on the real front line – not on the hordes of wasters doing a non-job.

  4. Doug says:

    More tedious right wing populist tub thumping having a go at public sector staff. I bet you don’t have a clue what’s involved in running large complex organisations like local government and the NHS. Taxpayers Alliance? You must be joking.

    • gunnerbear says:

      So you think highly paid non-productive types like Diversity Officers and vast numbers of PR merchants are vital to the NHS? Of course they are not needed.

  5. PJD says:

    Wealth (esp housing wealth) is becoming an albatross around the neck of public policy. The UK has to find some fair and reasonable way to get the elderly to use their proxy savings in housing wealth to fund more of the NHS and social care. It is very difficult no doubt, but we do seem obsessed with protecting wealth at the expense of income.

  6. Dipper says:

    Is Austerity Over?

    No. There might be some tax rises to fund increased public spending. But without a significant increase in productivity there isn’t going to be an early end.

    There used to be a blogger who commented a lot on the various problems of the UK economy and how solving them was turning out to be very difficult. Then about a year ago he stopped and started moaning endlessly about the Referendum instead. Name escapes me …

  7. Pingback: Weekly Roundup, 25th July 2017 - 7 Circles

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