I wrote a piece yesterday which indicated how the UK
government’s position on Brexit is no longer tenable and needs to change. The
extent to which this impacted on the election is questionable. But one issue
which did appear to resonate during the campaign was that of fiscal austerity.
Like Brexit, this is a subject where I believe the government has adopted an
ideological rather than a pragmatic approach, and the evidence from the
election campaign is that it is wearing a bit thin.
During the election campaign of 2010, the Conservatives portrayed the Labour Party as having bankrupted the country as the public deficit headed above 10% of GDP. Labour were admittedly fiscally profligate in the years prior to the crisis but the crash in public finances was purely the result of the massive collapse in activity in the wake of the recession. Nonetheless, the Conservatives played on the image relentlessly, usurping Labour from government in 2010 and embarking on a fiscally prudent course to eliminate the current deficit by 2016 and reduce overall borrowing to 1% of GDP. As is well known, for various reasons Chancellor George Osborne continued to fall short of his targets and the fiscal squeeze became ever tighter.
What was deemed to be particularly unfair about Osborne’s approach is that he relentlessly targeted the welfare budget. Access to welfare has been severely restricted as those people previously judged unfit for work are subject to more stringent tests, which are almost impossible to pass unless the individual is virtually dead. Leave to appeal has been strictly curtailed, with a recent Freedom of Information request revealing that the Department for Work and Pensions has a target to reject 80% of benefits appeals. As even The Economist noted recently, welfare spending has fallen “by one percentage point of GDP, with working-age families bearing the brunt. Since 2015, however, the Tories have turned a hard-nosed welfare policy into a punitive one. Osborne used cuts in working-age benefits as a way to balance the books … A four-year cash-terms freeze on most benefits began in April last year. That policy was announced when inflation was close to zero. Now it is nearing 3%, the purchasing power of everything from tax credits (top-ups for low-paid folk) to housing benefit is falling.”
The recent tragic terror attacks on the British mainland threw the issue of public spending cuts into sharp relief. I have noted previously that politicians are quick to praise public services when they are needed but otherwise have no compunction in cutting their budgets. Having survived in government by the skin of their teeth, the Conservatives now realise that a further parliamentary term of fiscal austerity is not going to win them votes. But what exactly might that entail? Does it mean simply not reducing the share of spending relative to GDP any further? Or does it mean holding the deficit constant versus GDP, which allows scope to raise spending so long as it is funded by higher taxes? As it is, spending as a share of GDP is still high by past standards, at just over 39%, but it is 6 percentage points below the 2010 peak. But revenues, at just below 37% of GDP, are only slightly higher than their long-run average. My sense is that taxes will have to rise at some point in order to fund additional spending – and as I have long argued, the policy of cutting corporate taxes to amongst the lowest in the OECD is putting an unnecessary hole in public revenues.
But austerity is not just about making the books balance: It becomes a state of mind, whether you are in government, the private sector or making your household finances stretch further. It is in this wider context that we have to view the horrific fire which engulfed the Grenfell Tower in London yesterday. I am not suggesting for a moment that government neglect had any bearing on what happened. But abstracting from the grim horror of what happened, one of my thoughts was that 30 years ago, as the UK was going through a similar period of government retrenchment, we experienced a similar series of tragedies (the Bradford City fire; the Kings Cross fire; the sinking of the Marchioness and the Clapham rail disaster). David Aaronovitch, writing in The Times today, evidently came to the same conclusion. As he put it, these disasters “arose from the use of old, near-obsolete and dangerous infrastructure … Stuff like this usually comes down to attitude and to money.” Elsewhere in the same newspaper, the point was made that “cost-cutting by private firms brings public danger.”
This is not the voice of the Labour Party: The Times represents the voice of the political centre with a bias towards the Conservatives. This shift in attitudes must act as a wake-up call to politicians of all stripes that government – whether central or local – cannot continue outsourcing functions to the private sector. Citizens pay their not-insubstantial taxes and expect a decent level of services in return. When even the BBC news reporter covering the fire (here at 5:24 if you can play the video) – who as a rule remains impartial at all times – stated “in the 21st century, in a country with some of the strictest fire regulations in the world, a desperate tragedy like this just should not happen,” you know that something is afoot.
During the election campaign of 2010, the Conservatives portrayed the Labour Party as having bankrupted the country as the public deficit headed above 10% of GDP. Labour were admittedly fiscally profligate in the years prior to the crisis but the crash in public finances was purely the result of the massive collapse in activity in the wake of the recession. Nonetheless, the Conservatives played on the image relentlessly, usurping Labour from government in 2010 and embarking on a fiscally prudent course to eliminate the current deficit by 2016 and reduce overall borrowing to 1% of GDP. As is well known, for various reasons Chancellor George Osborne continued to fall short of his targets and the fiscal squeeze became ever tighter.
What was deemed to be particularly unfair about Osborne’s approach is that he relentlessly targeted the welfare budget. Access to welfare has been severely restricted as those people previously judged unfit for work are subject to more stringent tests, which are almost impossible to pass unless the individual is virtually dead. Leave to appeal has been strictly curtailed, with a recent Freedom of Information request revealing that the Department for Work and Pensions has a target to reject 80% of benefits appeals. As even The Economist noted recently, welfare spending has fallen “by one percentage point of GDP, with working-age families bearing the brunt. Since 2015, however, the Tories have turned a hard-nosed welfare policy into a punitive one. Osborne used cuts in working-age benefits as a way to balance the books … A four-year cash-terms freeze on most benefits began in April last year. That policy was announced when inflation was close to zero. Now it is nearing 3%, the purchasing power of everything from tax credits (top-ups for low-paid folk) to housing benefit is falling.”
The recent tragic terror attacks on the British mainland threw the issue of public spending cuts into sharp relief. I have noted previously that politicians are quick to praise public services when they are needed but otherwise have no compunction in cutting their budgets. Having survived in government by the skin of their teeth, the Conservatives now realise that a further parliamentary term of fiscal austerity is not going to win them votes. But what exactly might that entail? Does it mean simply not reducing the share of spending relative to GDP any further? Or does it mean holding the deficit constant versus GDP, which allows scope to raise spending so long as it is funded by higher taxes? As it is, spending as a share of GDP is still high by past standards, at just over 39%, but it is 6 percentage points below the 2010 peak. But revenues, at just below 37% of GDP, are only slightly higher than their long-run average. My sense is that taxes will have to rise at some point in order to fund additional spending – and as I have long argued, the policy of cutting corporate taxes to amongst the lowest in the OECD is putting an unnecessary hole in public revenues.
But austerity is not just about making the books balance: It becomes a state of mind, whether you are in government, the private sector or making your household finances stretch further. It is in this wider context that we have to view the horrific fire which engulfed the Grenfell Tower in London yesterday. I am not suggesting for a moment that government neglect had any bearing on what happened. But abstracting from the grim horror of what happened, one of my thoughts was that 30 years ago, as the UK was going through a similar period of government retrenchment, we experienced a similar series of tragedies (the Bradford City fire; the Kings Cross fire; the sinking of the Marchioness and the Clapham rail disaster). David Aaronovitch, writing in The Times today, evidently came to the same conclusion. As he put it, these disasters “arose from the use of old, near-obsolete and dangerous infrastructure … Stuff like this usually comes down to attitude and to money.” Elsewhere in the same newspaper, the point was made that “cost-cutting by private firms brings public danger.”
This is not the voice of the Labour Party: The Times represents the voice of the political centre with a bias towards the Conservatives. This shift in attitudes must act as a wake-up call to politicians of all stripes that government – whether central or local – cannot continue outsourcing functions to the private sector. Citizens pay their not-insubstantial taxes and expect a decent level of services in return. When even the BBC news reporter covering the fire (here at 5:24 if you can play the video) – who as a rule remains impartial at all times – stated “in the 21st century, in a country with some of the strictest fire regulations in the world, a desperate tragedy like this just should not happen,” you know that something is afoot.
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