Tory “austerity” – fact or fiction (and a bearing on Brexit)

The pseudo-left in British politics likes to bang on about “austerity”. “Tory austerity”. Is it true? Is there such a thing as “Tory austerity”?

Firstly: public Spending in real terms in 2018/19 is close to what it was in 2010/11, about £740 billion. There was some pulling back since the 2010 election which ended Labour’s reign, but (and this is the key point) the pulling back was necessitated by a fall in government receipts from taxation as GDP fell. See: https://www.economicshelp.org/blog/5326/economics/government-spending/ . This shows how nominal GDP was falling around 2008-2010. After this blip public spending is now back on track.

Secondly: public spending as a share of GDP rose under the last Labour administration between 1997-2010. It has been falling since 2014. It is currently close to the level it was when New Labour came to power in 1997. See: https://www.economicshelp.org/blog/5326/economics/government-spending/ So; there has been no overall ‘war on public spending’ which is what the Labour party would like you to believe. Though, it is fair to say that the level as a percentage of GDP has fallen from the highs under New Labour.

Note the fall in nominal GDP in 2008-9. It was precisely the continued rise in public spending (to buy votes among their client groups) while government income (from taxation) was falling that led to the debt crisis around the time of the 2010 election. (The figures on this website show a fall in revenue after 2008. The figures are: 2007: £534 billion; 2008: £563 billion, 2009: £547 billion; 2010 £541 billion; 2011: £580 billion. The author sources his figures to the Treasury and OBR though I have not been able to check them. No mention is made if the figures are nominal or adjusted. I am guessing nominal.).

So. Based on the above. There has been a retrenchment in public spending since 2010 but this has been necessitated by the reality of falling government receipts. Currently, overall public spending is not lower than it was in 2010 – when Labour was last in power. Public spending as a share of GDP is not lower than it was in 2010 – though we do see a downward trend.

However. We can note that during this period (2010-2018) there has been a substantial increase in the population from 62.7 million in 2010 to 66 million (projected) in 2018. [1] Some of this increase in population (approximately 50%) is down to inward migration. Very approximately net migration to the UK has been 300,000 for each the last 8 years. That is 2.4 million new people. [2]

So. The overall picture is some retrenchment in public expenditure in the period 2010-2018 necessitated by the economic crisis and a fall in receipts.

The reduction in spending has coincided with a rise in the population partly as a result of immigration. In the context of a given amount of public spending and more people to spend it on there will be less per person. Against this however we can consider the probability that immigration has increased overall GDP and thus made more government spending possible. In reality it seems unlikely that immigration is the drain on public resources that opponents like to claim it is. Immigrants draw down public spending but they also contribute to the public finances via their overall contribution to GDP and through taxation. The overall impact on living standards seems to be neutral, according to this House of Lord’s report. [3] But note that the report concedes that there will be local and industry specific negative effects.

At the time of the 2010 election the Tories promised to reduce the deficit to zero by about 2018. Labour argued for a more moderate pulling back saying they would keep up some borrowing. The argument was that using debt to finance social spending was legitimate. In reality the Tories have adopted precisely Labour’s policy; they have given up their target to balance the books by around 2018 and have now put this target off to some point in the future. [4] This fact is hardly reported in the media. Why not? Because the reality that policies are interchangeable between the two main parties (in fact all 3) destroys the illusion of ‘democracy’. The papers feed this illusion, partly because they are, financially, part of the same edifice which benefits from keeping the population controlled with an illusion of democracy and partly, more prosaically, because they make their money by maintaining a kind of soap opera which is based around very short-term events in Westminster.

The main points are that public spending has continued to grow in real terms since the Second World War. There was a significant reduction in the period 2010-2018 (“austerity”) but this was necessitated by a fall in government revenue. Government spending as a percentage of GDP is currently around 39%, about what it was when New Labour came to power in 1997. Currently the annual deficit is still around £42 billion (roughly comparable to levels in 2002-2008). There has been some “austerity” – cutbacks – in the context of an overall long-term upward trend in public spending (both in real terms and as a percentage of GDP). The reduction in 2010-2018 is not “Tory austerity” in particular.  The Tories’ actual spending levels are what New Labour said they would do. If Labour had won the 2010 election we would now be enduring “Labour austerity” (or, more likely, much more debt than they promised).

The coincidence of a temporary retrenchment in public spending and relatively high levels of inward net migration has provided a basis for pro-Brexit and anti-immigration rhetoric but, in reality, immigration is neither here nor there in overall terms in terms of negatively affecting average living standards. People who voted for Brexit on the basis of austerity and the supposed economic effects of immigration were basing a long-term decision (the UK’s membership of the EU) on a short-term effect (a temporary period of ‘austerity’) and a mistaken idea that immigrants were to blame for their economic woes.

Notes

  1. https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/mar2017/previous/v1
  2. https://www.bbc.com/news/uk-44846002
  3. https://www.theguardian.com/politics/2008/apr/01/immigrationpolicy.immigration1
  4. https://www.theguardian.com/uk-news/2018/oct/30/hammond-no-longer-on-track-to-balance-budget-says-obr

https://www.bbc.com/news/business-43876918

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Author: justinwyllie

EFL Teacher and Photographer