Will this austerity ever end?

Martin Bamford
Jul 21, 2017 · 3 min read

Austerity. An economic policy designed to reduce government budget deficits.

Here in the UK, the government has been following a programme of austerity since late 2008, in response to the global financial crisis.

This had two goals; eliminate the structural budget deficit (spending more than tax revenue) and reduce national debt as a share of gross domestic product.

Following the general election in June, we’ve heard cross-party calls to ease austerity, for example ending parts of the public sector pay cap to allow for more generous wage rises.

The Conservative party, in minority government with support from the DUP, have so far resisted any end to austerity.

Last month we saw government borrowing increase, largely as a result of higher interest charges on public debt.

The public sector net borrowing figure, which excludes state-owned banks, increased to £6.9bn in June. It was just £2bn a year earlier.

Government debt costs were up by more than a third in June, as rising price inflation pushed up interest costs on index-linked bonds.

It means that for the financial year to date, public sector borrowing is up by £1.9bn to £22.8bn.

Borrowing is expected to be £58.3bn in the current financial year, according to the Office for Budget Responsibility, the independent fiscal watchdog.

Their latest estimates show public borrowing was £46.2bn for the last financial year, which ended in March.

The government will no doubt use these latest borrowing figures to argue that austerity cannot end and public sector workers should not receive higher pay. It believes national debt remains too high and the UK is still vulnerable to economic shocks in the future.

With Brexit negotiations ongoing, the outlook for the British economy remains uncertain. It would be a bold move for any government to loosen their belt before they know the true economic consequences of leaving the European Union.

Some argue that nearly a decade of austerity has strangled economic growth.

There’s another potential consequence of austerity; the decades long rise in life expectancy might have stalled as a result.

New analysis shows increases in life expectancy has leveled-off since 2010.

Improvements in life expectancy at birth had historically been around a one year increase every five years for women and every three and a half years for men.

Since 2010 these improvements have slowed to a one year increase every 10 years for women and every six years for men.

Professor Sir Michael Marmot reacted to the data saying, ‘I am deeply concerned that if we do not fund healthcare and social care adequately people will lead much worse lives’.

I was often reminded by my sociology professor in college that correlation is not causation; just because two things are happening together, does not mean one is causing the other.

Even Professor Marmot admitted he could not draw conclusions as to why rises in life expectancy have faltered. But he has raised concerns about “miserly” health and social care spending.

Whether austerity can end in the UK in the near future remains to be seen. More work will no doubt be carried out to understand its true economic and social impact, with any evidence of negative consequences increasing pressure on government to ease austerity measures.

Unless concrete economic results are seen from austerity soon, it seems unlikely the government will be able to maintain their current programme without the temptation of trying a different approach.

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Martin Bamford

Podcaster, author & columnist, Chartered Financial Planner & Accredited Later Life Adviser @informedchoice, chairman of Knowle Park Trust, ultra runner.

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