Austerity has become a dirty word in British politics, a stick with which to beat the coalition and Conservative governments that have held power since May 2010. Few public figures wield the stick with as much enthusiasm as Labour’s resurgent leader Jeremy Corbyn.
“Austerity and inequality are choices, they are not necessities,” Corbyn told parliament yesterday. “They are a choice to make life worse for the many to maintain the privilege of the few.”
Is he correct – is austerity merely a choice, a policy that the government could reject if it was so inclined?
The debate is somewhat muddied by varying perspectives of what austerity means, but for the sake of simplicity let us assume it refers to either a reduction in the government’s annual deficit, and/or a parsimonious approach to public spending.
First, the deficit. There was positive news yesterday, with borrowing in May coming in below expectations. Yet the stubbornly high deficit is still expected to exceed £50bn this year, adding to the government’s debt pile which stands at nearly 87 per cent of GDP.
Short and medium term risks mean that any extra expansion of the deficit, during a period of near full employment, is surely foolish. And the long-run picture is even more alarming, with the government’s own fiscal watchdog forecasting a debt-GDP ratio above 100 per cent by 2040, soaring to over 200 per cent by 2060. This will happen unless government policy radically adapts to the impending demographic timebomb.
How about spending, though? Couldn’t the government simply ramp up taxes to pay for higher day-to-day expenditure?
There may be some room for revenue-lifting tax rises, with certain peer countries extracting a higher level of taxation as a percentage of GDP. But the UK is already heading in that direction; the IFS has calculated that “by 2019–20, UK tax receipts are forecast to be at their highest share of national income since 1981-82,” while the Adam Smith Institute says its so-called Tax Freedom Day (which records the day on which we stop working to pay the government, and start earning for ourselves) is moving later and later each year. This year it fell on 12 June, its latest point in the calendar for 32 years.
To one extent Corbyn is right: austerity is a choice. But his deceit is to suggest it is an easy choice, simply a matter of flicking a switch and moving billions of pounds from the "few" wealthy and corrupt to the "many" honest and hardworking poor. Such rhetoric is nothing but class warfare, divorced from reality. The UK government faces extremely tough fiscal choices in the coming years and decades, and Labour’s demand for more carefree giveaways alongside an unprecedented expansion of the state would only make the situation worse.