The word austerity crops up everywhere.
It seems there is no problem under the sun which cannot be blamed on it. The media and the left deploy the word as Gospel truth, but neither bother to unearth the facts.
So what is the truth about austerity? Dig a little deeper below the headlines and the truth becomes far more nuanced. There is a very big difference between what I call macro and micro austerity. Macro austerity focuses on the big picture of tax-and-spend and borrowing. Micro austerity examines specific departmental and within departmental spending.
Micro austerity is a simple fact, so I’ll acknowledge at the outset that certain departments and programmes have been hard hit since 2010. The focus of this article is not whether or not those reductions were the correct ones, or if the knife should have sliced through spending elsewhere. Rather, I am interested in purported macro austerity.
Public spending, known as Total Managed Expenditure (TME) reached 39 per cent of GDP immediately prior to the Great Recession. It then rose to 45 per cent, and is estimated by the Office for Budget Responsibility (OBR) to have fallen back to around 40 per cent in 2017-18. The 40 per cent TME share is higher than in any year of Labour governments in the decade before the crisis.
Public sector net borrowing (PSNB) rose to 10 per cent of GDP as a result of the crisis and has subsequently fallen back to around three per cent in 2017-18. Tony Blair’s Labour only managed to run a deficit of three per cent once in its first 10 years in power. This was the era when we were told that Labour spending had saved public services such as health and education. Now we’re told that sustained deficits this big, or bigger, have been austere.
This year, in real terms, public sector current spending and TME will be the highest since record began in the 1950s. In 2017-18, public sector net debt will reach its highest level since the 1970s, at 89 per cent of GDP.
Aha, I hear you say. Debt and deficits are high because we’re taxing too little. No. The tax to GDP ratio in 2017-18 will be the highest in 30 years.
A quick glance at the big spending departments is also revealing. Between 2009-10 and 2015-16, health spending in England rose nine per cent in real terms. Real per capita spending on health has never been higher. If you look at aggregate public spending, together with spending on the NHS, it’s fair to say that you can see austerity everywhere but in the statistics.
Admittedly the rate of growth in health expenditure has slowed since 2010, but ring-fencing has made a mockery of austerity.
Other big spending departments, such as education, also challenge the conventional wisdom. I say this in the knowledge that I’m married to a teacher whose pay has been stagnant for as long as I can remember.
The government is spending record amounts on education in England. So total budgets defy the claim of austerity in education. But that is not the end of the story. The baby boom around the turn of the century means that school funding per pupil faces the largest cut in 30 years – around 6.5 per cent between 2015-16 and 2019-20. This is painful and the austerity claim clearly sticks with regard to public spending per pupil.
However, this is not the end of the story either. OECD figures rank the UK number one out of the world’s top 30 economies for total education spending as a proportion of GDP.
The rhetoric and the reality of austerity is a world apart.
Read more: Less austerity will always mean more tax