Have We Had Austerity? Do We Still Need It?. History of Spending In 2001 – 2007 a record rise in public spending in proportional terms. Funded in Part.

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Presentation transcript:

Have We Had Austerity? Do We Still Need It?

History of Spending In 2001 – 2007 a record rise in public spending in proportional terms. Funded in Part by VERY buoyant revenues. Despite this a clear STRUCTURAL deficit by 2005.

Then the crash hit…

In 2010 the gap between government spending and tax revenues was £160 billion or over 11% of GDP A combination of a decline in revenue and short term increases in spending. But in addition structural factors pushing up certain areas of spending. The budget balance

-Fiscal mandate: eliminate deficit ‘within five years’ and get debt-to- GDP ratio back falling. -Front loaded tax rises (VAT, CGT, duties etc) and cuts to capital spending (which were planned by Labour) -Ring-fencing of NHS, schools, aid and obviously debt interest. And new triple-lock on state pension -Set out spending plans to meet fiscal mandate given growth forecasts What the Coalition did

What happened?

What went wrong? Growth much slower than expected – debate about why OBR revised up the size of the problem – thought more of deficit was structural and won’t be eliminated by growth Fiscal framework abandoned: govt decided not to adjust spending plans (2013) Because so much was ringfenced the unprotected spending took very big cuts - cuts to non-protected depts 37% over – 15. But the overall reduction was slight – 3.9% of total spending. Meanwhile some areas (health, social protection) still rising.

Where do we stand now? About 80% of spending is now ringfenced. OBR estimates that 44% of all spending is now on the elderly and health (which means the elderly). Because of better than expected (and heroic) forecasts many of the cuts planned for this year abandoned. But structural problems of public spending (and the wider economy) remain.

Very hard to have sustainable public spending over 40% of GDP. Other kinds of public spending squeezed by spending on the elderly. Can’t go on keeping the existing structure and pattern of government spending while reducing funding – this is destructive. Need to have a serious conversation about what we want government to do and what is feasible for it to do.

Does a lot (large scope) Spends little (small) Does a lot (large scope) Spends a lot (large) Does little (less scope) Spends little (small) Does Little (less scope) Spends a lot (large)