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United Kingdom government austerity programme

UK median household disposable income by income group for 2008–2016, indexed to 2008[1]

The United Kingdom government austerity programme is a fiscal policy adopted in the early 21st century following the Great Recession. It is a deficit reduction programme consisting of sustained reductions in public spending and tax rises, intended to reduce the government budget deficit and the role of the welfare state in the United Kingdom. The National Health Service[2] and education[3] have been "ringfenced" and protected from direct spending cuts.[4] The effects of United Kingdom austerity policies have proved controversial and the policies have received criticism from a variety of politicians and economists. Anti-austerity movements have been formed among citizens more generally.[5]

Contents

HistoryEdit

A UK government budget surplus in 2001–2 was followed by many years of budget deficit[6] and after the financial crisis of 2007–2008 a period of economic recession began in the country. The first austerity measures were introduced in late 2008.[7] In 2009, the term age of austerity, which had previously been used to describe the years immediately following World War II,[8] was popularised by Conservative Party leader David Cameron. In his keynote speech to the Conservative Party forum in Cheltenham on 26 April 2009 he declared that "the age of irresponsibility is giving way to the age of austerity" and committed to end years of what he characterised as excessive government spending.[9][10][11] The austerity programme was initiated in 2010 by the Conservative and Liberal Democrat coalition government. In his June 2010 budget speech, the Chancellor George Osborne identified two goals. The first was that the structural current budget deficit would be eliminated to "achieve [a] cyclically-adjusted current balance by the end of the rolling, five-year forecast period". The second was that national debt as a percentage of GDP would be falling. The government intended to achieve both of its goals through substantial reductions in public expenditure.[7] This was to be achieved by a combination of public spending reductions and tax increases amounting to £110 billion.[12] The end of the forecast period was 2015–16.

Between 2010 and 2013, the Coalition government said that it had reduced public spending by £14.3 billion compared with 2009–10.[13] Growth remained low during this period, while unemployment rose.[12] In a speech in 2013, David Cameron indicated that his government had no intention of increasing public spending once the structural deficit had been eliminated and proposed that the public spending reduction be made permanent.[14] In 2014, the Treasury extended the proposed austerity period until at least 2018.[15] By 2015, the deficit, as a percentage of GDP, had been reduced to half of what it was in 2010, and the sale of government assets (mostly the shares of banks nationalised in the 2000s) had resulted in government debt as a proportion of GDP falling.[7] By 2016, the Chancellor was aiming to deliver a budget surplus by 2020, but following the result of the United Kingdom European Union membership referendum, 2016, he expressed the opinion that this goal was no longer achievable.[16]

Osborne's successor as Chancellor, Philip Hammond, retained the aim of a balanced budget[17] but abandoned plans to eliminate the deficit by 2020.[18] In Hammond's first Autumn statement in 2016, there was no mention of austerity, and some commentators concluded that the austerity programme had ended.[19][20] However, in February 2017, Hammond proposed departmental budget reductions of up to 6% for the year 2019–20,[13] and Hammond's 2017 budget continued government policies of freezing working-age benefits.[21] Following the 2017 snap general election, Hammond confirmed in a speech at Mansion House that the austerity programme would be continued[22] and Michael Fallon, the Secretary of State for Defence, commented: "we all understand that austerity is never over until we've cleared the deficit".[23] Government spending reductions planned for the period 2017–2020 are consistent with some departments, such as the Department for Work and Pensions and the Ministry of Justice, experiencing funding reductions of approximately 40% in real terms over the decade 2010–2020.[24] During 2017 an overall budget surplus on day-to-day spending was achieved for the first time since 2001. This fulfilled one of the fiscal targets set by George Osborne in 2010, which he had hoped to achieve in 2015.[25]

In 2018 the Office for Budget Responsibility (OBR) predicted that in 2018–19 public sector debt would fall as a share of national income for the first time since 2001–02, while tax revenues would exceed public spending. Hammond's 2018 Spring Statement suggested that austerity measures could be reduced in the Autumn Budget of that year. However, according to the Resolution Foundation and the Institute for Fiscal Studies, the OBR's forecasts for borrowing and debt were based on the assumption that the government continued with the planned spending reductions that were announced after the 2015 general election. By 2018 only 25% of the proposed reductions in welfare spending had been implemented. The Resolution Foundation calculated that the proposed reduction in spending on working-age benefits amounted to £2.5 billion in 2018–19 and £2.7 billion in 2019–20, with the households most affected being the poorest 20%. The IFS calculated that the OBR's figures would require spending on public services per person in real terms to be 2% lower in 2022–23 than in 2019–20.[26]

The deficit in the first quarter of the 2018–19 financial year was lower than at any time since 2007[27] and by August 2018 it had reached the lowest level since 2002–3. Hammond's aim at this time was to eliminate the deficit entirely by the mid-2020s.[6] At the Conservative Party conference in October 2018 Prime Minister Theresa May indicated her intention to end the austerity programme following Brexit in 2019.[28] Hammond's preference was to reduce the national debt with more years of austerity[29] but opposition leader Jeremy Corbyn said that austerity could not be ended without significant increases in public spending.[30]

EffectsEdit

The austerity programme included reductions in welfare spending, the cancellation of school building programs, reductions in local government funding, and an increase in VAT.[12] A number of quangos were abolished, merged or reduced as a result of the 2010 UK quango reforms.[31]

DemographicsEdit

A number of independent reports have considered the demographic effects of the austerity programme. In 2011, activist collective Feminist Fightback described its gendered impact[32] and in 2012 the Fawcett Society published a report which was critical of the Treasury for not assessing the impact of austerity on women's equality.[33] A 2015 report by the Resolution Foundation identified age-related disparities in the effects of austerity changes. The report projected that during the 2010s transfers to local authorities would fall by 64% and that spending on working-age welfare would fall by 71%, while between 1997 and 2020 spending on older people and health would rise from 33.8% to 43.4% of total government spending. In the same year a group of political scientists at the University of Nottingham found that the impact of austerity on in-work benefits and housing policy had been harmful to working families with children, while wealthy pensioners and older homeowners had benefited.[34] In 2016 research from the Women’s Budget Group and the Runnymede Trust indicated that women, people of colour and in particular women of colour had been affected most by austerity, and that they would continue to be affected disproportionately until 2020. This was due to the fact that black and Asian women were more likely to be employed in the public sector, be in low-paid jobs and insecure work, and experience higher levels of unemployment than other groups.[35][36]

Research published in 2017 by the Joseph Rowntree Foundation identified an increase in child poverty and pensioner poverty compared to the previous year, following significant overall decreases during the previous 20 years. Reductions in benefit support and a shortage of affordable housing were considered to be contributing factors.[37]

Food banksEdit

Researchers have linked budget cuts and sanctions against benefit claimants to increasing use of food banks. In a twelve-month period from 2014 to 2015, over one million people in the United Kingdom had used a food bank, representing a "19% year-on-year increase in food bank use".[38]

A study published in the British Medical Journal in 2015 found that each one percentage point increase in the rate of Jobseeker's Allowance claimants sanctioned was associated with a 0.09 percentage point rise in food bank use.[39] However, the Organisation for Economic Co-operation and Development found that the number of people answering yes to the question "Have there been times in the past 12 months when you did not have enough money to buy food that you or your family needed?" decreased from 9.8% in 2007 to 8.1% in 2012,[40] leading some to say that the rise was due to both more awareness of food banks, and the government allowing Jobcentres to refer people to food banks when they were hungry, in contrast to previous governments.[41]

HousingEdit

When the coalition government came to power in 2010, capital investment in new affordable homes was cut by 60%, while government-imposed caps on local authority borrowing continued to restrict their ability to raise money to build new homes.[42] Writing in Inside Housing, former housing minister John Healey observed that rate of starting social rented schemes had declined from 40,000 in 2009/10 to less than 1,000 in 2015/16.[43] The number of people sleeping rough on any one night across England had more than doubled between 2010 and 2016 to an estimated 4,134, according to a government street count.[44]

The benefit cap, introduced via the Welfare Reform Act 2012, set a maximum level for the amount of state welfare benefits that could be paid to an individual household in any one year. The measure came into effect in 2013 with the figure initially set at £26,000 per year, close to the average income of a family in the UK at that time. The anticipated reduction in government expenditure as a result of the measure was £225 million by April 2015.[45] The benefit cap initially affected approximately 12,000 households, mainly in high-rent areas of the UK such as London, but in 2016/17 the limit was reduced to £20,000 per annum (£23,000 in London) extending its effects to around 116,000 households across the UK.[46]

A Local Housing Allowance (LHA) policy restricting Housing Benefit for private sector tenants to cover a maximum number of rooms had been in place since 2008. It was extended in April 2013 to cover public housing in the United Kingdom (except Northern Ireland). The resulting under-occupancy penalty, commonly known as the "bedroom tax", affected an estimated 660,000 working age social housing tenants in the UK, reducing weekly incomes by £12–£22.[47] Almost two thirds of the people affected by the penalty were disabled.[48] The measure reduced the expenditure of the Department for Work and Pensions by approximately £500 million per year.[49]

From April 2016 the LHA rates used to calculate maximum housing benefit levels for private sector tenants were frozen for four years. Research by the housing charity Shelter indicated that the proportion of such tenants likely to experience a shortfall in housing benefit was 80%, amounting to 300,000 families. The degree of shortfall depends on dwelling, location and individual circumstances, but Shelter expected that by 2020 the shortfall could in some cases reach hundreds of pounds a month.[50]

In April 2017, housing benefit payments were ended for new claims made by people aged 18–21. Research by Heriot-Watt University found that the policy would reduce annual government expenditure by £3.3 million.[51]

During the period of austerity, the rate of homelessness has rapidly increased. For example, during 2016 the rate of homelessness increased by 16%. By 2018 the number of families living in bed and breakfast accommodation was almost 50,000, and there were many more "hidden homeless" people living on the floors and sofas of friends and acquaintances. An article in The BMJ regarded this as a "neon sign that something is fundamentally wrong" with how society is being run, noting that "homeless women die on average at 43 and homeless men at 47, compared with 77 for the rest of us".[47]

Local governmentEdit

During the period of austerity there have been reductions in UK Government funding for county councils in England. This has combined with an increasing demand for social care services to cause reductions in expenditure on other services such as public libraries, refuse collection, road maintenance and Sure Start, along with increases to council tax rates and the introduction of additional charges for county council services.[52] Local authority subsidies to bus services were reduced by almost half between 2010 and 2018.[53]

Research by the Local Government Chronicle has indicated that between 2010 and 2018 there were more than 220,000 redundancies of local authority employees and nearly £4 billion was spent on redundancy payments, excluding outsourcing contracts. Rob Whiteman of CIPFA commented that "this scale of job losses reflects the intense financial pressure on councils as they now have no option other than to provide the bare minimum statutory provisions".[54] Analysis by the Local Government Association in 2018 identified a decrease in the Revenue Support Grant for local authorities in England from £9,927 million in 2015–16 to £2,284 million for 2019–20, leaving 168 authorities with no grant for 2019–20.[55] UK government plans in 2018 proposed the phasing out of grants to local authorities in England, instead funding English local government through a combination of local business rates and council tax.[56]

Research by the University of Cambridge published in 2018 said that the greatest reductions in local authority spending had occurred in impoverished post-industrial cities in the north of England and some poor Inner London boroughs. Over 30 such authorities in England had reduced spending by more than 30% between 2010 and 2017, with seven of them reducing spending by more than 40%. In contrast councils in wealthier areas had made smaller reductions. Councils in England experienced an average spending reduction of 24% compared to 12% in Scotland and 11.5% in Wales, the difference resulting from devolved government in those nations.[56]

In 2018 Northamptonshire County Council become insolvent and proposed reducing services to the minimum required by law. Austerity measures were blamed for the insolvency, as was the council's refusal to raise council tax despite the rising costs of providing social services. At the time the National Audit Office said that up to 15 other local authorities were also at risk of insolvency.[57] A survey of council leaders, chief executives and mayors conducted by the New Local Government Network indicated that more than 70% of respondents expected that they would be unable to provide non-statutory services beyond 2023 if funding remained as restricted as it had been since 2010.[58]

Mental HealthEdit

In 2016, figures analysed by the King's Fund think tank showed that "mental health trusts in England are still having their budgets cut, despite government assurances they would be funded on a par with physical healthcare". The analysis "suggests 40% of the 58 trusts saw budgets cut in 2015–16".[59]

A 2016 report authored by the NatCen Social Research for UNISON shows that LGBT people have suffered from a lack of access to mental health services as a result of austerity.[60]

A 2015 report published by Psychologists for Social Change indicates that austerity has contributed significantly to the incidence and level of depression and other mental health conditions within the population.[61]

MortalityEdit

In 2017, the Royal Society of Medicine said that government austerity decisions in health and social care were likely to have resulted in 30,000 deaths in England and Wales in 2015.[62][63] Research by University College London published in BMJ Open in 2017 compared the figures for health and social care funding during the 2000s with that during the period 2010–2014. It found that annual growth in health funding during the 2000s was 3.8%, but after 2010 this dropped to 0.41%. Annual growth in social care funding of 2.2% during the 2000s became an annual decrease of 1.57% after 2010. This coincided with mortality rates decreasing by 0.77% annually during the 2000s but rising by 0.87% annually after 2010.[64]

The rate of increase in life expectancy in England nearly halved between 2010 and 2017, according to research by epidemiology professor Michael Marmot. He commented that it was "entirely possible" that austerity was the cause[65] and said: "If we don't spend appropriately on social care, if we don't spend appropriately on health care, the quality of life will get worse for older people and maybe the length of life, too."[66]

A paper released by the British Medical Journal in November 2017 estimated that the government austerity programme caused around 120,000 excess deaths since 2010.[67][68] By 2018 figures from the Office for National Statistics (ONS) were showing a fall in life expectancy for those in poorer socioeconomic groups and those living in deprived areas,[69] while average UK life expectancy had stopped improving. Public Health England was asked to carry out a review of life expectancy trends but government ministers said that the arguments put forward by some academics, that austerity had contributed to the change, could not be proved.[70] ONS figures published in 2018 indicated that the slowdown in general life expectancy increase was one of the highest among a group of 20 of the world's leading economies.[71]

Public sector payEdit

There are approximately five million public sector workers in the UK. Between 2011 and 2013 there was a two-year pay freeze for all public sector workers[72] earning an annual salary of £21,000 or more, which was expected to reduce public expenditure by £3.3 billion by 2014–15.[73] In subsequent years a public sector pay cap resulted in annual public sector wage increases being effectively capped at 1% for 2013–2016,[72] extended to 2020 in the 2015 budget.[73] By 2015 the number of people employed in the Civil Service had been reduced to the lowest level since World War II and public sector employees made up 17.2% of the total workforce, the smallest proportion since comparable records began in 1999.[74] During the 2017 general election the Conservative Party proposed retaining the cap until 2020, potentially reducing public sector expenditure by £5bn. A Labour Party amendment to the 2017 Queen's Speech proposing the removal of the cap was defeated.[72] A 2017 report commissioned by the Office of Manpower Economics indicated that between 2005 and 2015 median hourly earnings fell by 3% in real terms for public sector workers whose salaries are set on the advice of pay review bodies[75] (around 45% of public sector staff).[76] In September 2017, the Scottish Government announced that it intended to end the public sector pay cap in Scotland from 2018,[77] and shortly afterwards the UK government announced the ending of the cap in England and Wales.[78] By autumn 2017 public sector pay had fallen behind private sector pay for comparable work.[79]

Social securityEdit

From 2013 onwards, working-age social security payments were limited to a maximum annual increase of 1% instead of being increased annually according to the rate of inflation. The policy of suspending the social security payments of unemployed claimants who were judged not to be adequately seeking work was continued, and the frequency and severity of the sanctions was increased.[80] From 2016 a four-year freeze on all working-age social security payments was introduced. It was anticipated that it would affect 11 million UK families and reduce expenditure by £9 billion, a figure later increased to £13 billion.[81] The Welfare Reform and Work Act 2016 abolished the Work-Related Activity Component of Employment and Support Allowance for new claimants from April 2017. This reduced the weekly social security payments for the disabled people affected by £29.05 a week (at 2017/18 rates). The reduction in government expenditure was initially forecast to be £640 million per annum by 2020/21, though this was later revised to £450 million.[82]

State PensionEdit

The value of the State Pension has not been subject to austerity measures, being increased each year since 2011 by a minimum of 2.5% per annum.[83] However, some people have been adversely affected financially in their 60s by the rise in the age at which the State Pension is first paid. The decision to equalise the State Pension ages of men and women was made by the government in 1995. From 2010 the women's state pension age was steadily raised from 60 with the aim of matching that of men at 65 by 2018. An additional increase to 66 for both sexes is intended to be implemented by 2020. Research by the Institute for Fiscal Studies (IFS) in 2017 found that the household incomes of over one million women aged between 60 and 62 had become £32 a week lower on average, and that poverty rates among that group had risen. The IFS also calculated that the reduction in state expenditure combined with the additional tax income from women continuing to work in their 60s resulted in a net increase in state revenue of £5.1 billion per year.[84]

Northern IrelandEdit

Reductions in public expenditure in Northern Ireland have often been described as not as harsh as those for the UK as a whole. This is primarily due to the fact that the UK government has not been able to exert direct control over welfare expenditure in Northern Ireland, because welfare policy is a devolved matter for the Northern Ireland Assembly.[7] On a number of occasions the Assembly has not agreed to cuts in public spending, effectively refusing to make them, despite pressure from the UK government.[85] However, the UK government has sought to recoup the expected savings through a fine on Northern Ireland's block grant, which is calculated according to the Barnett formula, and which fell by 8% in real terms between 2010 and 2015.[7] Research by Oxfam Ireland which was published in 2014 indicated said that austerity measures were affecting Northern Ireland disproportionately due to its being one of the UK's most disadvantaged regions with a high dependence on public spending.[86] In 2017 the Conservative–DUP agreement resulted in an additional £1 billion of public sector funding for Northern Ireland over two years, with the money focused on the health, infrastructure and education budgets.[87]

ReactionEdit

During the early years of the austerity programme, many economists argued that the financial changes of the austerity programme should not be undertaken as extensively and as quickly as was done. Osborne, however, argued that without the implementation of the programme in the way that it was another financial crisis was likely.[12]

The rationale behind the need for achieving a balanced budget in the financial climate following the Great Recession has been questioned by some Keynesian economists. Andrew Gamble writing in Parliamentary Affairs in 2015 commented:[88]

Most macroeconomists now agree that the austerity programme pursued by the Coalition Government in its first two years was both too severe and unnecessary and set back the economic recovery which was underway in the first half of 2010. The Office of Budget Responsibility confirmed that the austerity programme reduced GDP, while the Oxford economist Simon Wren-Lewis has calculated that the Coalition Government's austerity programme cost the average household £4000 over the lifetime of the Parliament and severely damaged those public services which were not ring-fenced.

Ha-Joon Chang, writing in 2017, observed that "in today’s UK economy, whose underlying stagnation has been masked only by the release of excess liquidity on an oceanic scale, some deficit spending may be good – necessary, even".[89]

Some criticism has been based allegations of economic opportunism, with the government said to have made politically popular cuts rather than those necessary to achieve its long-term aims. Paul Mac Flynn wrote for the Nevin Economic Research Institute in 2015 that:[7]

Instead of focussing on the long-term structural causes of increases in public expenditure, the current government have adopted glib and uninformed targets for reductions in overall expenditure. Rather than tackling a housing crisis or low pay they have introduced measures like the benefit cap and the bedroom tax.

Ben Chu, economics editor of The Independent newspaper, commented that: "Austerity, as practiced by Osborne, was essentially a political choice rather than an economic necessity, and the human costs have been huge".[12]

Economists Alberto Alesina, Carlo A. Favero and Francesco Giavazzi, writing in Finance & Development in 2018, argued that deficit reduction policies based on spending cuts typically have almost no effect on output, and hence form a better route to achieving a reduction in the debt-to-GDP ratio than raising taxes. The authors commented that the UK government austerity programme had resulted in growth that was higher than the European average and that the UK's economic performance had been much stronger than the International Monetary Fund had predicted.[90]

The United Nations began an investigation in 2018 led by Philip Alston, the United Nations special rapporteur on extreme poverty and human rights, into the effect of austerity policies in the UK.[91]

Ring-fenced departmentsEdit

Peter Dominiczak (political editor at The Daily Telegraph) wrote that because spending on the NHS and foreign aid is ring-fenced, "other Whitehall departments will face savage cuts to their budgets".[92] However, some (such as Dr Louise Marshall in The Guardian) have questioned whether the National Health Service (NHS) really is exempt from austerity measures.[93]

Public opinionEdit

A YouGov poll in 2015 found that whilst 58% of those surveyed viewed austerity as "necessary", and 48% judged it to be good for economy (compared to 34% who thought it bad for the economy), 50% thought the programme was being carried out "unfairly".[94]

The 2017 British Social Attitudes Survey found that 48% of those surveyed during the previous year wanted higher taxes to pay for more public spending, the first time since 2008 that more people wanted an increase in taxation and spending than opposed it, and the highest proportion to support such measures since 2004.[95]

An April 2018 opinion poll by Number Cruncher Politics in the Financial Times found that 66% of British adults, including majorities of all major parties' supporters, thought austerity had "gone too far".[96] A poll by Survation for the GMB trade union published in spring 2018 found that 62% of respondents wanted the 2018 spring budget to increase spending on public services in real terms, while 48% of those who had voted for the Conservative Party at the 2017 general election thought that austerity had been excessive.[97]

Effects on general electionsEdit

The 2010 general election was contested by a Labour Party and a Conservative Party which had both committed themselves to austerity policies. Labour's then-Chancellor of the Exchequer Alistair Darling predicted that "two parliaments of pain" would be necessary to address the UK's budget deficit. The Institute for Fiscal Studies said that Labour's plans implied a cumulative decline of 11.9% in public spending over four years. This would reduce public expenditure by a total of £46 billion in inflation-adjusted terms, taking it from over 27% of the economy to below 21%, back to its level in the late-1990s. The IFS also said that there appeared to be only a modest difference between the plans put forward by the two main political parties.[98] Neither party won a majority at that year's general election, resulting in a hung parliament with the Conservative Party forming a coalition government with the centrist Liberal Democrats.

At the end of the first full parliament under the austerity programme, the Labour Party and the Conservatives were deadlocked in the polls. At the 2015 general election, the Conservative Party modified their commitment to austerity with a series of unfunded spending promises, including £8 billion of additional expenditure for the NHS.[99] At the same time, the 2015 Conservative Party general election manifesto proposed making sufficient reductions in public spending and welfare to eliminate the budget deficit entirely by 2018–19 and run a small budget surplus by 2020. The Labour Party's manifesto proposed the less rigorous objective of reducing the budget deficit every year with the aim of seeing debt as a share of GDP falling by 2020 and achieving a budget surplus "as soon as possible". This would render the spending reductions proposed by the Conservatives unnecessary, according to some analyses.[100] The Conservative Party won the general election with an overall majority for the first time in 23 years, which was unexpected by most polls as they had predicted another hung parliament.[101] Political commentator Patrick Wintour argued that one of the reasons for Labour's loss was its lack of clarity on the cause of the budget deficit.[94][102] Anti-austerity protests followed the election result,[101] but post-election polling for an independent review conducted by Campaign Company for Labour MP Jon Cruddas indicated that voters in England and Wales did not support an anti-austerity platform, concluding: "the Tories did not win despite austerity, but because of it".[103]

The 2017 general election was held almost three years earlier than scheduled under the Fixed-term Parliaments Act 2011 in an attempt to increase the Government's majority to facilitate the Brexit process. The Conservative Party manifesto pledged to eliminate the deficit by the "middle of the next decade",[104] an aim which the Institute for Fiscal Studies (IFS) said would "likely require more spending cuts or tax rises even beyond the end of the next parliament". The Labour Party manifesto proposed increasing the Treasury's income by £49 billion per year as a result of taxation rises and increasing public expenditure "to its highest sustained level in more than 30 years". The IFS said that Labour's proposals "could be expected to raise at most £40 billion" and that Labour was planning to maintain a majority of the cuts to working-age benefits proposed by the Conservatives.[105] As a result of the election, the Conservative Party lost their parliamentary majority, but remained in government as the largest single party in parliament. Gavin Barwell, Theresa May's Downing Street Chief of Staff, blamed anger over Brexit and austerity for the loss of seats.[106] The Labour opposition announced a plan to challenge further austerity measures and vote against them in the House of Commons. A Labour spokesman said: "We will be using the changed parliamentary arithmetic to drive home the fact that the Tory programme for five more years of austerity will not go on as before."[107]

See alsoEdit

ReferencesEdit

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