25 November 2015

Leader: No sense of an ending to austerity

The UK is now committed to another five years of excessive and ill-directed austerity.

In the Spending Review on 25 November, George Osborne again spoke of the hard choices he faces. Yet, to a large extent, these difficulties are increasingly self-inflicted, the result less of the financial crash seven years ago than the targets the Chancellor has set himself. The aim of achieving a Budget surplus by the 2020 general election is a political choice, not an economic necessity. It is especially regrettable while the Chancellor retains his ideological opposition to any significant increase in taxation – a modest land tax, for instance, would be both economically sound and socially just – and refuses to allow the UK to benefit from historically low borrowing costs. The result is to impose artificial strain on the government’s spending, leading to unfair and punitive policies.

The regressive tax credit cuts were rightly abandoned. But the small print shows that the reductions have been merely been deferred to 2020 as they are absorbed into Universal Credit. As an increasing number of departments – health, schools, defence, the foreign office and international development – have their budgets protected, others are left under extraordinary pressures, forced to cut their spending by an average of 19 per cent by 2020. The cuts increase the strain on overcrowded prisons and green subsidies are already being axed. While the Chancellor champions devolution and the “Northern Powerhouse” at every turn, the Department for Communities and Local Government has been cut by 48 per cent since 2010 and has agreed to another 29 per cent budget reduction by 2020.

Most egregious are the planned £12bn of cuts in welfare, which will ultimately penalise millions of households in low-paid work. Work incentives have been reduced and income inequality has been increased.

Even notionally protected departments face rising pressures. The UK spends a lower share of its GDP on health care than the OECD average and this is expected to slip further in spite of the £8bn real-terms increase promised for NHS England by 2020. While welcome and necessary, this rise is insufficient: the health service remains dependent on finding £22bn of efficiency savings, double the rate achieved in the last parliament and an unfeasible target. Local councils have had their public health budgets cut, while funding for social care is being slashed, leaving the NHS to pick up the slack, even though it is twice as expensive to keep the elderly in hospital beds. Investment in the health service’s future is also being reduced: publicly funded nursing bursaries are to be phased out. All this is happening as an ageing population increases the strain on the NHS. Similarly, while the schools budget is protected, because of a significant increase in the birth rate, class sizes – especially in primary schools – are likely to increase further, even though the UK already has among the largest primary class sizes in the OECD.

There will be unwelcome cutbacks to defence spending, too, and Britain’s new Trident-missile-carrying submarines will be delayed by up to five years. As many as 13,000 civilian jobs in the defence industry are also being scrapped. As in the case of health and social care spending, the protected defence budget will have to cover much of the work previously done by unprotected budgets.

Even within the context of his self-imposed targets, the Chancellor is being imprudent with the money the government spends, too often prioritising political aims over efficient policy. Spending on pensioners is a notable example. Many complain that, with free TV licences and the winter fuel allowance, and the “triple lock” – guaranteeing that pensioners’ incomes rise by whichever is highest of inflation, wages or 2.5 per cent every year – the elderly have correctly been shielded from austerity. Yet, even while enjoying this comparative largesse, they have suffered from the cuts to social care and the impoverishment of local government services, including libraries and free recreational facilities.

The UK is now committed to another five years of excessive and ill-directed austerity. Should growth again fall below expectations, as in the last parliament, the consequences will be serious indeed.