‘Austerity’ has been mostly posturing

The “austerity posturing” among UK politicians is “built on a completely phoney premise”, says M&G’s Mike Riddell on the Bondvigilantes.com blog. In reality, there has barely been any austerity at all.

Comparing the UK’s budget deficit (the amount by which public spending overshoots the tax take) to the deficits of the eurozone and the US shows that fiscal consolidation has been much more pronounced elsewhere.

The Europeans are running a budget deficit of around 3% of GDP, a level seen in 2004/2005, while the Americans have reined in their deficit from 10% of GDP in 2009 to around 3% now. Ours has come back from a frightening 11% to a still-woeful 6%, and has been hovering around that level for the past two years.

A key problem is “an addiction to spending”, says Riddell. Overall, government spending has risen gradually for the past eight years. Meanwhile, tax revenue growth has been disappointing, hampered by the slow recovery and weak wage growth.

This year seems unlikely to deliver a sharp improvement. In the first four months of the 2014/2015 fiscal year, the government borrowed 5% more than in 2013. The timetable for eliminating the annual overspend has already slipped.

The first budget surplus since 2001 is now expected in 2018/2019, not 2015/2016, as predicted in 2010, says Emily Cadman in the FT.

What’s more, the rest of the fiscal consolidation is supposed to come mostly from spending cuts, not tax hikes. “Tough choices await whoever wins next year’s election.”

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
In the balance

How May 2015 could hit your pocket

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Russell Napier: deflation is coming – hold on to your cash

Financial historian Russell Napier talks to Merryn Somerset Webb about the next deflationary bust – why it's coming, what it means for you, and how you can survive it.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


27 November 1924: Macy's first Thanksgiving Day parade

On this day in 1924, New York department store Macy's held its first Thanksgiving Day parade. It would soon become a city institution, kicking off the run-up to Christmas.