‘Austerity’ has been mostly posturing

There has barely been any austerity at all in Britain, despite politicians' claims to the contrary.

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."

Recommended

Will energy prices fall 2023?
Personal finance

Will energy prices fall 2023?

Falls in wholesale energy prices have fed through into a lower energy price cap, but will that continue?
25 May 2023
What is inflation and how will it affect you?
Inflation

What is inflation and how will it affect you?

ONS is set to announce the latest inflation figures this week with experts suggesting we may finally see it slide. We look at what lower inflation mea…
23 May 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

Interest rates are already at 4.5%, but will the Bank of England keep hiking to control inflation?
16 May 2023
ONS: UK economy shrank 0.3% in March
UK Economy

ONS: UK economy shrank 0.3% in March

The latest data from the ONS showed falling car and retail sales combined with industrial action caused GDP to contract in March. However, the economy…
12 May 2023

Most Popular

Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
The best one-year fixed savings accounts - May 2023
Savings

The best one-year fixed savings accounts - May 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
26 May 2023
Energy price cap slashed by 17% ‒ millions to see lower energy bills
Energy

Energy price cap slashed by 17% ‒ millions to see lower energy bills

Typical households on default energy tariffs will see their energy bills drop by £426 a year following today's energy price cap drop.
25 May 2023