‘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

UK house prices see their biggest fall since 2008
House prices

UK house prices see their biggest fall since 2008

Halifax’s latest house price index shows UK house prices fell by 2.3% in November
7 Dec 2022
Which house-price index is the best?
Property

Which house-price index is the best?

Britain is obsessed with house prices, and we have at least four house-price indices to choose from to measure the rate of increase in the value of ou…
7 Dec 2022
What is a recession and how will it affect you?
UK Economy

What is a recession and how will it affect you?

The UK economy is heading towards a recession, according to economists. But what is a recession, and what does it mean for your money?
6 Dec 2022
When will interest rates go up?
UK Economy

When will interest rates go up?

New interest rates will be announced this month – we look at whether they will go up and what the impact will be.
5 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
The pros and cons of smart meters – should you switch?
Personal finance

The pros and cons of smart meters – should you switch?

A smart meter can help you keep tabs on your energy usage, but is it better than a regular meter? We take a look at smart meters vs regular meters.
2 Dec 2022