Tackling austerity

The Autumn 2018 UK Budget will set the spending envelope for public services for the coming years, although Scotland has some flexibility with half the budget now decided by the Scottish Parliament.

A new report from the New Economics Foundation (NEF) highlights that the decade of austerity so far has arguably been the worst economic policy error in a generation. As a consequence, living standards have suffered substantially. The isolated effects of discretionary cuts have suppressed gross domestic product (GDP) by a cumulative 15% between 2010/11 and 2017/18, or £10,000 per household. These cuts have coincided with the slowest increase in life expectancy since the 1970's.

Public services, and the pay of those who deliver them, have born the brunt of austerity. These services are in most need of a spending boost and should be foremost in the Chancellors mind. The NEF model finds that unless the government changes course, the chancellor’s recent claim that there is “light at the end of the tunnel” will amount to hollow rhetoric. In June, the UK government announced a further £20.5 billion for the NHS by 2023/24. But outside of this, overall spending on services is currently on course to see no average increase at all. Furthermore, if the UK government rolls forward its current protections for areas such as police and defence, then in the absence of new money this will have to be funded by further cuts to services elsewhere. As a consequence, budgets for non protected services could see an average real terms cut of 2.1%, or 4.1% per capita, during the first half of the 2020s. The Scottish Government has similar priorities, so this is also likely to be the position in Scotland.

Austerity is of course a political, not an economic choice. NEF's illustrative scenario for keeping up with demand pressures in health, social care and schools services would cost an extra £14.6 billion (or 4% of overall resource DEL) per year by 2023/24. Crucially, they show that these illustrative scenarios are realistic and fundable. 

The good news for Labour's commitment to end austerity, is that new figures from the British Social Attitudes Survey shows that the public’s support for tax rises is at its highest level for 15 years. 61% would accept tax rises to pay for the NHS, up from 40% in 2014 and 31% in 2010. Support for spending more on retirees is down over 20 percentage points in a decade, while support for generosity towards those on low incomes has been rising since 2011. 

This is welcome because it means public opinion is catching up with both demography and economic reality. As the Social Metrics Commission report highlights, 9 out of 10 people living in poverty are in working families, and half of them are families where someone is disabled.

The Resolution Foundation Director makes the point in his Labour Conference blog that we will need to bite the bullet on taxes, at UK level and in Scotland. As the chart below shows, we have largely (and rightly) funded an increasing share of spending going on health and education by hugely shrinking our military spend. But there’s not much military left to shrink - other than capital spending on Trident! 

Labour's internal issues have tended to dominate the coverage of conference this week. However, the leadership has been crystal clear that austerity is a political choice and it is not Labour's approach. The evidence from the reports highlighted above, shows that an alternative strategy is economically viable and it has broad public support.