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10 August 2017

Austerity has failed – the race is on to find a practical alternative

Neither Labour nor the Tories have come up with a coherent plan. 

By Harry Quilter-Pinner

There is now overwhelming evidence that austerity has failed. People across the country are waking up to the social costs of the cuts: a decades worth of progress on poverty reduction and public service reform has been undone. And, yet we still face a budget deficit of £52bn.

As a result, less than a third of voters are now in favour of the cuts (down from a high of 43 per cent), whilst a majority support tax rises to fund increased spending on health and eduction for the first time since 2006.

However, whilst the decision to wind down austerity has become increasingly clear, what replaces it remains murky. This is an important issue. The end of a project which has dictated policy decisions across virtually every area of government for nearly a decade deserves a proper public debate. What size should the state be? Where should we target extra spending? And, how should we raise this money?

Whether or not we liked his answers, David Cameron had a coherent story about the state in an era of austerity. His job, in his own words, was to create “a leaner, more efficient state…not just now, but permanently” with spending prioritised to create a “smarter state that delivers the key services people need and advances our progressive goals of increasing opportunity”. In practise, this translated into the protection of health and eduction budgets with significant cuts across the rest of the public sector.

However, in light of recent events, it seems clear that people want more than a skeleton state. They want properly funded police to prevent and respond to terrorism. They want public housing to be plentiful and safe. They want their elderly family members to be given dignity and care in their final days. This rejection of the “Cameroonian state” demands that political parties come up with a coherent post-austerity alternative.

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The government’s response has so far focused on public sector pay with a number of ministers suggesting an end to the pay cap. This is undoubtedly a step in the right direction, but the reality is that it will not transform the public sector or social outcomes on its own. In particular, it will reinforce rather than reform the existing structure of the cuts, disproportionately benefiting the parts of government where cuts – and job losses – have been limited (e.g. education and health) whilst doing little to increase resources for local authorities or policing (where staff cuts have been huge). All in all, a pretty weak response.

The Labour party has seemingly gone further in recognising the scale of change needed to address the public’s concerns. Its manifesto essentially argues for a state that provides a basic minimum standard of living for everyone and which actively shares opportunity and outcomes more fairly across the country. This is a welcome development. However, the reality is that a number of the party’s major spending decisions fail to deliver on this logic.

For example, on welfare, the Labour party has opted to extend the triple lock on pensions – which sees the state pension rise by a minimum of either 2.5 per cent, the rate of inflation or average earnings growth, whichever is largest – at a cost of more than £20bn over the Parliament, at the same as delivering on the government’s existing welfare cuts for those people of working age.

Judging the party by its own aims, this makes little sense. Since 1996-7, pensioner poverty has fallen by 12 percentage points and now sits well below the overall poverty rate. By contrast, child poverty is now at its highest level since 2010, with almost one in three children classed as poor. The roll out of welfare cuts and universal credit is one of the main drivers of this reversal. 

Likewise, Labour’s pledge to scrap tuition fees seemingly clashes with its call for a “redistributive state”. This is one of the largest pledges in the manifesto – some 25 per cent of public service spend – estimated to cost around £11.2bn over the parliament (with some talk of also writing off existing student loans which cost a staggering £100bn).

Whilst there is no doubt that improvements can be made to the financing of higher education – with Labour’s call to reverse cuts to maintenance grants particularly welcome – the scrapping of tuition fees would represent a significant increase in spending on a group of people who are, on average, better off. This money that could undoubtedly be put to more progressive use for those in need of vocational eduction and training or in the provision of genuinely high quality childcare.

Going forward, these examples highlight that, while the case for ending austerity – and therefore a bigger state – is clear, there is an urgent need for a public debate about what this should look like in practice. Neither political party has a coherent story about what it wants government to achieve and what this means for public spending. The general election result – alongside tragic events such as the Grenfell fire – demand that both confront this in coming months and years.