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4 November 2019

The age of post-austerity — why Labour and the Tories have embraced big government

Both parties recognise that voters crave higher public spending, not a smaller state. 

By George Eaton

At past elections the Conservatives sometimes appeared to talk about little else but austerity. The party relentlessly excoriated Labour for “maxing out” the country’s credit card and vowed to achieve a budget surplus in order to prevent future generations being “burdened” with debt. In 2017, Theresa May coldly told a nurse who lamented that her pay had not increased since 2009 that “there isn’t a magic money tree that we can shake that suddenly provides for everything that people want”. 

But at this election, the Tories are not talking about saving money but spending it. A leaked briefing for party candidates makes no mention of future deficit reduction. Instead, it boasts that “departments will get a £13.8bn real-terms increase in day-to-day spending”. Mindful of Labour’s 2017 surge — as voters revolted against cuts to schools, policing and tax credits — the Conservatives have sought to insulate themselves from attack. 

At the recent Spending Round, Chancellor Sajid Javid announced a 4.1 per cent rise in expenditure, the largest increase in public spending for 15 years (including 3.1 per cent for health, 3.3 per cent for education and 6.3 per cent for the Home Office). For the first time since the Conservatives entered office in 2010, no government department will endure cuts. Even before these increases have been delivered, government borrowing has increased by 22 per cent (£7.4bn) over the current financial year. 

Having competed in 2015 to be the party of fiscal responsibility, both the Tories and Labour are now vying to be the party of post-austerity. The latter has pledged to invest an extra £250bn in infrastructure over the next decade, to make all homes energy efficient (£60bn), to abolish NHS prescription charges and to scrap the two-child benefits limit. The Tories, meanwhile, have promised to hire an extra 20,000 police officers, to increase the state pension by 3.9 per cent and to build 40 new hospitals (though funding has so far only been provided for six). 

For the Conservatives, fiscal conservatism has been subordinated to an alternative political project: Brexit. As Boris Johnson, an assiduous populist, knows, there are few votes in budgetary restraint. One could call it reactionary Keynesianism: higher public spending for right wing, rather than liberal or socialist, ends. Austerity, the Tories have tacitly conceded, was always a choice, not a necessity. 

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Whichever party forms the next government will preside over an expanding state. Under the Conservatives’ plans, total expenditure would rise from 38.1 per cent of GDP to 41.3 per cent, according to a new study by the Resolution Foundation. This spending total would be the highest in any pre-financial crisis year since 1984-85 and would come close to matching the 42 per cent average recorded between 1966-67 and 1984-85. 

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Under Labour’s plans, spending would rise to 43.3 per cent of GDP, the highest level since 1982-83. Unlike the Conservatives, however, the party has announced tax rises, including a new top rate of 50 per cent on incomes over £123,000, a rise in corporation tax from 19 per cent to 26 per cent (returning the rate to its 2011 level) and an excessive pay levy, which would require companies to pay a rate of 2.5 per cent for individual staff earning more than £330,000, rising to 5 per cent for earnings of £500,000. The Tories, conversely, would increase the 40p tax threshold from £50,000 to £80,000 and are reportedly considering raising the National Insurance threshold from £8,632 to £12,5000. In such times, even assuming no economic cost from Brexit, the deficit will only rise.  

The ambition of George Osborne, the author of austerity, was to make fiscal conservatism a permanent rather than a temporary feature of British politics. Through the force of law and rhetoric, he aimed to make budget surpluses obligatory in normal economic times. 

But the consequences of austerity — a decaying public realm — made its abandonment inevitable. Far from the age of “big government” being over, voters now long for its return. The 2018 British Social Attitudes survey found that 60 per cent favour higher taxes and spending (the highest level in 15 years), 33 per cent support present levels and a mere 4 per cent wish to further roll back the state. 

In an uncertain election, both the Conservatives and Labour are framing themselves as big spenders. A decade after Osborne first declared an “age of austerity”, a new era may be upon us: the age of profligacy.