After eight years, the political and economic limits of austerity have at last been reached. Philip Hammond’s Budget on 29 October was a reflection of this changed reality. The Chancellor, a fiscal conservative, reluctantly conceded that “the era of austerity is finally coming to an end”. But he insisted that “the tough decisions of the past eight years were not driven by ideology”.
After the 2008 financial crisis, and the record budget deficit (9.9 per cent of GDP) that resulted from it, some spending cuts were inevitable. There was, however, no necessity for the scale of austerity imposed by the Conservatives since 2010. The result, as we have charted in our Crumbling Britain series, is a shrunken and enfeebled public realm.
Departmental budgets have been reduced by an average of more than 20 per cent since 2010 (local government funding has been reduced by 49 per cent). Meanwhile, more than £20bn of welfare cuts have been imposed. This has had grave consequences. Rough sleeping, which fell by three-quarters under the last Labour government, has risen by 169 per cent since 2010. Nearly 1,000 Sure Start children’s centres and 478 libraries are estimated to have closed. Total public spending as a share of GDP has fallen from 44.9 per cent in 2009-10 to 38.5 per cent, well below the EU average and close to the US’s 36 per cent.
Despite his own instincts, faced with a hung parliament and overstretched public services Mr Hammond adjusted course. He devoted the bulk (97 per cent) of a £68bn revenue windfall from adjusted predictions to higher public spending and finally abandoned the dogmatic aim of a budget surplus. Rather than espousing the traditional Thatcherite goal of shrinking the state, the Conservatives have tacitly acknowledged that the public favour a social democratic approach.
But austerity has been moderated, rather than abandoned. As the Resolution Foundation think tank identified, three-quarters of the £12bn of welfare cuts announced since 2015, including next year’s benefits freeze, will go ahead. Unprotected government departments will still endure real-terms cuts in their budgets. Mr Hammond’s refusal to contemplate significant tax rises for the wealthy – and his award of a large tax cut to higher earners by raising the threshold at which the 40p rate of income tax is paid to £50,000 – has needlessly suppressed revenue.
At the same time, any notion that the “sunlit uplands” promised by austerians are within reach should be dispelled by the Office for Budget Responsibility’s forecasts. Annual GDP growth is expected to be no higher than 1.6 per cent over the next five years and average earnings will not return to their pre-crisis peak until the end of 2024 – amounting to an unprecedented 17 years of lost pay growth.
The UK’s anaemic economy has been further weakened by the 2016 Brexit vote: the OBR, an independent body, estimated that the economy is “2 to 2.5 per cent” smaller than it would have been “if the referendum had not been called”.
Mr Hammond, an uninspiring technocrat, offered no vision of the social renewal that Britain so desperately needs. Instead, this Budget showed that he is contending with the baleful legacy of the Cameron government: doctrinaire austerity and a reckless referendum.
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This article appears in the 31 Oct 2018 issue of the New Statesman, The Great War’s long shadow