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12 March 2018updated 08 May 2024 6:29pm

It was possible to defend austerity in 2010. But not today

Philip Hammond is to set out his financial plans in the Spring Statement. A Coalition-era policymaker reflects. 

By Steve O'Neil

It is amazing to think that it was almost nine years ago, in April 2009, that David Cameron’s “age of austerity” speech put the idea at the centre of British politics. For many then and now, austerity is an ideological dividing line about how big government should be. However a much bigger part of the justification of austerity depends on the circumstances we found ourselves in 2010 as compared to now. These circumstances, the difference between austerity 2010 and austerity 2018, are too often forgotten. In short, they mean that even if you believed austerity was the right approach then, you should not believe it now.

Lets start with the budget deficit itself, the difference between government revenue and outgoings. After the 2008 crash it was huge, a massive £160bn. That meant the UK’s debt was rising fast and there was a real risk that bond markets could get spooked and interest rates on bonds could go up, as was happening in southern Europe. So the deficit itself could have made funding public services harder and in turn scared businesses into thinking big tax hikes were around the corner.

All three major parties at the 2010 general election had plans to control spending, to different degrees, to mitigate these risks. Fast forward eight years and the situation is completely different. Not only is the deficit now only around £40bn, incidentally the level it was at before the crash and before anyone was talking about austerity, it has also turned out that the interest rates the government pays have remained low for some time and show no sign of changing. Government bonds are a safe bet in uncertain economic times. Even with the possibility of a further Brexit slump, the economic risks of 2010 just aren’t the same as those in 2018.

Then there is the state of public services. In 2010, the state had come from long years of generous spending increases with little pressure to cut back. NHS funding had seen the highest sustained increase in its history, rising by 7 per cent a year, while education spending had doubled over a ten year period. At the time the Institute for Fiscal Studies said that productivity in public services had huge room for improvement.

Back then, it was reasonable to believe that there was fat to trim from public spending without damaging public services in an unacceptable way. Indeed, for the first few years of austerity, public services held up better than many expected. Councils initially managed to save money while protecting the bulk of services, NHS productivity did increase considerably and accident and emergency targets remained hit. But after eight long years, things look much worse. The NHS is reaching the limits of what it can achieve through productivity gains and the mistake of cutting social care combined with our ageing population is heaping huge pressure on it. Schools facing higher pupil numbers and rising National Insurance contributions are panicked about future funding. Public sector workers have gone without a proper pay rise for years, and workforce shortages are everywhere you look. In these areas and many others, it is now clear that continued austerity is hurting in a way that it was not in 2010, or even a couple of years ago.

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The case for austerity in 2010 was finely balanced, I can see why some supported it and why some opposed it. But now, all the credible reasons that existed eight years ago have faded away, and the costs are higher and more evident than ever. No doubt the Chancellor knows all this, and it should be on his mind when he stands up to give his Spring Statement on Tuesday 13 March. When doing so, he should finally recognise that austerity 2018 is not as defensible as austerity 2010, as such he should call time on it. 

Steve O’Neil was deputy head of policy for the Liberal Democrats from 2013 to 2015. 

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