In recent years we have seen the government deficit – the difference between public spending and revenue – coming down. But what these figures always fail to show is the economic damage it has caused to get here.
The government has consistently argued that austerity was a necessity not a political choice. And we heard David Cameron parroting this line again this week. But this is simply not true. While getting to grips with the public finances may have been necessary, there were different options to get there. The government could have opted to raise taxes rather than cut taxes for those that were better off. Cutting corporation tax from 21% to 19% alone cost the Exchequer in excess of £5billion a year. They could have chosen to provide a fiscal stimulus to boost the economy and increase tax receipts. But instead they opted for deep cuts that disproportionately hit the poorest in our society and communities that were already under pressure.
And while it is extremely hard to estimate what the true extent of the economic impacts of austerity have been, the human impacts have always been clear. Whether rising homelessness, frozen benefit payments, overcrowded school classes or excessively long waits in hospital A&E services, the starved ambition and resources of our public realm have touched the lives of almost everyone.
So what have been the impacts, if any, on the country’s overall level of income?
At the New Economics Foundation we have estimated the effects of austerity on GDP over the decade so far. The calculations make for grim reading. The isolated impact of government policy has reduced GDP growth every single year since 2010 – in the 2018/19 alone, it suppressed the level of GDP by almost £100billion.
To break this number down another way, it means that deliberate policy from government over the past nine years has had the standalone effect of suppressing incomes and expenditure in the economy by more than £3,600 per household. We also know the effects have not been evenly felt, with the heaviest burden borne by the poorest households in society.
To put this in a Brexit context, the Bank of England estimated earlier this year that uncertainty since the 2016 referendum will cost the economy 2% of GDP in 2018/19, works out about £1,500 per household in 2018/19. Austerity by comparison has been far more corrosive.
The sad truth is that austerity needn’t have happened at all.
There was in fact ample time and space to reduce borrowing more slowly as a proportion of GDP across the period. By not doing this, government in fact offloaded part of the country’s debt burden onto those that could least afford it – with households increasingly having to borrow to make up for it.
By bemoaning his failure to cut deeper quicker, David Cameron has shown he has learnt very little from the last decade. Managing the public finances off the backs of families that were struggling was the wrong choice. The prospects of communities across the country have been bleaker as a direct consequence of the actions from their own government.
It didn’t have to be this way. Next time must be different.
Miatta Fahnbulleh is an economist and chief executive of the New Economics Foundation