The Blog

Is Nicola Sturgeon Right About Britain's Austerity Economics?

This austerity movement has been unfolding across Europe for some time now, and on the surface it makes perfect sense. After all, cuts lead to savings, which in turn lead to investment and growth - right? Not entirely.

Nicola Sturgeon is on the warpath.

Hot off the heels of an eye-opening independence referendum, Scotland's new First Minister has more bargaining chips than she knows what to do with. Her party numbers have swelled beyond belief, her government is being given more powers than ever before and there's a very good chance that her mentor and predecessor will soon control the single-most formidable opposition group in parliament.

It's that unprecedented momentum that's given her the balls to launch a scathing attack on Britain's finances. According to the First Minister, austerity is killing Britain. Harsh public spending cuts are disproportionately hurting Britain's most vulnerable, whilst the pockets of Conservative industrialists are getting fatter as a result of the country's so-called fiscal recovery.

She's saying this partly because it's self-serving. If SNP continues to masquerade as the last great people's champion, the party could all but chase Labour out of Scotland come May. Sturgeon's party will gain considerably more influence in a parliament it doesn't even want to be a part of - setting the stage for the negotiation of bigger and better devolved powers for Scotland in the future.

But she's also saying this because it's true.

If the Conservatives win the general election, Chancellor George Osborne has already made his intentions clear that we'll continue down the path of austerity. The Institute for Fiscal Studies is predicting a Conservative victory will equate to £50bn worth of cuts over the course of the next parliament - more than any developed country on Earth.

And whilst the Chancellor claims these cuts are painful but necessary measures to ensure Britain's continued financial growth, he's actually ignoring economics 101.

This austerity movement has been unfolding across Europe for some time now, and on the surface it makes perfect sense. After all, cuts lead to savings, which in turn lead to investment and growth - right? Not entirely.

If governments want to save money in their piggy banks, they've got to have money coming in. But when you've got multiple trade partners all instigating sizeable spending cuts at once, their economies are going to shrink. As a result, a country's GDP will inevitably drop - bringing up debt instead. As a result, governments have less money to invest in infrastructure. And without investment, the British economy will be unable to expand its production capacity. Bearing in mind that capacity is how economists measure a country's financial worth, this lack of investment means growth is statistically impossible.

Shredding public spend doesn't magically instil global investors with confidence. If anything, it just proves that your government has got no clue what the hell it's doing.

If the Tories really want to show they've got the credentials to run this country's pocket book, they've got to inject a substantial amount of capital into the public sector. Each time a fiver changes hands, it's helping to move goods and create new investment. That's an old Keynesian idea called investment multiplier, and it ensures that every cent the UK government spends on the public sector will go on to encourage growth - trickling right on down the ladder so that it's benefitting the country's most in-need.

Are you still with me? Macroeconomics can be a little dry, but the point is this: you've gotta spend money to make money. Not only is it good politics, but it's good fiscal policy. Spending begets spending, and growth begets growth.

So where does that leave us?

Nicola Sturgeon and the Scottish Government are throwing a genuine curveball at Mr Osborne and his economic policy - and despite the self-serving nature of this attack, it's absolutely spot on. If the Tories go ahead with this next round of spending cuts, we're looking at a £50bn reduction that will hurt at-risk individuals in the short-term, and hot-shot bankers in the long-term. Everybody loses, and nobody's happy.

Public savings measures like the bedroom tax helped consolidate the SNP's power, and almost lost Scotland forever. If we keep going down the path to austerity, the power struggle we saw in September will only intensify - and we'll all be worse off for our trouble.

George Osborne would do well to have a good, long think about that before he goes off making cuts willy-nilly.