Austerity: it’s not working

In 2010, Chancellor George Osborne first laid out one of the central aims of the then coalition government in his first budget – to eliminate the deficit by 2015.

 
Having failed to meet previous targets, he’s often revised them, with the latest promise to achieve a budget surplus by 2020.

 
But on the eve of the Chancellor’s eighth budget to be delivered on Wednesday (March 16), it turns out that yet again, his targets will be missed.

 
The deficit, which is the difference between government revenues and expenditure, stands at £74.2bn for the year in January, nearly £5bn more than the Office for Budget Responsibility’s (OBR) target of £68.9bn.

 
The OBR said that looking at the current rate of overspend, the government is on track to exceed its full year borrowing target by ÂŁ9bn.

 
Back in 2010, Osborne said that reducing the deficit could only be achieved through austerity.

 
“The coalition government believes that the bulk of the reduction [in the structural deficit] must come from lower spending rather than higher taxes,” he said in his June 2010 budget statement. “The country has overspent; it has not been under-taxed.”

 
Made things worse
But nearly six years on, the government’s solution to tackling the deficit through austerity has only made things worse.

 
It has lead both the OECD and the IMF – both once proponents of austerity – to warn earlier this year that governments must let up on their obsession with reducing deficits through spending cuts if they want their economies to grow.

 
They both called for more public investment.

 
“Many countries have room for fiscal expansion to strengthen demand,” the OECD noted in February. “This should focus on policies with strong short-run benefits and that also contribute to long-term growth.

 
“A commitment to raising public investment collectively would boost demand while remaining on a fiscally sustainable path.”

 
Osborne had once relied on a much stronger economy to achieve his deficit reduction targets – better wages would mean higher tax receipts from income tax and national insurance.

 
The OBR had optimistically forecast ÂŁ27bn in extra money from tax receipts after it had predicted a rosy economic outlook only three months ago.

 
But it has since revised its forecasts, highlighting now that the economy is more than 1 per cent smaller than it predicted, largely due to lower than expected earnings and inflation falling to zero.

 
This means that the government now actually faces a staggering £18bn black hole – one that the chancellor is expected to make up for with even more austerity cuts.

 
Speaking on the BBC’s Andrew Marr Show yesterday (March 14), Osborne said the government would need to find “savings equivalent to 50p for every £100 the government spends.”

 
But economic forecasting group EY ITEM Club joined the OECD and IMF today (March 14) in warning against further austerity cuts.

 
“You could argue the low-hanging fruit – the easy cuts – have already been made and cutting further is actually going to be pretty tricky,” EY ITEM club senior advisor Martin Beck told the BBC.

 
Boost economy call

“The government should instead focus on boosting the economy, particularly amid market turbulence and a slowdown in global economic growth.

 
“That’s what’s caused us to think maybe the Chancellor should be careful here and not potentially make a weak economic situation weaker,” he added.

 
TUC general secretary Frances O’Grady agreed.

 
“George Osborne has missed target after target on growth, wages and the deficit,” she said. “We need a better plan for long-term growth that has investment in infrastructure, skills and decent jobs at the heart of it.

 
“We cannot afford another round of cuts, which are making public services worse without making the economy or the public finances better.

 
“The Chancellor may have begun paying lip service to the importance of supporting industry, but he’s delivered little more than a rag-tag of pre-existing policies bundled together,” O’Grady added.

 
“Without a better-balanced economy and a proper industrial policy, vital industries will continue to decline and millions of families will face an uncertain future.”

 
Unite assistant general secretary Steve Turner echoed the call to give up on austerity and instead focus on investment.

 
“Austerity didn’t work in the previous parliament and it hasn’t worked in this one,” he said. “Even on the government’s own terms, austerity has been failure – it has done nothing to improve the public’s finances. At the same time, millions of people have suffered.

 
“How many times must the government repeat the same mistakes – with all but the wealthiest being asked to pay the price – before it tries a different solution for growth, one that renowned economists the world over have prescribed time and again?”

 
“Public investment in infrastructure and a sound long-term industrial strategy is what will prime demand and so spur economic growth,” he added. “Creating a high-wage, high skill economy is within our grasp – the only obstacle in our way is an ideological obsession with the idea that austerity works.”