In response to the financial crash in 2007/8, the UK government implemented a new set of policies in an aim to arrest the growth of net public sector spending. The strategy involved raising taxes and further cuts to public sector spending, which would ultimately reduce the quality and availability of what many people perceived as essential public services. The policy became known as ‘austerity’.
The UK Government Treasury Department laid out plans and justification for austerity as follows:
“By reducing the deficit (the gap between what we spend and what we raise in taxes), we will put the public finances on a sustainable path again and help achieve balanced economic growth – helping keep interest payments lower for families, businesses and the taxpayer – meaning more jobs and greater prosperity.”
It is interesting how the framing of this language defines the view of potential outcomes. The doors of perception are partially closed, allowing only a limited view. The immense fiscal power of government contradicts any lack of affordability for the benefit of the UK people, but this fact is obscured by the narrative as it is laid out.
The Tale of the Deficit Bogey-Man
The idea that the deficit is a problem to be solved is false for a currency-issuing government. As the creator and only source of pounds in the UK, the government is in a very different position.
By weaponising the deficit, as an indicator that the country is not on “a sustainable path,” the inference is that the UK is approaching bankruptcy, and in danger of defaulting on loans and savings agreements. Thus, the government justifies the austerity policies of cutting public services, and underfunding councils, or NHS budgets.
The Chancellor, Jeremy Hunt, in his 2022 Autumn Statement said that the UK faced significant economic challenges and increasing national debt. He intimated he was committed to continuing policies aimed at consolidating public finances, which Rachel Reeves, the shadow chancellor, claimed to be “austerity 2.0”.
Balance the economy – not the budget
Logic calls out the lie of currency-issuing governments being required to borrow the currency it can create at will. It also debunks the necessity for taxpayers to raise taxes to ‘put the public finances on a sustainable path’. Yet, these are government documents. It is either ignorance or ideological political choice that dictates the necessity of austerity. The obvious question is ‘To what purpose is this being driven?
The question must be asked, as the possible alternatives are patently obvious. The deficit is, in itself, merely an accounting identity. As Stephanie Kelton asserted in her book The Deficit Myth, the deficit should be whatever is needed to balance the economy.
This is very different from balancing the budget, where taxes must match government spending. Balancing the economy means ensuring the highest living standards possible for the community, through optimising unemployed resources for the public good, while being alert for any unexpected upticks in inflation.
The Real Cost of Austerity
Health spending cuts, part of the UK austerity program, have caused tens of thousands of deaths according to the Institute for Public Policy Research think tank and the British Medical Journal. That’s only the tip of the iceberg. This House of Lords paper on the effects of austerity highlights the issues arising from a lack of investment in public services and how it disproportionately affects the most vulnerable members of society.
The standard of living for the entire community is diminished. It is difficult to measure the impact empirically, much of the damage is emotional. Some context can be given through examination of health data, educational attainment and unemployment statistics.
The issue, of course, is that, for a currency issuing Government, affordability is not applicable to its ability to provide or improve the standard of living or of public services. The deficit here, is in political will. Every homeless person sleeping on the streets at night, is a political decision. Every park bench that sits with broken slats for months is a political decision. Every patient lying, suffering in an ambulance or on a trolley in a hospital corridor because there are no available beds, is a political decision. It is financially possible to repair these societal problems.
Escalating knock-on effects
Austerity is another facet of the ‘scarcity’ fallacy. The lie of unaffordability renders the government fiscal strength, artificially impotent, despite being the most powerful actor in the hierarchy. When the government cannot fulfill its proper function, the effect is amplified as it travels down through society.
Underfunded councils cut budgets but rely on head teachers to decide where the axe will fall. Head teachers focus on doing what they can with limited resources, but understaffing means that the buck stops with individual teachers and the pupils. Disruption in the class due to anti-social, disruptive behaviour, clears classrooms and locks down corridors, often on a daily basis. This consumes potential teaching time, affects the mental health of teachers, and reduces the attainment of students.
The disruptive behaviour, itself, can be a symptom of the home life of children, where parents, working increasingly long hours to pay ever-rising bills, just can’t invest enough time in their children. This isn’t solely a problem of lower income households. Parents from all demographics struggle to hold on to a lifestyle they’ve built for themselves and don’t want to lose.
Recognition of the sacrifice
In the UK, there is no excuse for austerity. The government has the currency issuing powers to ease suffering in the community. Current policy seems to have forgotten that the prime reason for government is to provision society. We need to remind our politicians of this fact.
The Chancellor will make his autumn statement or mini-budget on the 22nd November 2023, the time of year when those brave souls who volunteered for the armed forces and sacrificed their lives to defend our country from fascist tyranny, are remembered by a grateful nation.
When the party in power expects us to blindly accept the ideological tyranny of austerity, there will be needless victims down the line. Perhaps, when a politician prescribes austerity economics as the cure for the past failures of bankers and speculators, some recognition of the future sacrifice of the unknown thousands of UK citizens who will suffer or die as a result, would be fitting.
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