Tory cuts and still more to come

Credit : Pete Price

Peter Hain on continuing austerity and the demolition of the welfare state

Rishi Sunak bringing “the architect of austerity”, David Cameron back in from the cold as his Foreign Secretary made a mockery of his claim a month earlier to be a leading change-maker. Jeremy Hunt’s November 2023 autumn economic statement confirmed such scepticism by paying for tax cuts with five-year real terms cut in public spending and by slashing public investment – that return to post-2010 Tory austerity confirmed by his March 2024 budget. The true scale of the Tory cuts in public spending, those already made plus those in prospect, is frightening.

The Office for Budget Responsibility confirmed that the first decade of Tory austerity involved cuts equivalent to over seven per cent of GDP – a gigantic £180 billion in today’s terms, more than we spend each year on health and social care in England. Cameron quit in 2016, but his 2019 memoirs admitted he would have pursued even more public spending cuts – and indeed George Osborne’s final budget in March 2016 revealed plans for another £60 billion on top of those actually made by his successor Philip Hammond. Sunak and Hunt are now exploring the kind of cuts for the next five years that Cameron and Osborne had in mind for 2016 to 2020, cuts that would have meant ten years of Tory austerity totalling some £240 billion in today’s terms, much more than the £180 billion of cuts that have left public services on life-support.

The Tories now plan to cut annual public investment by £14 billion by 2028-29 and to slash total day-to-day spending by £20 billion per year, focussed on “unprotected” departments like the courts and police, transport and local government. The Institute for Fiscal Studies has been unable to assess how severe the Sunak squeeze would be on the budgets of each so-called “unprotected” department because neither Office for Budget Responsibility (OBR) reports nor the Budget Red Book provide a breakdown of departmental spending beyond 2024-25. The Tory-appointed Chair of the OBR, Richard Hughes dismissed these future public spending plans as “a work of fiction”.  The Director of the Institute for Fiscal Studies, Paul Johnson warned that any budget tax cuts “are likely to be undone after the election”. His words have been echoed by other respected independent analysts at the Resolution Foundation and the Tony Blair Institute.  They all doubt that cuts of the kind being contemplated could be sustained due to the serious damage they would do to public services in the “unprotected” departments. Even that austerity cheerleader the Daily Mail has complained about Tory defence cuts. The blunt truth Jeremy Hunt won’t admit to, is Britain can only return to fully funded public services and rising real living standards if we can revive rapid economic growth. 

Under Labour between 1997 and the eve of the global credit crunch in 2007 the UK economy grew at an average rate of three per cent per year.  The OBR now forecasts coming GDP growth at under two per cent per year, the Bank of England even less. The Tories and their media cheerleaders will not admit that achieving faster economic growth requires Britain to raise its woefully low national rates of public investment which would also spur current woefully low rates of private investment. IMF data shows that in the 14 years before the 2008 global financial crisis – overwhelmingly under Labour – UK productivity rose at an average annual rate of well over two per cent. But in the 14 years following the financial crisis – mainly under the Tories – productivity only improved at a measly average annual rate of less than half of one per cent. The standout factor for this worsening economic performance is our pathetically poor rate of investment, both public and private.  According to the IMF between 2010 and 2022 UK investment as a share of GDP was the lowest in the G7, and UK savings far below even that, leaving the UK highly dependent on foreign capital.

A Resolution Foundation study in March 2023 found that Britain has been a laggard when it comes to public investment, in the weakest third of OECD countries. Had Britain matched the average OECD rate of public investment over the past 20 years, it would have been a massive £500 billion higher.  This long-term failure to invest in our healthcare, housing and transport services is the reason why Britain has fewer hospital beds per person than all bar one OECD economy and why the British spend more time commuting to work than all bar two other OECD members. Andy Haldane, former chief economist at the Bank of England and now director of the Royal Society of Arts, has noted that as well as being too low, UK public investment levels are too volatile. The annual growth rate of public investment fluctuates due to HM Government announcing investment plans and then scrapping them before they reach fruition – NB Sunak’s HS2 omnishambles. The planned increase in public investment announced by Boris Johnson in 2020 was later cut following the Liz Truss disastrous mini budget.  Sunak and Hunt are now planning for public investment to fall as a share of GDP in each of the next five years, reversing most of the increases announced three years ago. Resolution Foundation economists calculate that setting public investment at a stable three per cent of GDP, about £75 billion, would boost UK economic growth by nearly one per cent per year over five years, and stay within the debt rules accepted by both front benches.  But the government’s present plans envisage public investment dropping from £67 billion this year to only £53 billion in five years’ time. The independent National Infrastructure Commission chaired by Sir John Armitt agrees that decades of inadequate infrastructure investment have held UK productivity back, singling out public transport, home heating and insulation, and water networks as all being in urgent need of renewal. It advises that making the UK’s infrastructure fit for the future will require an extra public investment of £30 billion per year, plus at least £40 billion per year from the private sector.  (Keir Starmer and

Rachel Reeves please note.) That recommended extra £30 billion per year in public investment might have been more but for the restrictive remit set by George Osborne when he created the Commission in 2015. Everywhere we find evidence of Tory economic failure we also find George Osborne’s fingerprints. His austerity policy drastically curtailed UK economic growth, triggering a severe slowdown in the rate of increase in British productivity and a standstill in real household living standards. Yet Sunak and Hunt have given priority to tax cuts today instead of undoing some of the terrible damage that Tory austerity has done. A decade of Tory austerity has inflicted huge self-harm on Britain’s public services, the Institute for Government finding eight of nine public services performing worse now than before Covid. Hospitals and courts stand out, with waiting lists for hospital treatment at ten million and a backlog of nearly 90,000 court cases. 

The government’s spending plans mean that however bad the plight facing Britain today, the outlook after 2025 is even worse – unless of course Britain is saved by a Labour government.

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