Austerity

Without a penny in my purse,

To buy a meal to me.

In the early years of this century banks, notably in the USA, lent more and more money as mortgages to people who were likely to have difficulty paying them back.   The banks knew this was a risky strategy so, to protect themselves, they grouped many loans into a financial instrument which they could sell to other banks and so spread the risk.

We know what happened.   By 2008 too many people could not afford their mortgage payments and abandoned their houses to the banks.   House prices fell because so many were on the market so the banks lost money; a seriously large amount of money.   Because the risk had been spread banks outside America were affected, notably the Royal Bank of Scotland (RBS), the Bank of Scotland (HBOS), and Lloyds TSB.

These banks threatened to go out of business if these loses were not made good by the government: that is by tax-payers money.   The Labour politicians Prime Minister Gordon Brown and Chancellor Alistair Darling promptly made £500 billion available to replace these lost profits.   (In contrast, the total revenue income for the UK government for the year 2008-2009 was £575 billion.) This increased the budget deficit where the total taxes raised are less than the total expenditure.

The 2010 general election saw Labour lose and the Conservatives form a government with the Liberal Democrats.   New Prime Minister David Cameron and Chancellor George Osborne both parroted the Thatcher mantra that managing the finances of a country was the same as managing the finances of a family.   I doubt that either of these men believed this nonsense any more than Margaret Thatcher did. The important difference between the finances of a country and a household is that a country can always create new money when it needs to: most economists would agree that a country with its own currency cannot fail to pay its debts.   Nevertheless, the new dogma was that a budget deficit was a bad thing and Austerity was needed to save the country.

A country can reduce a budget deficit either by raising taxes or by reducing expenditure.   Being Conservative politicians Cameron and Osborne chose to reduce expenditure. The problem was which expenditures to reduce.   The four largest UK government expenses are; pensions and benefits, the NHS, education, and defence. Pensions could not be reduced because of the perception that all pensioners always voted and they would not forgive a political party which interfered with the value of the state pension.   For political reasons spending on the NHS and education could not be overtly attacked and it would take time to reduce these costs covertly. Defence spending could not be touched because of the outrage which would be promulgated by the tabloid newspapers.

This left only benefits to bear the brunt of spending cuts.   Politically this is an easy option since those affected have no voice speaking for them in the mainstream media.   Indeed they are portrayed as benefit cheats, growing rich at the expense of decent, hard working British taxpayers.   An easy target and new weapons were devised to attack them; the Benefit Cap, the Bedroom Tax, and Universal Credit with its minimum six week waiting period.   Disability assessments were made more rigorous and disabled people were also maligned as benefit cheats. The use of benefit sanctions became routine leaving people, already poor, penniless.   The media jumped on the bandwagon with several television programmes showing those receiving benefits as cheats and scroungers.

Shortly after becoming Prime Minister said in a speech in Liverpool justifying cuts in public services, “– because we’re all in this together”.   However, nearly a year earlier he told the Conservative Party Conference, “It means showing that we are all in this together”. The first four words of this sentence become significant when we look at how austerity affected different groups in British society.

The wealthy were unaffected, but then they never are.   In fact as a group their wealth increased during austerity.   The rich were also unaffected and it is tempting to believe that this is because the austerity program was designed by rich men in the UK Cabinet.   Middle class home owners were relatively unaffected. Their salaries might have been frozen but they were compensated by lower mortgage payments due to very low interest rates.   Also, the value of their properties has been steadily increasing since 2012.

Working people paying rent have suffered.   They have seen their wages frozen but their rent has been steadily rising.   Rises in bus and train fares have made it more expensive to get to work. Gas and electricity companies have made it much more expensive to run a home.   People reliant on benefits face the same problems but since they have less money to start with the problems are much, much worse.

So the effects of austerity have been to ensure that those with the least are further deprived, to push those on benefits into debt they cannot repay, and to ensure that those on the lowest wages cannot amass the savings which could provide a safety net.   And the bankers who caused the problems in the first place, after a brief hiatus, went back to paying themselves massive bonuses and pursuing the same strategies which led the government to introduce austerity.

In Scotland, the SNP government has attempted to mitigate some of the effects of austerity but they are limited by the restricted powers of the Scottish Parliament.   

In 2016 Nicola Sturgeon set up the Sustainable Growth Commission to investigate the economics of an independent Scotland.   The commission was made up only of politicians, academics, and business executives. Last year this commission published a long, detailed report.   Among many laudable suggestions two stand out; reduce business taxation and reduce the budget deficit by limiting public spending. (They use the terms ‘Competitive Business Taxation’ and ‘responsible fiscal management’.)   They do not name these policies austerity but those who continue to be affected by them will know what they are called.

Further Reading

https://www.theguardian.com/business/2019/apr/07/austerity-on-way-out-legacy-haunt-us-for-years

https://cookingonabootstrap.com/2012/07/30/hunger-hurts/

https://bellacaledonia.org.uk/2019/04/14/usuk-you-suck-and-so-do-eu/

https://www.sustainablegrowthcommission.scot/

Leave a Reply

Close Menu
×
×

Basket