Pre-programmed austerity: the cuts yet to bite

The government signals light at the end of the tunnel but the system is already loaded with further cutbacks

August 30, 2018
Former chancellor George Osborne has pre-loaded austerity into the system. Photo: Victoria Jones/PA Archive/PA Images
Former chancellor George Osborne has pre-loaded austerity into the system. Photo: Victoria Jones/PA Archive/PA Images

There has been a lot of hot air about the “end of austerity” since the Conservatives’ unexpectedly poor general election result. Chancellor Phillip Hammond has reassured us that “there is light at the end of the tunnel.”

But there is a crucial point here that is underappreciated. Even if no new cuts are made, many future cuts planned by George Osborne have been pre-programmed into the system. Even if the government does nothing, these pre-loaded cutbacks will roll onwards, and their effects will intensify as demand for public services grows over time. Spending per person is forecast to be 3.9 per cent lower in real terms by 2021-22 than in 2010-11.

What are these pre-programmed cuts, when are they coming and who will they impact the most?

Many of the cuts yet to come fall on the welfare budget, which makes up around a third of government spending. Nearly £13bn worth of cuts to social security for working-age families was announced in the 2015 summer budget and subsequent statements. But most of the impact is yet to be felt. This is because the biggest social security cuts are in the form of freezes on in-work benefits and child benefits. As living costs rise with inflation, the impact of a benefit freeze is felt more deeply over time.

These changes are set to affect upwards of 11m families, and will be more regressive than cuts to welfare made by the Coalition government, with the poorest households set to lose 10 per cent of their income. Parents, and particularly single parents, will lose the greatest sums. Universal credit originally promised to lift 350,000 children and 600,000 adults out of poverty, but cuts leave the flagship welfare policy a shadow of what was originally envisaged: the policy changes are likely to result in an additional million children in poverty by the end of the next decade compared to the original plan.

In education, although schools’ budgets have been relatively protected, spending per pupil is now falling for the first time since the 1990s—and will fall by 6.5 per cent in real terms between 2015-16 and 2019-20. Over the last four years, the proportion of local authority-maintained secondary schools in deficit has nearly trebled.

While the government’s commitment to a long-term funding boost for the NHS is welcome, it by no means signifies the end of austerity for the health and care system as a whole. Other vital aspects of the health and care system are still subject to pre-programmed cuts. The funding increase is restricted to NHS England; it cannot be spent on recruitment and retention of the workforce, public health, capital investment and perhaps most importantly, social care.

All of these are fundamental to a preventative and joined-up system of health and care. Yet planned cuts to the non-NHS part of the Department of Health’s budget amount to £3.2bn (20.9 per cent) between 2014–15 and 2020–21. In local government, which provides vital public services including social care, many Conservative-led county councils have warned ministers that the “worst is yet to come” as their reserves deplete and demand continues to grow. A recent NAO report found that 10 per cent of councils are at risk of following Northampton County Council into bankruptcy within just three years.

The repercussions of the squeeze on social security and public services are beginning to snowball. Recent Trussell Trust figures show that foodbank use has reached the highest rate on record. Last winter, the Red Cross had to step in as the NHS faced a “humanitarian crisis” with escalating waiting times and record numbers of patients left on trolleys in corridors.

Osborne’s economic agenda must be uprooted. The evidence is the public has had enough of austerity. The British Social Attitudes Survey showed that last year, support for higher taxes and spending rose to 48 per cent, higher than at any time since 2004. Research from Britain Thinks indicates that in the last six months there has been a further downward step-change in attitudes towards austerity as its impact on public services deepens.

Austerity is not just unnecessary: it is counterproductive. Cutting spending on one service can drive up spending on others, while weakening consumer and business demand, lowering confidence in the long-term success of the economy, and therefore private investment. Just the opposite of the outcome you would want when the economy is struggling.

The Chancellor has an immediate opportunity in the budget this autumn, and a longer-term opportunity in the spending review next year, to reconsider. He should take it.