Austerity in the UK

After Chancellor George Osborne read this year’s Autumn Statement, I could hardly visit a financial news website without seeing an article about the economic consequences of the UK’s austerity plan.

Here’s the trouble with this: Austerity means different things to different people, and no two austerity plans are alike. In countries like Greece and Spain, austerity means crippling tax increases and real public spending cuts—one big reason these nations are in deep recessions.

In the UK, austerity means something different: Yes, there are tax increases, but there aren’t actual spending cuts. Or, put simply, spending hasn’t fallen from year to year, and it’s not projected to. Instead, the government’s cut the rate of future projected spending increases—it will spend more from year to year, but not as much more as initially planned. That makes articles referring to broad spending cuts inaccurate.

To help put this in perspective, here’s a chart of the projected spending from each of the Autumn Statements (or the previous government’s equivalent, the Pre-Budget Report) since 2009.

 

*Shaded areas represent actual outturn. All other figures are official projections.

In 2009, the previous government planned to increase spending by approximately £20 billion each year through 2015. When the coalition took over in 2010, Chancellor George Osborne cut the planned increases to £10 - £15 billion per year. He eased a bit in 2011, but in this year’s statement, he reduced the planned spending increases again.  

Here’s another way of looking at it.

 

 *Shaded area represents actual outturn. All other figures are official projections.

Of course, that’s not to say the UK’s version of austerity has been easy on UK citizens. Civil service jobs have been cut, pension and benefit increases haven’t kept pace with inflation, and some programs have received real spending cuts. Many folks have felt a pinch from these cuts and the tax increases. But the continued spending increases do make it tough to argue the austerity program alone is responsible for recent economic weakness—something I’d encourage readers to keep in mind as they sift through the media’s analysis. 

 

 

 

¹Source: 2009 Pre-Budget Report, HM Treasury

²Source: November 2010 Economic and Fiscal Outlook, Office for Budget Responsibility

³Source: 2011 Autumn Statement, HM Treasury

⁴Source: 2012 Autumn Statement, HM Treasury