NEF report states austerity has reduced UK economy by £100 billion
The New Economics Foundation has released a report which states that austerity has left the UK economy £100 billion smaller than it otherwise would have been. This equates to a £3,600 loss per household or £1,495 per person. The London-based think tank based this analysis on figures released by the Office for Budget Responsibility and the Institute for Fiscal Studies.
According to this analysis, government-led austerity has reduced GDP growth every year since 2010. This has contributed to a suppression of GDP by £99.4 billion in 2018/19, a figure that is projected to rise to £117 billion by 2022/23.
Focusing specifically on what they term “discretionary fiscal policy”, active decisions made by government over tax and spending, the NEF have compounded these in-year effects on growth to estimate the effect on the overall level of GDP.
The report also states that reduced government spending has served to exacerbate these issues as households are forced to increase their own borrowing.
The press release announcing this analysis also labelled deficit reduction through spending cuts as a “false economy” as lower tax receipts have resulted in missed borrowing targets since 2010.
This new analysis comes at an important time for the Chancellor, Philip Hammond.
The latest public finance figures are due to be released on Thursday and will determine whether the Treasury is on track to hit its budget deficit targets. They have forecast a deficit of £25.5 billion, one sixth of its level after the financial crash.
Alfie Stirling, Head of Economics at the New Economics Foundation responded to this analysis by saying:
“At this time of year there is often renewed speculation over whether the Chancellor will meet his year-end deficit targets by March. But for nine years, the elephant in the room has largely been missed: the sheer scale of economic damage that these targets have contributed to in the first place.
“The human impacts have always been clearly visible for all to see – from rising homelessness to longer A&E waiting times.
"But now we can also get closer than ever before to measuring the impact on the economy as a whole – and using calculations that have even been rubber stamped by the government themselves.
“The big picture here is that the livelihoods of people and communities have been made more bleak as a direct consequence of active government decisions.
"This should not be allowed to happen again.”
John McDonnell, Shadow Chancellor, responded to these figures by stating: “Austerity has torn apart the fabric of our society, and this new work by NEF shows just how damaging its impact has been over nine years.
“With each household deprived of more than £3,600 in this year alone, we can see just how much austerity has wasted the potential for growth and wounded us all as a community.”
A spokesperson for the Treasury defended their handling of spending and the economy by arguing: “Since 2010 the economy has grown 18.3 per cent, which is faster than France, Italy and Japan. We are taking a balanced approach to restoring the public finances – getting debt falling while investing in our vital public services and keeping taxes low.
“We’re increasing the national living wage, we’ve frozen fuel duty, and we’re cutting taxes for 32 million people to help families meet the everyday cost of living and keep more of what they earn.”