Austerity is alive and well, and giving public services a kicking

There are plenty of ways to measure austerity. Before, during and after the budget this week, voters will hear Rishi Sunak herald the end of tight spending as the government builds a bridge from the pandemic to a glorious recovery.

Phillip Inman

What economists do when they want to kick the tyres on such claims is look at the Treasury’s books. They want to see whether public spending is contracting or expanding. And if there is a squeeze, we can be said to be living in a period of austerity.

In the period when George Osborne was chancellor, his supporters would claim that after the first two years of his reign, the spending taps were turned on again and austerity was no more.

Many were unhappy that the state was playing a significant role – believing more austerity was justified – while becoming incandescent with rage that those on the left were perpetuating the “austerity myth”.

Most economists continued to tag the Treasury as “austere” because inflation meant that public sector budgets were underwater in real terms. An increase in cash is still a cut when the rate of inflation is higher, and especially when the rising prices are affecting the government and its agencies.

This macro view of government spending is what lies behind Sunak’s shock and disbelief when he is accused of sticking with austerity.

The message from the Treasury is that a chancellor who is on the cusp of borrowing around £400bn to rescue the economy, and who has kickstarted the largest public works programme for 20 years, cannot be bracketed as an austerity-monger with Osborne, and certainly not with Philip Hammond, who doubled down on Osborne’s approach during his years in No 11.

A more nuanced assessment by the Institute for Fiscal Studies shows that the trends set in the Osborne years – when spending went up in just a few areas of government, while others were left to starve – will continue next year and probably for the rest of the parliament.

Sunak, like his predecessors, will protect health, schools and the state pension. To this short list he will add the police and border control, giving large parts of the Home Office a break from decades of grinding cuts.

Local government, cultural organisations and unloved departments such as Justice have received bailouts that make up some of the shortfall in pandemic spending, but nothing like enough.

If the effect is therefore waiting months to appear at a crown court – if it is finding a library open only on Thursdays, a children’s centre sold or an appointment for a mental health issue delayed by a year – then austerity remains with us.

When the Environment Agency, the Crown Prosecution Service and the Health & Safety Executive have to go on operating with a skeleton workforce, while the Victoria & Albert museum and Tate galleries need to cut staff to pull back from the brink of insolvency, then austerity is a way of life.

And away from Whitehall, the sign on every town hall reads “welcome to austerity” ahead of the sixth year of inflation-busting council tax rises planned for April, which will hit low- and middle-income earners the hardest.

The 5% jump sanctioned by the Treasury is supposed to be a generous loosening of the purse strings when inflation is only 0.7%.

That would be true if the £1.9bn of “spending power” that counties, boroughs and districts will gain were to be drawn from borrowed funds along with the rest of the chancellor’s £400bn. But trapped by Whitehall rules that force them to balance the books each year, councils must either hit communities with a tax rise up to the 5% cap, or reduce services.

One element of the tax increase is a maximum 3% rise in the “social care precept” to cover rising care costs. This is married to a maximum 1.99% increase to cover general running costs. To increase the tax by more than 4.99%, councils must ask taxpayers in a local referendum.

In Hartlepool, the coalition of independents and Tories that runs the council will freeze the tax and largely pay for it by dipping into reserves. But officers says the fund is not big enough to prevent services being cut in subsequent years.

Tory-run Surrey county council covers one of the most affluent areas of the UK, but has still had to cut the number of children’s centres it funds from 58 to 21 over the past two years to balance the books.

Next year it must find savings of nearly £12m in its adult social care department after limiting the precept rise to 0.5% and the council tax rise to 3.49% overall.

Surely marrying cuts to social care with tax rises in the wake of a pandemic is the definition of austerity. And a form of austerity that hurts the very people the government seeks to protect.