Is this the new austerity? What the numbers say

After announcing the largest package of government cuts since 2015 on Tuesday, Rachel Reeves was likely prepared to rebut accusations that Labour is returning Britain to a programme of austerity.

Around £4.8 billion is set to be slashed from welfare spending over the next five years, the chancellor confirmed in her spring statement, with the changes set to plunge at least 250,000 into poverty. At least 50,000 of these will be children, figures from the government’s own analysis finds.

Her announcement has led several economists to draw a comparison to the austerity measures pursued by Conservative governments in the 2010s, which saw a series of swingeing cuts to public services made to balance Treasury books.

But “this is a far cry from what we saw in the Conservative years,” the chancellor said in an interview with ITV News.

“The austerity period, particularly 2010 to 2015, when Cameron and Osborne were prime minister and chancellor, there were cuts every year in spending, and there were cuts to capital spending as well. So we’re increasing spending in every year now,” she added.

But the exact definition of the term is a bit of a grey area, and not everyone seems as convinced as the chancellor that UK has seen the back of austerity. Least of all the British public, recent polling would suggest. According to a new poll from think tank More in Common, just over half of Britons say they think the country is either returning to austerity or never left it.

Here, we look at the numbers behind the claims, and assess whether the UK is really seeing a ‘new austerity’:

Austerity is a fiscal policy approach used to reduce government debts, through a combination of reducing government spending and increasing tax revenues.

In the fallout from Covid and the energy crisis, the UK’s national debt reached its highest levels since the 1960s.

Since the beginning of this century, government debt has increased from 33 per cent of GDP to nearly 100 per cent of GDP, according to the Office for Budget Responsibility (OBR).

As a result, Chancellor Rachel Reeves is making cutting government debt a key focus, saying in one of her first addresses to Parliament in July: “If we cannot afford it, we cannot do it”.

The new set of cuts and changes to Britain’s welfare will be seen as a form of austerity to some – albeit more staggered and smaller than those under the coalition government.

But despite the cuts, the welfare budget overall is still forecasted to increase in cash-terms until 2029/30, so in net terms, the sector will not see losses.

The Chancellor said yesterday that welfare spending will go down as a proportion of GDP over the forecast period.

The OBR has estimated that changes to incapacity and disability benefits will reduce spending by £6.4 billion by 2029/30, while the overall changes to the welfare package will cut £4.8 billion.

Meanwhile, the IFS projects that the cuts to working-age benefits specifically will save £4.2 billion by the end of this Parliament, in today’s prices.

It will become harder to be eligible for Personal Independence Payments (PIP), which will impact around 800,000 people, according to the government’s own assessment of the new benefits cuts.

Some 370,000 of these people affected are already receiving PIP, and could lose an average of £4,500 a year.

The Universal Credit health rate is also set to be slashed by 50 per cent, while the basic UC rate will increase by more than expected, to £106 a week by 2029.

The government has also floated an age restriction to the UC health benefit, which would make under-22s ineligible to claim.

The cuts to welfare announced in yesterday’s Spring Statement are the fifth largest since 2010, according to research from the Institute for Fiscal Studies (IFS).

The first two budgets introduced by David Cameron’s coalition government in June and November of 2010, amounted to a combined £17 billion in welfare savings (in 2025/6 prices) from cutting working-age benefits.

Meanwhile in 2015, then-chancellor George Osborne announced a second Budget after Conservatives won the summer election, which contained the single highest cuts to welfare in this century (£15.9 billion).

By comparison, the current government’s cuts, at £4.2 billion in net savings by 2029/30 from working age benefits, are just a small fraction (less than a third) of the 2015 cuts, and a quarter of those in the coalition’s first year.

Over the whole decade of Tory leadership before Covid, 2010-19, these savings from cutting working-age welfare added up to £44.6 billion, according to the IFS.

So far, the government has not announced cuts to day-to-day spending in other departments. But this spending is set to increase by an average of just 1.3 per cent above inflation overall.

With higher spending boosts needed in defence and the NHS, other unprotected areas like schools and prisons are likely to feel the squeeze come June’s spending review.

It is unclear how these inevitable cuts to public services, which have not yet been announced, will map up against the previous government.

Over the coalition and Conservative governments, day-to-day spending on public services decreased until 2018-19, according to the IFS.

Between 2010 and 2019, the health sector was the only department which saw real-terms spending increase (by 15 per cent).

All other departments saw spending reduced by 10 to 62 per cent over this period, according to IFS analysis.

This included a 44 per cent cut to the DWP and a 10 per cent cut to education.

The benefits changes are estimated to push an additional 250,000 people into relative poverty, including 50,000 more children.

“It is a political choice to plunge 50,000 more children into poverty by the end of this parliament, as a result of the health and disability benefit cuts,” said Dan Paskins, policy director at Save the Children.

“This news will be devastating for families across the country struggling to make ends meet. This will be the first Labour Government likely to oversee a significant rise in the number of children in poverty.”

Between 2010 and 2021, an extra 1.5 million children were estimated to be put into poverty as a result of Tory austerity, according to research from the Equality and Human Rights Commission.

Recent research from the London School of Economics also found that public spending cuts led to 190,000 excess deaths between 2010 and 2019.

In 2010, when David Cameron’s coalition government took office, George Osborne announced the first in a series of cuts which would begin a decade of Tory austerity.

The June 2010 budget announced £11 billion in welfare cuts, according to the Institute for Fiscal Studies, followed by an additional £7 billion in welfare cuts alone later that year.

This amounted to £18 billion in planned welfare cuts announced during the coalition government’s first year.

These included lower rises to benefits rates, reductions to housing benefits, and limits to other benefits.

At the same time, the Tory government introduced the state pension “triple -lock”, ensuring that payments would go up each year in line with the highest out of earnings, prices, or 2.5 per cent.

In 2012, the Welfare Reform Act marked the most significant reforms to working-age welfare, including the introduction of Universal Credit and Personal Independence Payments (PIP).

Both benefits replaced a raft of legacy benefits, and are still being rolled out today.

The Act also restricted housing benefits, introduced a benefit cap, and tightened restrictions and sanctions on those receiving out-of-work benefits (JA and ESA).

The coalition government also restricted high-income households from the Child Benefit.

In 2015, when the Conservatives were re-elected, a further slew of welfare cuts were introduced.

These included lowering the benefits cap, and a controversial four year freeze to working-age benefits.

The chancellor also said in today’s Spring Statement that day-to-day spending across departments would not be hit — with the exception of the sweeping cuts to UK aid.

Despite the coalition government’s reputation for austerity, then-prime minister David Cameron created the most generous UK aid package in the nation’s history.

As an advocate for international development and aid, Mr Cameron brought aid spending up to a record high of 0.7 per cent of gross national income (GNI), where it remained until the pandemic.

However, economic fallout from Covid meant that the aid budget was slashed to just 0.5 per cent under Boris Johnson, while the Foreign Office merged with the Department for International Development; a move which has been unpopular among civil servants and development experts.

Now, the sharp cut from 0.5 to 0.3 per cent will be the largest proportional cut to aid in history, and less than half of its pre-Covid levels.

The new aid budget is projected to sit at £9.22 billion in 2027, a decrease of 40 per cent from its £15.3 billion budget in 2023.

Source: UK Politics - www.independent.co.uk