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Work and prosperity
9 July 2013

Austerity is real and is changing this country forever

The delusion of the British right is that austerity isn’t happening. The delusion of the British left is that it doesn’t have to happen. The reality is of departmental budget cuts on a scale not seen since the 1970s – but with plenty more to come.

The difference between between previous periods of austerity and the current cut-backs is that while the former represented no more than a pause in the expansion of the state, the latter are here to stay. Even if growth returns in a big way, paying for the pensions and healthcare of an aging population will mean that, elsewhere, the state will shrink.

To work out what this means in practice, Janan Ganesh of the Financial Times, looks ahead to 2023 – predicting the most likely changes:

  • “Middle-class welfare will wane to vanishing point. Higher earners have already lost child benefit and tax credits are going to fewer households. Politicians talk of restoring the contributory principle that links a citizen’s benefits to taxes paid but, in practice, means-testing remains the fashion. It will ensnare pensioner benefits and much else. As their stake in welfare diminishes, these voters will resent it even more than they do already. Fiscal pressure on the system should lighten with time but the electoral majority against it is being locked in.”

Despite the ringfencing of the health and education budgets, the health and education systems will not be unchanged:

  • “Health spending will stay at about 10 per cent of gross domestic product, in line with other rich countries. But structural reform will romp on, bequeathing fewer large hospitals, a wider plurality of providers and more user charges to the patients of 2023.
  • “There will be even more upheaval in education. Government involvement in universities will diminish as student fees and corporate sponsorship pay for the system… The trend towards operational independence for schools, in train for a decade already, will quicken and profit makers will be invited into the system.”

Public sector employment – the surest indicator of a shrinking state – will continue to fall:

  • “The entire increase in the government workforce under 13 years of Labour will be undone in this parliament alone and the contraction will continue beyond, as salary freezes and the inevitable introduction of regionally variable pay make the sector less enticing.”

Not every change will be as palatable to rightwing opinion – “military interventions will become unthinkable in all but the most extreme circumstance.” Greater taxation of property is also foreseen. 

The need to live within our means is shaping a new political dynamic. On one issue after another, realists will line up against romantics. Conservatives will need to make a choice – not between realism and romanticism – because, with some grumbling, we’ll opt for reality. Rather, what we need to decide is how we go about shrinking the state.

We could take up the task with glee, hacking and slashing and daring our opponents to stop us. The other way is proceed with both care and determination, seeking always to share the pain and help the vulnerable to make the most of new opportunities. 

Either way, the realists will win – the only question is at what price.


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