What it takes to ​‘end austerity’ for real: NEF responds to PM speech

In her speech today the Prime Minister declared the government’s eight-year programme of austerity over, but recent analysis from the New Economics Foundation shows that without a significant change of direction, services without spending protections could face further austerity after a decade of cuts. This includes vital areas of service provision that are now facing a continuation of cuts over the next five years (from 2019/​20 to 2023/​24):

• Prisons are facing cuts of £70 million per year by 2023/​24, compared with 2019/​20
• Public health (which covers things like addiction services) could be cut by £80 million per year by 2023/​24
• Housing and planning (including schemes to incentivise building new homes and homelessness prevention) risk cuts of £30 million per year by 2023/​24

The analysis shows that government could meaningfully end austerity when the total amount of money available for the 2019 Spending Review is announced at the Budget this autumn. NEF modelling has demonstrated that the Treasury has room to borrow £24.1 bn more (by 2023/​24) even within its own deficit targets, while there is also the potential to raise tax contributions from the most well off.

Miatta Fahnbulleh, CEO of the New Economics Foundation, said:

“The decade of austerity so far has arguably been the worst policy error in a generation, causing untold misery for millions as our economy has slowly but surely fallen apart. Today the Prime Minister has called time on austerity, which is a big claim. Our research has shown that under current government plans, austerity for many vital areas of public service is set to continue.

“Austerity won’t end by itself. Our recent analysis shows that unless the Government changes course significantly, key services like prisons and public health are facing yet more cuts. If the Prime Minister is genuine about wanting to end austerity, which should be warmly welcomed if so, she must ensure her promise isn’t empty — that means the government recognising there is space to borrow £24bn more even within its own deficit target, and ensuring there is serious additional investment in public services.

“All eyes will now be on the Chancellor’s Budget at the end of the month. Then we’ll see if he is prepared to make the commitments which would turn mere rhetoric into reality and genuinely start to repair the damage caused by austerity.”

Notes

The paper Austerity by stealth? The Chancellor’s options for the next Spending Review is available at https://​newe​co​nom​ics​.org/​2​0​1​8​/​0​9​/​a​u​s​t​e​r​i​t​y​-​b​y​-​s​t​ealth

This research is the first in a series from NEF about the 2019 Spending Review. It uses NEF’s new departmental spending model to project forward and simulate different government spending review settlements across three illustrative scenarios. Together, they show government has the space to either meaningfully end austerity, or even go further and reverse some of the harm caused in recent years.

The model used in this paper was built by NEF to look at UK departmental spending, consistent with UK Treasury accounting and OBR forecasting data. This paper is intended as the first in a series of reports to make use of this new analytical capability.

NEF’s model adopts the OBR projection for total resource DEL, rolled forward for one additional year to 2023/​24 – the likely final year of a four year spending review – and revised upwards to reflect the profile of additional spending that has been announced for the NHS. To simulate individual department and sub-department budgets within DEL, we roll forward all current major ​‘protections’ from the current plans into the next spending review period, taking the latest government plans for 2019/​20 as our baseline. Devolved and non-protected budgets are then projected forward, also from respective 2019/​20 baselines, using an equation that allocates remaining funding within total DEL such that both the overall spending envelope isn’t breached but that the Barnet Formula is satisfied with respect to all relevant department budgets.

Cuts to non-protected, non-devolved departments have been estimated by assuming that the overall squeeze on spending estimated impacts smaller budgets in proportion to their size. Figures are presented in 2018/​19 prices, and rounded to the nearest £10m.

Image: Number 10 (CC BY-NC-ND 2.0)