The Price of Austerity

Photo: Stock Image


By Ezana Tedla


The United Kingdom, the former workshop of the world and the birthplace of industrial capitalism has seen the cost of living decline for a decade and has grown poorer relative to its Western peers. By nearly all measures: wages, inequality, healthcare, the UK has grown worse. Such decline in productivity is unprecedented in a wealthy nation since the industrial revolution began over two centuries ago.

Since the pandemic, there have been strikes and movements against the decreasing quality of life across the UK. This economic and political malaise is not a series of dramatic events. This is not like the case of protestors in Sri Lanka swimming in the pool of their president’s residence. But the malaise persists regardless. 

So, let’s take a biopsy of the UK in the years since the financial crisis. While the symptoms are stark, the underlying causes are muddled. The austerity imposed in the years after the crisis has gutted public institutions and simultaneously failed to spark the growth in the private sector that was promised by the Tories.

The general election in 2010 brought the Conservatives into power (though a coalition with Liberal Democrats) and David Cameron to 10 Downing Street. Cameron’s view of the Great Recession, that it was not a typical recession, but rather a “debt crisis”. And his prescription reflected this characterization: if it is a debt crisis, have less debt. 

By nature of its political system, there were not any guardrails within or outside the UK to mitigate the austerity measures. Unlike the United States, where a split and gridlocked Congress prevented significant budget cuts, the UK had no limitations.

Cameron was direct about the extreme measures he thought were needed to overcome the crisis. He remarked, “The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years, perhaps decades to come.”

He was right about the importance and long-lasting effects of his decisions, but not in the way he intended.The austerity measures Cameron imposed in 2010 (around 1.3% of GDP) would fuel a claim that is still repeated. 

The government  must cut more public spending and social services to reinvigorate the economy and pay our debts. We may not like it, but this time it will propel the UK into a dynamic, high growth economy.

The National Health Service (NHS) started to see its budget slashed, another practice that has persisted. The government at the time defended these budget cuts (around 20 billion pounds by 2015) by claiming that they were looking for efficiency savings–that is, cutting administrative bloat and wasteful spending. 

But rather by cutting bloated spending, these optimization efforts mostly cut services that the public relied upon. Nurses lost their jobs (a result that bit back years later), treatment facilities for alcoholics were shuddered. 

In 2015, the Conservative Party won a clear majority and Cameron stayed as Prime Minister. Again, he argued for more cuts in front line services and public spending. But already at this point, there were discussions within the Conservative party about the limits of these budget cuts. As members of multiple parties pointed out,

“The government is reaching the limits of cuts that can be made to the working-age welfare system.”

But the government insisted that there still was meat leftover on the bone. Cuts in most fields, disability benefits, the NHS, and defense help fuel the intra-Conservative party conflict over the future of their party and the UK as a whole. 

Of course, the biggest issue within the Conservative Party and the position that would be the primary marker of separation was the decision to stay in the European Union. 

A frequent argument in favor of leaving the EU was that the UK would stop sending money away to Europe and unburden itself from its bureaucracy and regulation. That is, it will make the UK a dynamic, high-growth economy (this time). 

After Cameron’s resignation when his referendum backfired upon him, the new line of a Free Britain became the Conservative Party line. Ultimately, this argument of “leveling up” handed another victory to the ruling party under Boris Johnson in 2019. 

Johnson’s position targeted the deindustrialized, non-London areas that have not reaped the gains of globalization and free trade. But Bloomberg’s analysis of these rural areas revealed that Johnson’s promise to level up their performance did not materialize and instead was worse than before. 

The report noted, “Our analysis shows that the salary gap is widening in nine out of ten constituencies, that home affordability is getting worse nearly everywhere, and that public spending per head has fallen behind the capital in every region of England.”

The pandemic illustrated the dangers of cutting public services when met with an unexpected crisis. A hyper-optimized, barebones operation is most cost-effective in part due to the lack of cushion within the supply chain and labor availability. 

And this contributed to extreme backlogs within the NHS, as the British Medical Association described, the percentage of patients receiving their first treatment within two months of attending a screening service dropped dramatically during the initial few months of the pandemic. This has dropped from 73% in December 2022 to 63.4% in January 2023, which is the lowest it has been since August 2020. This also remains below the 90% operational standard.

This leads to a self fulfilling cycle, where overburdened public institutions become increasingly unable to provide their services, which becomes justification to either cut additional funding or to privatize it completely. 

The former Government Chief Scientist David King noted the double-talk out from Johnson and the Government:

“It is slipping this through in the name of a pandemic – effectively, to privatize the NHS by stealth.”

The cycle did outlive Johnson, and was at its most transparent during the short-lived government of Liz Truss and her Exchequer Kwasi Kwarteng. Their budget cuts were fueled by hope and affirmation, being so unfounded that the markets sent the pound nearly to parity with the dollar. Ultimately, voters did not remove her from power, but the behavior of the markets forced her resignation weeks later. 

And now, with the strikes of teachers, nurses, and other public professionals, Rishi Sunak has control over the reigns. Cost of living has moved from being stagnant to being in decline in real terms. The BBC now prints ‘one pound menus’ for families that are straining under energy costs, wage stagnation, and high inflation. The United Kingdom barely avoided a shrink in the GDP last year, but its growth is so anemic that even the sanctioned Russia is expected to grow at a higher rate. Once again, additional cuts are proposed in the aim of making the UK a… “dynamic and high growth economy.” The UK has been walking in a circle for the past ten years, and does not seem likely to change direction any time soon.

Ezana Tedla is a sophomore in Jonathan Edwards College and can be reached