An end to austerity! It was the obvious headline from the Prime Minister’s speech, and stood out all the more given the paucity of policy news from the rest of the conference, but what it actually means is far less clear.
What is austerity? Is it restraint in public spending? Is it the elimination of the deficit, through a mixture of tax rises and spending controls? Is it the establishment of a surplus to pay down the national debt? Or a surplus within ‘current’ rather than overall spending? Might its definition include spending rising, but simply by less than the Opposition had proposed?
People are understandably confused about the correct answer – at various times over the last eight years it has appeared to be each of the above, and various combinations of them, according to the changing story told by those in charge of the public finances.
George Osborne was going to eliminate the deficit by 2015. He had strict spending plans which would require real terms reductions (though often cash increases) in most departments, but he undershot them in almost every case. As the years went by – or, more cynically, as the General Election approached – he allowed his deadlines to slide. News of the death of the deficit had been greatly exaggerated, it seemed, as the prognosis slipped to 2016/17, then to 2017/18, before he began to dabble in the prospect of a current budget surplus by 2017/18 and a real, overall surplus by 2019/20. After finding and then losing once more £27 billion, which turned out to have been a mirage on a spreadsheet all along, the failure to fulfil his updated fiscal rules swiftly threw even the delayed target dates into doubt – so it fell to Philip Hammond to effectively wash his hands of his predecessor’s plans and timelines.
After all that confusion, what are we to make of the news that the Government is “ending austerity”? Does this mean that Hammond did not do so when he abandoned Osborne’s repeatedly-delayed plans for a return to surplus? Or did Theresa May not kill it off when she told everyone that austerity was over in June 2017? Did the Treasury’s achievement of the former goal of a day-to-day surplus back in March not count because it had since been quietly shelved as too ambitious, or because it was a fiscal sleight of hand which was too convenient a measure?
Some of these questions are, in part, the echoes of past economic and political battles, but they are also relevant to the issue of what comes next: what actual impact is this promised end to austerity going to have?
Ministers in spending departments have already taken it, predictably, as a green light to demand more money, adding to the woes which Theresa May’s announcement heaped upon her Chancellor’s desk. Backbenchers, businesses and taxpayers could equally now be emboldened to urge the Treasury to reduce taxes, with less expectation that they must explain how to balance the books while doing so. Any efforts to improve the efficiency of the state, or to curtail spending on one thing or another will be howled about as somehow breaching the Prime Minister’s word.
In other words, “ending austerity” will be taken to mean whatever is most convenient to the listener – and resisting all their competing demands simultaneously becomes harder because they each have a vague but powerful statement to point to as the basis of their case. People might variously want higher spending on one thing or another, lower taxes generally or specifically, or even the freedom to borrow more in the right circumstances, but if everybody pressing for every version of each of those things gets their way, the outcome is not hard to see.
The problem springs from an early and obvious failure to be completely clear about what the fiscal restraint Cameron and Osborne proposed was actually for. Remember, it wasn’t their natural or preferred view that a Conservative government should rein in spending or target deficit reduction – they persisted in their Blair-inspired promise to match Labour’s spending plans even well after the financial crisis began. For them, and thereby the country, controlling the public finances became an emergency measure, a bitter but necessary pill to swallow in the national interest in a dark hour.
That wasn’t a surprising message to adopt, and it resonated with people, but it was reactive, somewhat lazy and ultimately a mistake. It made it implicit that the hard battle to make the state run more efficiently was only a temporary condition, and that it would be fine to revert to over-spending and borrowing in good times once the crisis itself was over, as if Brownite economics was somehow normal or acceptable outside a global economic crisis.
While some ministers worked valiantly to fundamentally reform arms of the state, those at the top opted not to make the case to the people that the whole grim experience of entering a crash with a sizeable deficit already established was a cautionary experience, and that the hard times everyone went through were not just about shaking off the fiscal hangover Labour left but ensuring the public sector and its finances were fit to avoid ever being in such a situation again.
Various members of the current government shared this exact concern during the Coalition years, but they now find themselves unable to resist the political expectation, established even before the 2010 election, that the eventual end of austerity could mean a return to the gimmicks, giveaways and grandstanding with other people’s money which got the books into such a state in the first place.
We all know – we have all just witnessed first-hand – the financial and human cost of just returning to the bad old ways. Saying “austerity is over” is not enough, unless we ensure that the sentence has a second half: “now let’s make sure we never have to go through all that again.”