- Post author:dizzy
- Post published:9 March 2025
- Post category:austerity/Austerity 2/Keir Starmer/Neo-liberalism/NHS/politics/Rachel Reeves/Wes Streeting
- Post comments:0 Comments
Jeremy Corbyn: Keir Starmer says there’s no money – I don’t believe him
https://metro.co.uk/2025/03/05/jeremy-corbyn-keir-starmer-says-no-money-dont-believe-22673792/
‘There’s no money’.
That always seems to be the current government’s response when asked to tackle the enormous crises affecting the UK.
But as Keir Starmer announces he will ramp up military spending, and as Rachel Reeves plans to slash welfare budgets, we must never forget what impact government funding choices have on the most vulnerable people in society.
As we speak, 4.3 million children in the UK are living in relative poverty. Over 350,000 people are homeless in England.
Millions are worried about the cost of heating their home, braced for yet another hike in energy bills. Meanwhile, billionaires are richer than ever.
So what is the government doing?
They could lift children out of poverty, if they wanted to, by scrapping the two-child benefit cap.
They could help pensioners with energy bills, if they wanted to, by restoring universal winter fuel allowance.
They could ensure nobody had to sleep rough on the streets, if they wanted to, by launching a massive council-house-building programme.
Instead, they have signed off on a 13.4 billion increase in military spending. With that money, the government could scrap the two-child benefit cap 10 times over.
Now, today, we’re told the government is preparing to cut billions from welfare budgets.
…
Put simply: there is never any money for the poor, but always enough money for war. I just wish the government was honest about that.
…
Original article at https://metro.co.uk/2025/03/05/jeremy-corbyn-keir-starmer-says-no-money-dont-believe-22673792/
In the struggle to get Britain working, the long shadow of austerity could be part of the problem
Guilherme Klein Martins, University of Leeds
Austerity is an unusual economic concept. While it is one of the economic terms that attracts the most interest from the public, it remains controversial in policy debates. Advocates argue that reducing government deficits through spending cuts and tax increases restores confidence and stabilises economies. Critics, however, warn that these policies just deepen downturns.
My recent research, using data from 16 countries over several decades, provides new evidence supporting the second view. That is, austerity has significant and persistent negative effects on employment and the size of an economy (measured by GDP), with the damage lasting more than 15 years.
A common defence of austerity is that while it may slow growth in the short term, it ultimately strengthens economies by reducing debt and making room for private-sector expansion. But my findings challenge this assumption.
I analysed episodes of austerity, defined as large fiscal contractions (reduced state spending or large tax increases) across a variety of advanced economies. What I found was the negative impact on GDP remains substantial even after a decade and a half. On average, GDP is more than 5.5% lower 15 years after a large austerity shock than would have been expected if there had been no austerity, based on statistical estimates.
Beyond GDP, austerity has a lasting impact on labour markets (the number of jobs on offer and people available to do them). My research shows that large fiscal contractions lead to a significant drop in the total number of hours worked, which is a key indicator of labour market health.
This is a crucial finding, as policymakers often assume that labour markets will adjust quickly after an economic shock. Instead, results suggest employment levels (which is best measured by the total number of hours worked by everyone in the labour force) remain depressed for more than a decade after major austerity measures.
One reason for this is the connection between investment and employment. When governments cut spending, firms delay investments. This, in turn, lowers productivity growth and reduces job creation.
If businesses anticipate that the economy will remain weak for a long time, they adjust their hiring and investment strategies. This can reinforce a cycle of stagnation. My results suggest that, on average, an austerity shock generates a reduction of 4% in the total worked hours and 6% in the capital stock (the value of physical assets like buildings and machines used to produce goods and services) after 15 years.
The effects of an austerity shock on countries’ GDP:
UK: A case study
Perhaps one of the most striking real-world examples of the long-term effects of austerity is the UK. Following the 2008 global financial crisis, the UK government implemented sweeping austerity measures starting in 2010. These policies were framed as necessary to reduce the budget deficit and restore investor confidence. Spending cuts affected key areas, including welfare, healthcare, education and local government services like social housing, roads and leisure facilities. https://www.youtube.com/embed/Z1g1zGV6vRQ?wmode=transparent&start=0 The 2010 coalition government brought in more than £80 billion of cuts to public spending.
But here’s a conundrum. The UK’s fiscal deficit (the difference between what it spent and what it raised in taxes) after the implementation of these policies was greater than before the austerity cuts. The deficit in 2023/2024 was 5.7% of GDP, while in 2007/2008, it was 2.9%.
What is evident is that these measures are associated with stagnant wages, weakened public services and sluggish GDP growth. Productivity growth has remained weak, and long-term economic damage is evident in underfunded infrastructure and an increasingly fragile NHS.
More than a decade later, real earnings have barely recovered to pre-crisis levels. The past 15 years have been the worst for income growth in generations, with working-age incomes growing by only 6% in real terms from 2007 to 2019, compared to higher growth rates in countries including the US, Germany and Ireland.
My findings contribute to a growing body of research challenging the longstanding view that shocks like austerity have only short-run effects. Traditionally, models assume that economies return to their long-run growth paths after temporary disruptions. But recent evidence, including my research, suggests that demand shocks can have persistent effects on supply by reducing investment and participation in the labour force.
In the wake of the COVID pandemic, many governments responded with generous financial support, temporarily reversing the austerity-driven policies of the previous decade. The strong recovery in some economies suggests that government spending can play a crucial role in sustaining long-run growth. On the other hand, a return to austerity measures could once again lead to prolonged stagnation.
What should policymakers take away from this? First, the assumption that austerity is a path to long-term prosperity needs to be re-evaluated. While reducing excessive public debt might be important, the economic costs of large and rapid cuts to spending can far outweigh the benefits.
Second, policymakers should recognise that timing matters. Gradual adjustments to spending, when really necessary, should be accompanied by measures to support investment and employment in order to reduce the likelihood of causing long-term harm.
Finally, economic policy should prioritise long-term growth over short-term deficit reduction. Governments facing tough spending choices should explore alternative approaches – things like progressive taxation and targeted public investment. And when cuts are needed, they should avoid implementing them during periods of economic recession.
Austerity is often framed as a necessary sacrifice for future prosperity. As governments consider fiscal strategies in an era of rising debt and economic uncertainty, they should take heed of austerity’s long-run costs. The evidence suggests that a more balanced approach – one that prioritises investment and economic stability – may be the wiser path forward.
Guilherme Klein Martins, Lecturer in Economics, University of Leeds
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Britain’s unearned wealth has ballooned – a modest capital tax could help avoid austerity and boost the economy
Stewart Lansley, University of Bristol
Inheriting the worst set of public finances for decades, Labour was always going to face an uphill struggle trying to fund improvements to the UK’s public services.
Inflated debt and recent hikes in the cost of borrowing mean the government is faced with stark choices. For it will be difficult to meet the chancellor’s own tight fiscal rules without further tax rises or cuts in public spending.
But as the former chief economist at the Bank of England, Andy Haldane, has warned, further spending cuts would be “deeply counterproductive”.
One solution for avoiding ongoing austerity lies in raising a higher proportion of taxes from assets. For despite the UK enjoying a long personal wealth boom, little of this boom is the result of new wealth creation or higher productivity.
Much of it is unearned. Some is the product of corporate wealth extraction, where dividend payments and personal fortunes have have been prioritised over the long-term health of a company. Some privatised water firms, for example, have been turned into cash cows for their owners.
Another large part of British unearned wealth is the product of state-induced asset inflation. Since 1999, house prices in England have risen almost three times faster than incomes.
This kind of asset inflation is a classic example of “passive accumulation”. Or, as the 19th-century philosopher John Stuart Mill described it, getting rich in your sleep.
As a result, household wealth currently stands at over six times the UK’s GDP. It was three times in the 1970s.
Yet while Britain is asset rich, its tax system is heavily based on earnings from work. Taxes on income from dividends, capital gains and inheritance make a tiny contribution to the public purse.
This is a fundamental flaw of the tax system which does little to dent the growing concentration of wealth owned by the few. Through political inertia, the tax system has failed to catch up with the growing importance of wealth over income.
Inherit the earth?
The fallout from the low taxation on wealth is well illustrated by the role of inheritance.
Levels of wealth passed on after death in the UK have been rising sharply. Over the next three decades, some millennials are expected to inherit a staggering £5.5 trillion, dwarfing all previous transfers of wealth between generations.
The lion’s share of this transfer will go to the most affluent. The lifetime wealth of those with parents in the richest fifth will see their wealth grow by 29% – compared with 5% for those born to the poorest fifth.
This will only intensify the reproduction of the wealth divide of the past.
Extending the tax base is not just about fairness or revenue raising. Asset holdings are often little more than unused resources, while big inter-generational wealth transfers can play a counterproductive role in the economy.
Over a third of the UK’s wealth is stored in property (with the rest in pensions, savings and possessions). This is mostly only realised when passed on through inheritance , where its benefits accrue to the already privileged. Little of this process contributes to more productive activity, with one of its most malign effects being to fuel higher house prices, because the money is largely reinvested in property.
The unfairness of inherited wealth has long been recognised. The patron saint of economics, Adam Smith called it “manifestly absurd”.
A modest and phased rise in capital taxation would help to reduce the passive role played by wealth holdings. Even small changes would release funds which could be used to improve social infrastructure from schools to hospitals.
One approach would be to build on the existing tax system through higher rates and fewer reliefs and loopholes. The second would be to introduce new taxes.
In her first budget, Rachel Reeves took steps to raise revenue through the first option, from both inheritance and capital gains tax. But these were too modest to alter the overwhelming dominance of tax on earnings.
A more fundamental shift would be to reform the existing system of council tax with a larger number of tax bands at the top. Still based on 1991 property values, this is perhaps the least defensible tax in Britain. The most effective alternative would be to replace council tax and stamp duty with a single proportionate “property tax”.
Another option would be for a modest annual 1% tax on wealth over £2 million, which has the potential to raise around £16 billion a year, or double that on wealth over £1 million.
Such a measure could be sold politically as a “solidarity tax” to help pay for the things the UK needs. And while governments have been wary of the political reaction to higher taxes on wealth, the tide is turning.
Those supporting higher taxes on wealth include the Conservative-aligned think tank Bright Blue and an influential campaign group called the Patriotic Millionaires. There is also growing public support.
Continued public spending austerity would drive more years of stagnation. It would also be politically suicidal for this government, as it was for Labour in 1931 and in the 1970s. But harnessing a little more of the country’s immense private wealth would make the tax system more equitable and by providing the resources to boost social investment, ease the path to economic recovery.
Stewart Lansley, Visiting Fellow, School of Policy Studies, University of Bristol
This article is republished from The Conversation under a Creative Commons license. Read the original article.