What did austerity pay for?

27.07.17 / In: Comment

By Richard Dawson / @rrdawson94

We often talk about how public services and local authorities have had their budgets cut and the very real human cost of suffering caused by austerity. But less is said about where the money saved from those cuts actually went.

Looking at the evidence, it can be reasonably suggested that cuts to public expenditure brought in under the coalition government have coincided with and essentially paid for cuts in corporation tax also brought in at the same time. That austerity paid for tax breaks for the rich.

The Labour Party and the political left have long made this point. They have tried to expose this wealth redistribution from the bottom to the top by virtue of the cuts, which we will now discuss. But since the 2008 financial crash the left in the UK has lacked the political credibility to have its economic views taken seriously.

It is perhaps one of the biggest mistakes of the New Labour era to allow the party to be blamed for the financial crash. If Gordon Brown had not taken the brave decision to use Keynesian methods to save our financial system and the wider economy from total collapse, we would have been facing a crisis perhaps even more severe than the 1929 Wall Street crash. Tory rhetoric cut through then, stating that it was Labour’s public spending and not deregulation in the financial sector, which caused the crash.

When David Cameron won in 2010, this rhetoric was then used to justify a new direction with cuts in both public expenditure and taxation at its core.

However, the data shows clearly that the austerity policies brought in under Cameron, supposedly to promote economic recovery and sustained growth, have in fact resulted in the very architects of the 08 crash, the rich corporations and financial institutions, could have a large tax break.

Figures released by the Institute for Fiscal Studies show that departmental government expenditure (DMEs) fell by £48.6bn in real terms from 2010 to 2017. If we take into account the average inflation rate of 2.47% per year during that period, the nominal value is actually £58.7bn.

 

As for corporation tax cuts we can look again to the IFS, who have done an analysis on the cost to the treasury of the reductions. Our corporate tax rates have been cut from 28% in 2010 to 19% today, which has an estimated cost of £62.1bn.

 

So  we have a nominal value of £58.7bn being cut from public expenditure since 2010, which should have given the treasury more room to get borrowing under control, but it has instead gone straight back out in £62.1bn worth of tax giveaways for corporate profits.

This redistribution has also had a direct human cost.  Research by the Royal Society of Medicine estimates that cuts to the NHS and social care are responsible for the largest spike in mortality rates in the post-war period – 30,000 excessive deaths.

At the same time, corporate profits have rocketed from £80bn to almost £110bn, which represents about a 37.5% increase. This means that shareholders, corporate executives and board members have had their pockets lined to the tune of millions of pounds since 2010. We’re all in this together, right?

We were sold austerity and these horrific cuts to public services and social security on the basis that they were necessary for us to be able reduce the national debt and get our books in order. Was the continual lowering of corporation tax to the lowest rate in the G20 also necessary? Or does it simply represent a despicable redistribution of wealth from the bottom to the top.

The national debt today is a great deal higher than it was in 2010. Alongside this we see huge economic and social inequality, poor productivity and record low GDP growth. The question is, why did we have to suffer such punishing austerity if our economy was going to look like this today? So that the wealthiest in our society, the very proponents of our financial woes, could get even richer. That’s why.

© 2017 Open Labour