2014 year of tough decisions

Why the “tough decisions lie ahead”

It seemed to many that after nearly 4 years of government and all the “austerity” that the statement the chancellor made at the New Year about, the “tough decisions” being for 2014, was surprising but in fact it is true and this is why.

The chart below shows the “structural deficit” that Osborne and Cameron talk about so often, as in “we have reduced the deficit by a third”.

You will notice that the deficit reached 11.2% in 2009/10 (the last year of the last government). It has now reduced (end of 2013) to 7.5%, a fall of 33%. You will also notice that the last two years came in at 7.9% and 7.8%. And of course the lower figures on the right are estimates!

The chart below shows UK GDP over a similar period.

You will notice the massive dip in 2009 which corresponded to the recession caused by the world financial crisis of 2007/8. The figures in the first chart show the structural deficit of a percentage of GDP. So it follows that if government spending and tax income stay relatively static over a period when GDP takes a dip then the difference between the spend and the income expressed as a percentage of GDP will obviously go up.

The chart below shows income and expenditure:

This is in £millions. The thing to notice here is that spending and income is relatively static (allowing for inflation) over the period 2009/10 to 2012/13.

So the question I have is what are the hard decisions the government have taken that have reduced the deficit by a third? The answer of course is none. Just by doing nothing in terms of overall expenditure/income the recovery of GDP inevitable after the biggest post-war recession will itself reduce the deficit.

But doing nothing has had another effect. The chart below shows the national debt.

By failing to deal with the deficit (taking tough decisions) the debt has rocketed and the present government have borrowed more in 3.5 years than the last government did in 13 years.

This is why in his New Year statement of 2014 the chancellor said that the tough decisions lie ahead.

Incidentally the reason I put “austerity” in quotes at the top of this piece is because there really hasn’t been any as can be seen by the spending figures above.

·         The “bedroom tax” has cost more than it saved.
·         The benefit cap has saved a drop in the ocean compared to the overall benefit budget because they were not hundreds of thousands of benefit claimants getting more than £26,000 a year.
·         The savings made by changing from DLA to PIP have been eaten up by the cost of appeals and the cost of ATOS.
·         The money saved by sanctioning thousands of JSA claimants has been taken up by the disaster that is the work programme (A4E, INGUS etc).
·         Savings made by cutting nurses and other front line NHS staff have gone to private sector health providers.

No austerity is really an ideological crusade that has nothing to do with money.