It has been four years since the current government came to power, but its most controversial policy is still widely debated. Austerity, depending on who you listen to, has either been the saviour of the country, or its curse. It is not just the politicians who are divided on the issue though; both the public and economists are torn between the two positions. The debate has been further stoked by the recent growth figures and the Chancellor’s unwavering commitment to cuts.
The Office of National Statistics (ONS) estimated that last year “GDP…increased by 1.9 per cent between 2012 and 2013”, the highest level of growth since the beginning of the financial crisis. The news was seized upon by the Chancellor, George Osborne, as a ratification of his austerity policy. The opposition argued, however, that this figure was merely a façade, hiding the most worrying and troubling figures. They argued that the increased growth should be taken as a sign; the economy is recovering and now is the time to help stimulate this, not to threaten it with more measures.
Recently the IMF and other economists have warned that austerity may have external, unforeseen, effects. They have pointed to increasing inequality throughout the euro-zone and have expressed worry at the lack of opportunity for the younger parts of society. Indeed the ONS estimates that there were 1.04 million young people (aged from 16 to 24) in the UK who were ‘Not in Education, Employment or Training’. This is out of an approximate seven and a half million young people.
Youth unemployment has had a dire effect on the long run growth rate of the economy, through the individuals having less training and education. So when these individuals do eventually join the work force employers will have to invest more in bringing their skills up to the correct level. Thus the legacy of austerity will likely still be impacting the economy in many years to come.
However, steps had to be taken after the financial crisis to deal with the public finances. It is to Britain’s credit that all political parties agreed that the problem had to be dealt with. This maturity is what has differentiated Britain to many of its other European neighbours. The reward has been historically low borrowing rates for the UK government and, perhaps, a quicker return to growth. This should be seen as a chance for the Chancellor to reassess the situation. The markets have little other choice than to trust Britain, so the argument of cutting for the market’s sake no longer holds.
Mr Osborne has the opportunity now to cut where he chooses and potentially increase spending in a few select areas. According to the ONS, for the financial year to date 2013/14, public sector net borrowing was “£4 billion lower than the same period in 2012/13, when it was £94.6 billion”. The budget deficit is decreasing, now is the time to ensure that the future health of the economy isn’t deteriorating too.