A2 Politics Economy Politics Unit 3 UK Issues

The coalition government’s deficit reduction programme

The coalition agreement states that “the deficit reduction programme takes precedence over any of the other measures in this agreement”. Deficit reduction is the raison d’être of the coalition government, and so it is always important and relevant to analyse how far this flagship policy has been achieved. The Labour opposition have often criticised the coalition for cutting “too far, too fast”, and failing to find a healthy balance between the need for growth and the desire to cut. Although it must be considered that it is the Labour government who ultimately left an economic mess behind them, it can certainly be argued that the Conservative and Lib Dem coalition’s deficit reduction programme has gone too far and too fast in order to deal with the problem.

In 2010, the coalition government argued that austerity and cuts were essential measures that needed to be taken in order to balance the books after recession. George Osborne’s “unavoidable budget” in 2010 announced a £40bn package of emergency tax increases, welfare cuts and a VAT rise from 17.5% to 20%. Criticism from Labour that the budget threatened to derail the economy led to Osborne pinning the blame for the tough measures on Gordon Brown: “today we have paid the debts of a failed past and laid the foundations for a more prosperous future”. However, some of Osborne’s measures have not had the desired effect on the economy, not least the dramatic rise in VAT, as the price of goods increased alongside stagnant wage levels, much needed consumer spending went into further decline. Ed Miliband argued that it was “the wrong tax at the wrong time”, as it would hit poorer families at a time where they would already be under pressure from government spending cuts. Furthermore, the response of retailers to the VAT increase also suggested that the coalition’s programme had gone too far, too fast. Research by the Centre for Retail Research and online shopping group ‘Kelkoo’ predicted that retail sales would fall by about £2.2bn in the first three months following the implementation of this policy. The fact that such a major element of the coalition’s deficit reduction programme is seem to have a stunting effect on growth suggests that the programme does indeed go “too far, too fast”.

It is also important to point out that the coalition government’s extensive cuts to public spending have not led to economic growth at the level expected. In September 2014, government borrowing was higher than expected at £11.8bn. This pushed the deficit in the first half of the year to £58bn, about 10% higher than the same period a year earlier. Angela Monagan from The Guardian writes that this has put George Osborne further off course in his deficit reduction plans, despite the extensive cuts he has made to public spending. Over 200 areas of public spending faced real-time cuts in the first year of the coalition government, with departments having to find £10bn in savings from services such as GP care, prisons and the rail network. The nature of the cuts have been extensive, but this is not reflected by our economy’s growth. This suggests that a more progressive approach is needed, and that the conservative ruling ideology of a free market small state is not in entirety the key to prosperity.

The coalition government have, however, argued that a lack of growth in the British economy can be blamed to a large extent on the global economic crisis – particularly in the Eurozone. Osborne has been keen to highlight how the UK government has been able to borrow at historically low interest rates during the crisis, and that the UK’s strict adherence to austerity has made it a “safe haven”. In this context, the Conservative Party would argue that their deficit reduction programme has been pitched right, as it has protected Britain from an escalating economic crisis in the rest of Europe.

Although the conservatives argue that a decrease in unemployment is proof of the fact that their deficit reduction programme does not go “too far, too fast”, Labour have challenged this argument. Ed Miliband coined the phrase ‘cost of living crisis’, and has highlighted the fact that although unemployment has indeed fallen, so have wages and levels of job satisfaction. In the space of 6 years, real wages have on average fallen by 10% while people at the top of the ladder have increased their share of wealth. Ha-Joon Chang writes for The Guardian in October 2014, labelling the promises of the deficit reduction programme as an “economic fairy tale”. Although on the surface there seems to be improvement, this is nothing to be proud of if the jobs created are of increasingly low quality.

In conclusion, the coalition government’s deficit reduction programme has undoubtedly gone “too far, too fast.” The private sector has seen little growth, while the government chases a policy of allowing the public sector to be dominated by many private – and failing – companies. Even the IMF has warned that if growth continues to plummet, continuing a policy of austerity can only be a long-term hindrance on the economy. If their current economic approach does not budge, the coalition government will fail its primary mission: to stabilise the British economy.

Maxime Singleton

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