The Coalition government from 2010 until 2015, made up of the Conservatives and the Liberal Democrats, sought to prioritise deficit reduction above all other considerations. This was in the wake of the 2008 global banking crisis which strained the UK economy and heralded the policy of austerity connected closely with the Chancellor Osborne. It was partly successful in creating jobs and some growth but the policy has been controversial. Labour have argued it has not served the least well off, some conservatives have argued it had not reached its intended aim of removing the deficit altogether and it is claimed the government, without acknowledging it publicly, did slow down deficit reduction and prioritise growth after 2013, which stands today at just 0.3% in the last quarter.
Whilst a number of EU countries have failed to recover, the UK economy has witnessed a stable recovery, which demonstrates the success of the deficit reduction. The Conservatives have built their economic narrative of the ‘long term economic plan’ on the back of the 1.8 million jobs and 2 million apprenticeships created in the first Parliament. This has been reinforced by the growth in 2014 of 2.8% which is significantly high and evidence of the success of the deficit reduction in helping to pay off the budget deficit. The Coalition had successfully brought unemployment down to 5.5% by 2015 and 73.5% employment rate which clearly illustrates that they are ‘getting more people back into work’. They would argue this is down to their economic policy of sensible deficit reduction and allowing the private sector to grow. However underemployment is a major concern as it has been totalled at 3 million, with 700,000 zero hour contracts. What is more questionable about deficit reduction is the fact that Citi has stated many workers are in ‘incomeless jobs’. This suggests that these workers are so low-paid they are unable to pay tax. But it is true that deficit reduction has been successful to some extent as Britain has enjoyed more jobs than all the other European countries put together.
However Labour argued that the deficit reduction was not a successful policy choice as it has hit the most vulnerable in society. Labour’s Ed Miliband spoke of a ‘cost of living crisis’ as many must choose between ‘heating and eating’. It has been estimated by Labour that the average person is £1,500 worse off under the last Coalition as seen by policies such as the Bedroom Tax which disproportionally affects disabled people, about 1/3. Thus the deficit reduction plan with its ‘savage’ cuts was arguably going ‘too far and too fast’ and may have been ideologically driven by the Tories. This is because £21bn of cuts were made in welfare alone and those affected most have been the poorest as evidenced by the rise of the food banks to 1 million as recorded by the Trussell Trust. This fits into the Conservatives’ neo-liberal view of a smaller state and predominantly aiding the most wealthy, seen most clearly by the cut of the 50p tax rate to 45p tax rate. Clearly as economist Ha Joon Chang points out, deficit reduction has led to a ‘bogus recovery’ especially for the poorest whilst the wealthy have reaped the benefits. Therefore the Coalition have not been successful in distributing the burden of deficit reduction in society with £120billion cuts.
However the government’s U-turn in 2013 was arguably significant in contributing to the success of the deficit reduction plan. As 2/3 of leading economists in 2012 protested that austerity was not working as seen with the low growth of 1.7% in 2013, the government diverted to what some called ‘Plan B’ in the autumn of 2013. Moreover divisions in the Coalition were exposed on the deficit reduction plan as Vince Cable, business secretary, viewed it as too harsh and wanted capital investment spending to boost growth. He proposed that 1% be spent on housing in 2012 but was silently ignored by both the Conservatives and other Liberal Democrats. This was echoed by Labour’s shadow chancellor, Ed Balls in 2012 who also said that investment was key to securing growth. Moreover the fact that the UK lost the triple AAA credit rating by Moody’s in 2012 was an indication that the deficit reduction plan was not working. But it is clear that the refrainment of ‘fiscal tightening’ was bound to create growth, as seen by the 1,000 jobs a day and as echoed by the leading economist Paul Krugman who says that austerity is a ‘delusion’. Adding steam into the Coalition’s sail was the IMF’s Christine La Garde who said in 2015 that the deficit reduction plan was ‘working’. This helps to confirm that the deficit reduction plan has been largely successful after the change in approach.
But the deficit reduction plan cannot be viewed as entirely successful as it has not been eradicated and borrowing is still high. Osborne promised to eradicate the UK budget deficit by 2015 but it is still remains £87billion. Evidently the deficit reduction plan has not worked as evidenced further by the fact that borrowing was £87.3billion in 2014/15. The current debt stands at 1.5 trillion (up 500 billion since 2010). This level of borrowing is about the same as what Alistair Darling had called for in 2010. Frances O’Grady points out though that the Conservatives have had to borrow £50billion more to fix the failed ‘Plan A’. Thus the deficit reduction plan, which was centred on severe cuts, low tax receipts (even in 2015 there was a 4.1% difference than forecast in 2010) and low growth has cost the UK taxpayer. To add to this, productivity is at 30% lower than any other developed country like France, Germany and the USA. This worries economists and policy makers.
Overall it seems that the Coalition’s deficit reduction plan has not entirely been successful as the savage cuts of £120bn have affected the most vulnerable in society. But the Coalition has presided over a period of growth and 2 million jobs which is a clear indication of some success to its plan. Some would say this growth could have been realised earlier if a more Keynesian approach was taken, stimulating the economy through capital spending. Going into the 2015 election, Labour promised more austerity and its current leadership candidates have almost all conceded that austerity is required, some like Kendell have almost signed up to Tory priorities.