Too little, too late?

The end of austerity …

The Chancellor of the Exchequer’s message in the Spending Round was clear, austerity in the UK is over. And it ended with a bang: the promised ￡13.8 billion of extra spending is the highest increase in day-to-day expenditure for 15 years and the Chancellor promised that no department would face a real spending reduction in the next year.

The proposals were significantly higher than most analysts estimated, up to maybe ￡5 billion or ￡6 billion more than expected, and are likely to boost GDP by 0.1 to 0.2% over the year. Recognising how close the planned spending total is to the limit implied by the fiscal rules, the Chancellor signalled a review of the UK’s fiscal framework, saying that the structure that was appropriate for 2008 is no longer suitable for the UK today. Hopefully this is an admission that austerity has gone too far, and the UK will require more public spending to meet its economic, climate and demographic challenges in future.

… but not a reversal …

Spending is planned to increase in a wide range of areas. Health and social care, education and the police service all received increases in resources with proposals for higher capital and operating expenditure for the NHS, an additional ￡1.5 billion for council social care budgets, higher teacher pay, a ￡7.1 billion increase in school spending by 2022/23, together with a ￡400 million funding increase in 16-19 year old further education spending and a 6.3% increase in the Home Office Budget to support the objective of hiring 20,000 new police officers.

Welcome as these increased resources are, the scale is certainly not of a level to constitute a reversal of austerity. With no change to spending plans for social security it could reasonably be argued that austerity is not completely over. At best, spending in areas like education will start to return to pre-financial crisis levels but in most areas such as social care, health and local government the new spending levels mean that real resource levels are significantly lower than when the Conservative Party came to power in 2010.

… and more of a stop-gap …

Although the Chancellor argued that the proposals represented the start of a new economic plan, it was difficult to identify the vision underpinning this. Beyond the day-to-day spending for the next 12 months, details on strategy were thin on the ground. The objectives of the infrastructure plan are improving transport and broadband, increasing spending on R&D and building a greener economy, but these aspirations were not supported by specific resource estimates.

Running through the proposals was the hint of an upcoming election. Promising more money for health, education and the police is an obvious tactic and the ￡200 million for buses, ￡3 billion for the towns fund and support for the Manchester to Leeds Northern Powerhouse Rail Link all appear to have been taken from the Labour playbook. However, it seems inevitable that more will be promised on the campaign trail, hence the need for a review of the fiscal framework.

… that may not convince the public.

The Chancellor was very clear that the spending round is the start of a new economic plan to build a stronger UK economy. Will voters be convinced by his arguments?

In his defence of austerity, the Chancellor set out the chronology of austerity, identifying the fiscal position that the last Labour government left in 2010 to remind people of why spending reductions were necessary. This felt like he was stretching a point and there is obviously a risk that voters take the view that nine years in power means the Conservative Party have to share some of the responsibility for the resource challenges facing sectors such as health, education and law and order.

The public’s lack of faith in politicians means that proposals lacking any real details, such as on infrastructure, are unlikely to generate much enthusiasm. Voters will want more to convince them that there is a real commitment to change. This is particularly the case because the lack of specifics on new ideas for growth, such as through the Industrial Strategy, or on climate change means there is no real vision to buy into.

It is also uncertain that the proposed increases will be sufficient to make a difference to the experience voters have with public services and certainly not before an election, should one occur in the near-term. The risk for the Chancellor is that the announcements are quickly forgotten in the hurly-burly of an election campaign. Labour’s proposals are not detailed and significantly more ambitious but come with a recognition that taxes will need to rise – this is likely to be one of the major battlegrounds of the next election, whenever it arrives.