LibLink: David Laws – UK reaches socially acceptable limits of austerity

David Laws has written an article in the Financial Times, but you have to be a subscriber to read it.  We will give you a flavour of the piece here so you can decide whether to subscribe (the trial version is £1 for 4 weeks).

In May 2010, as the chief secretary in the UK’s coalition government, I warned that the choices available to us in Britain’s biggest postwar spending squeeze lay between the unpalatable and the disastrous, and that we were moving from an age of plenty to an age of austerity.

It has not been a bad prediction, by political standards.

At that time, public sector austerity was both necessary and deliverable. Necessary, because our budget deficit was an eye-watering £163bn, in excess of 10 per cent of gross domestic product. Deliverable, because the UK had only just ended an unprecedented expansion of public spending under the Blair and Brown governments.

He asks:

The question is whether we are now reaching the limits of public sector austerity — Conservative plans anticipate years more of cuts and fiscal tightening.

And concludes:

Planned cuts to education and welfare need to be reversed if Mrs May’s rhetoric about helping the just managing households, and delivering improvements in social mobility, are to mean much. And the NHS needs a settlement which allows for rising demand and an ageing population.

We are reaching the socially acceptable limits to public sector austerity. The prime minister and her chancellor need, as the latter unveils his Budget this week, to set a new course which extinguishes the deficit over a sensible timescale, without allowing poverty to soar and services such as education and health to be seriously damaged. 

Reducing the UK deficit further from existing levels is sensible but should not be pursued regardless of wider costs.

You can read the full article here.

* Mary Reid is a contributing editor on Lib Dem Voice. She was a councillor in Kingston upon Thames where she is still very active with the local party.

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23 Comments

  • Lorenzo Cherin 6th Mar '17 - 10:20pm

    Yes…yes…yes…!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!…………….

  • We reached the point when austerity was having an adverse effect on society mid way through the coalition. The fact that the leadership failed to realise that was one of the main reasons there are so few Lib Dem MP’s. Tory lite has limited electoral appeal especially when it wasn’t that lite more of an echo.

  • Given all that you say and much is valid, national polling for the party is around ten percent . In your hey day, reviled by many, especially now, less so then, the party was junior partner in coalition with a powerful Tory party and you got no credit for what you did.
    If what the party says is so obviously true then you should be riding high. Obviously you are not, why can’t you get enough people to vote for you?
    Solve that problem.

  • David Evershed 6th Mar '17 - 11:11pm

    The fact is the government is still following a “live now, pay later” policy with a high debt which we continue to add to with government spending higher than government income.

    It is our children and grandchildren who will have to pay the interest and repay the debt. We are living at a higher standard than we can afford at their expense.

    We could increase taxation but there is a practical limit as to high that can be raised before people stop paying VAT or declaring income.

  • paul holmes 6th Mar '17 - 11:11pm

    Welcome back David -Prodigal Son, Road to Damascus and all that. So getting evil State spending down to around 35/36% is no longer desirable. Hear hear.

  • A Social Liberal 6th Mar '17 - 11:34pm

    Right from the start of the coalition government austerity was paid for by the poor and the vulnerable.

    Yes, Laws is correct – we did have to sort out the deficit, but not Osborne and the Nasty Parties way. Cable put forward a policy which would have been fairer and would have hurt much less. Indeed, it must have been so because it was Lib Dem policy.

  • “In May 2010, as the chief secretary in the UK’s coalition government, I warned that the choices available to us in Britain’s biggest postwar spending squeeze lay between the unpalatable and the disastrous, and that we were moving from an age of plenty to an age of austerity.”

    Can someone source when he said this?

  • Michael Cole 7th Mar '17 - 1:23am

    Tynan, you point out “… the party was junior partner in coalition with a powerful Tory party and you got no credit for what you did.”

    I never fully trusted Cameron. Shortly after the ‘Rose Garden’ in 2010 I emailed Nick Clegg to the effect of “It’s right for the good of the country to enter coalition but don’t let the LDs get shafted.” I didn’t get a reply – I didn’t expect one.

    Perhaps understandably, we didn’t adequately stress that we were very much the junior partners. Consequently we were disproportionately blamed for the negatives and not given credit for the positives. Forgive me for saying so, but I think we were a bit naive.

    You conclude by saying “… why can’t you get enough people to vote for you?” Whatever the opinion polls say, our vote in parliamentary and council by-elections is growing stronger. I like to think that the time will come when the country will respect and follow the advice of intelligent politicians like David Laws. The question is: How much damage will be done in the meantime ?

  • David Hopps 7th Mar '17 - 7:34am

    Two years too late

  • Antony Watts 7th Mar '17 - 8:05am

    We need to hear from economists that argue that a government that issues its own currency can do what it likes about spending. National budgets are not like household budgets (you can’t issue money).

    So what is needed is to stop making top-down, spreadsheet budgets, and managing by attacking and cutting department by department. But a bottom up budget, deciding through a political, principled process what services and what service levels we want in society. And having decided those it is the Governments job to allocate money to cover the decisions, no matter how big or small…

  • Tynan

    “Given all that you say and much is valid, national polling for the party is around ten percent . In your hey day, reviled by many, especially now, less so then, the party was junior partner in coalition with a powerful Tory party and you got no credit for what you did.”

    The power belongs to those that use it, the Lib Dems rolled over, when they should have punched and punched again. The party had the power but they wanted to be seen to be team players and collegiate, bad mistake being hard nosed was the only option and one they failed too take.

  • Little Jackie Paper 7th Mar '17 - 8:53am

    Well….surely all of this though is conditioned by the habit of ringfencing particular areas of spend? The ‘wider costs’ were quite explicitly not so wide that they covered everyone. Most notably we have had a triple locked pension, protected pensioner add-ons, protected foreign aid and a protected NHS (albeit with ‘efficiency savings’). Now, indeed one can make a political value judgment on those decisions. But it does seem to me to be a bit disingenuous to talk about the, ‘socially acceptable limits to public sector austerity,’ and not talk about the winners and losers from the fiscal consolidation we’ve had. It is inescapable that in a fiscal consolidation every protection means a deeper cut elsewhere. Some, notably the young, have taken a thumping.

    I don’t think anyone ever really set out an economic case for these ringfences. The political case, well…we can speculate. In fairness here Clegg et al seemed at the very least willing to question some of the protections.

    Now of course Labour may well have had some ringfences in mind (I make no partisan political point here). It may be that there are the usual talkboard favourites to talk about – HS2, Trident, foreign adventures in North Africa etc. And it may well be that there are arguments for the ringfences. But I don’t think that those arguments were ever really spelled out in any depth.

    So whilst I’d agree with Mr Laws’ general point I do think that the limits he talks about can and should extend to people and spend that hitherto has been regarded as having sacred cow status.

  • As Paul Holmes say, a Damascene conversion indeed………

    But………… more than a tad late…… and in the words of the late great Buddy Holly….

    ‘Wake up little Susie, our reputation is shot………’

  • Blimey, a genuine senior moment……..should be Everly brothers…… Exit left, embarrassed and muttering to oneself…..but it was sixty years ago…….

  • Ruth Bright 7th Mar '17 - 10:52am

    What a nerve! Austerity and cuts were “necessary and deliverable” as he puts it when the coalition was cutting Sure Start and abolishing things like the health in pregnancy grant. Happy days!

    PS to David Raw – there is no shame in getting muddled up about which musical genius is which!

  • Bill le Breton 7th Mar '17 - 10:57am

    In mid-2010 the UK’s nominal growth trend of 5% was back on track having at one stage declined 8% in a space of 12 months. Of course by then and because of those years of sub trend performance a lot of government tax revenue had been lost.

    The deficit had to be reduced but not at the cost of reducing that 5% growth in NGDP. Could that have been done?

    Well the answer is yes. The USA did it at the end of 2012. It cut government expenditure abruptly – the cliff edge – the budget sequestation of 2013 – but the central bank, the FED, launched a huge programme of Quantitative Easing – from memory $80 billion a month to offset those cuts. The US recovery was not interrupted.

    In fact the Bank of England Governor Mervyn King had promised to do the same in June 2010 to offset the Coalition’s emergency budget. For some reason he never made good that promise. So, we shall never know. The emergency budget and the scare tactics (“We are Greece”) stalled the recovery. People we too frightened to spend, firms too frightened to invest.

    Laws was aware of what was going wrong. But he held out for Osborne’s so-called expansionary budget contraction which became the Coalition’s economic policy. He feared that the kind of monetary easing necessary would create inflation and label for years to come the Liberal Democrats as The Party of Inflation.

    Later when King finally retired and was replaced by Carney (the announcement of which exactly coincided with the economic ‘turn’ from late 2012 and 2013) Laws admitted privately that King should have ‘gone’ much earlier.

    The difference in income of being for the five years of the Coalition below that 5% trend growth in NGDP cost over half a trillion pounds in lost output – in battered services – in loss in confidence in the political system. The failure to deliver continuing recovery at 5% per annum during 2010-15 allowed the Tories to batter Labour’s reputation on the economy, but also consigned 50 MPs including Laws himself to defeat.

    The UK needed giants in 2010, brave and farsighted politicians. It had none.

  • Shaun Young 7th Mar '17 - 11:39am

    @Hywel – Found this article where he was reported to have said it:

    http://www.telegraph.co.uk/news/7751880/David-Laws-6bn-cuts-will-usher-in-age-of-austerity.html

  • Steve Trevethan 7th Mar '17 - 12:58pm

    Austerity reduces most incomes and increases prices to pay off “national” debts irrespective of the social and economic damage done.
    Visible responsibility is a better banner.
    We need to differentiate between prices and costs, and between an extractive economy and a “real life goods and services” economy and the best balance between them.
    We need to make clear the differences between different types of debt.
    Debts based on exploitation, carelessness and the confidence that governments will cover them by transferring money from the public are not authentic debts.
    Irresponsible and avaricious lending has no moral worth or economic worth, except for the few.
    All debts do not have to be paid

  • Two years into the coalition, David was calling for government spending to be cut to 35% of GDP. To put that in context that is lower than it as pretty much ever been in modern times and about a 7 point cut from current levels.
    http://www.telegraph.co.uk/news/politics/liberaldemocrats/9351623/Liberal-Democrat-David-Laws-pushes-for-deeper-tax-and-spending-cuts.html

    To put it another way a senior Liberal Democrat wants to see spending cuts of around £160bn. The budget(s) David was involved were not by any definition austerity. What he would like to have done given the power would have been.

    For him now to claim that we are reaching the socially acceptable limits of austerity is a either a complete reversal of what he was advocating in government or totally disingenuous. Either way he can’t be trusted – and nor can the Lib Dems whilst he and people who advocate his views (and remember Tim was a cheerleader for the tax cuts brigade who Paul Holmes opposed) are in positions of influence.

  • Bill le Breton 8th Mar '17 - 10:42am

    Mark, I have never understood your vehemence on this.

    Clearly the way public sector net borrowing is financed can have an effect of the quantity of money.

    Here is a publication by the Bank of England which sets out the way the (then) PSBR was financed between 1952 – 83. It also helpfully details the link between the money supply (defined as M3) and the way the PSBR is funded (see first column p488).

    If the Government/Central Bank is forced/chooses to borrow from the private banking sector the quantity of money increases certeris paribus.

    If there is sufficient aggregate demand in the economy then this process of funding the deficit is inflationary. The fight against the inflation in the late 1970s and early 1980s took the form of reducing the money supply by reducing the amount of government borrowing from the private banking sector – G was cut + more gilts were sold and importantly there was a active communications campaign to say the government were intent and committed to this process.

    In the Great Recession aggregate demand plunged. Firms were cutting their borrowing from private banks and many more were paying back back loans. The former meant less money creation and the latter meant more money destruction. There was also a general sense that a deep recession was in the making. People looked for safe assets and sensed that the monetary authority was not going to increase the supply of these. The demand for money to hold increased at the same time as the supply on money was decreasing.

    By the time the authorities woke up to the extent of the problem, reducing policy interest rates as a signal that safe assets would be available, the recessionary forces were deeply ingrained.

    The Central Bank with the permission of the Treasury began Quantitative Easing – buying bonds with created money from the private sector. Thus reducing the supply of safe assets and pushing those who had received the new money into the shares markets.

    What were the alternatives? Create no new money and wait until the private sector’s desire to pay bank loans (destroying money) had ‘burnt out’.

    Or create money and boost demand in another fashion? eg. Fund government projects by borrowing from the private sector banks, which creates money and ensures that that money is spent on eg infrastructure. A process unwise in 1978 but wise in 2008.

  • Steve Trevethan 8th Mar '17 - 1:36pm

    The current global levels of debt, especially those created by the “Derivatives Market”, the use of unlimited fiat money since Mr Nixon took the reserve currency [$] off the gold standard in 1971, the use of the IMF etc as a tool of imperial power by the USA, the impoverishment of the Greeks etc makes, at the least, a prima facie case for considering other approaches to finance.
    Ellen Brown is entertaining and interesting on the theory and practice of non- predatory, infrastructure friendly finance.
    https://ellenbrown.com/
    Michael Hudson ditto on REVIVING reality based “Economics”analysis and policies.
    http://michael-hudson.com/
    We need unorthodox economists such as the above because orthodox economists will continue to persuade us that the current theories work either because they are an ultimate truth or because they are ultimately beneficial.
    When?
    They may also be saying what will advance their careers.

  • “We are reaching the socially acceptable limits to public sector austerity”

    Yes, but from which side of the mark? We may have several years more worth of cuts but that doesn’t mean that local government is in a position to withstand any more at all. How long ago was David Cameron’s mother signing a protesting petition? Local government is being asked to do more with less and more and more are suffering because of it.

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