Tag Archives: austerity

Theresa May – Austerity is Over

Austerity wasn’t because of economic necessity but a political choice. The economic argument was that if you save your money/reduce your spend, you can clear your debt otherwise we were told we would end up like Greece. This view was accepted by Osborne resulting in this long period of austerity. It should be noted that in 2012 a report by IMF said that austerity had been a mistake. A better approach would have been to reflate the economy which would have left it in a better place to pay off the deficit. The report also said that the UK couldn’t end up like Greece because the debt was in its currency. The UK could raise loans through UK bonds (the problem with Greece is that they are in the Eurozone and share their currency with a number of countries, but there isn’t a euro bond. Each of the Eurozone countries still uses their own market to raise loans from bonds. External institutions who want to buy eurozone currency bonds are attracted to countries like Germany (although the interest rates are very low) while Greece has to significantly increase their interest rates to attract investors to buy their bonds, although it’s for the same currency.  The consequence of this is that Greece has youth unemployment near 50 per cent and Germany has youth unemployment close to 3 per cent because the bonds have to be serviced and interest paid on them).

This has been the most prolonged period of austerity post-war. The UK’s deficit peaked at 10% of GDP and Osborne in 2010 unveiled cuts of  £110 billions of fiscal cuts – public service cuts and tax increases (VAT). It wasn’t wholly a success as growth stagnated and unemployment rose. The Bank of England couldn’t reduce interest rates any further to stimulate the economy. Austerity measures did what austerity does, it contracted the economy, and this was the choice accepted by Osborne.

Posted in News and Op-eds | 54 Comments

Austerity and Napoleon

There is an old joke: Income tax was introduced (by Pitt the Younger) to pay for the Napoleonic wars and now that those wars are over, surely it must be time to get rid of Income tax.

As a Liberal I believe in the individual and to build a society that will support and nurture that individual’s potential. If you look at examples in history, in almost every case it’s the individual who has made a difference so it makes sense to support creative/driven individuals to enable them to realise their vision.

However, society is made up of groups and communities with individuals of different capabilities. The predicament is to have a tax system that not only encourages investment and reward but one that ensures society is also equally served.

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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.

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Is austerity working? And do all debts have to be paid?

 

These questions invite binary “Yes” or “No” responses. More considered approaches exist. We need to consider the economic consequences of debt repayment, structural and attitudinal causes and contributions, responsibility for debts both particular and general, beneficiaries and losers, and, how they may be prevented in the future. Also, can such enormous debts be paid?

This requires analysis and accurate, accessible language. In Economics and Finance, that which has different labels is sometimes not significantly different and that which is under one label has significant differences. For example, money consists mainly of credit creation since loans create deposits and loans are debts.

Debt is a form of relationship: financial activity connects and affects people.

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Austerity economics, Brexit and the Government’s deficit from a Keynesian perspective. What are the choices?

 

Brexit or no Brexit, we have to improve and stimulate our flagging economy. We cannot blame Brexit for everything. We haven’t even started to leave the EU yet. Nothing has really changed. If there are problems we need to look at the effects of past years of austerity economics first.

The usual charge made against those of us who are of a more Keynesian inclination and who argue against austerity economics is that we are far too ready to let the Government’s deficit increase. In other words, that our policies will involve too much public borrowing, which will only add to high levels of public debt.

This is not necessarily true. But, we do need to understand what the government’s deficit is, how it originates, and why it was so difficult for George Osborne to make good his election pledges of reducing it, let alone turning it into a surplus. We can perhaps expect Philip Hammond to have the same problem. Tories seem very slow learners at times.

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George Osborne’s decisions are coming back to haunt him

Commenting on George Osborne’s planned spending cuts, Liberal Democrat Treasury Spokesperson Susan Kramer has said:

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Was Vince Cable proved right on austerity?

When the histories of the coalition government come to be written, those chapters focussing on the role of Vince Cable will be some of the most fascinating. Vince’s fierce intelligence combined with a (perhaps deliberate) flair for the enigmatic meant he was involved in some of the most interesting of the coalition’s key moments.

One area of particular significance is likely to be the analysis of his views on austerity. Throughout the coalition Vince was often portrayed in the media — and by some Liberal Democrats — as a brave warrior fighting an axe-wielding Tory-Lib-Dem cabal of ideological austerians. Yet this seems to me to be precisely wrong.

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Ed Miliband’s speech: 5 thoughts on what it means for Labour, Tories, Lib Dems and the 2015 election

Ed MilibandI listened to, rather than watched, Ed Miliband’s speech to the Labour party conference yesterday. On the up-side that meant I missed the three hammy mid-speech standing ovations (shades of IDS c.2003); on the down-side it accentuated the peculiar whooping of some of the more excitable delegates (calm down, it’s just a politician talking). In its own terms — getting noticed for its content rather than simply as an impressive no-notes memory feat — it was an undoubted success. Matthew Parris in The Times rather brilliantly captures the flavour:

Crikey

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Blair misses the point on the pre-crisis deficit

Tony BlairWriting in this month’s centenary issue of the New Statesman, former prime minister Tony Blair writes:

Labour should be very robust in knocking down the notion that it “created” the crisis. In 2007/2008 the cyclically adjusted current Budget balance was under 1 per cent of GDP. Public debt was significantly below 1997. Over the whole 13 years, the debt-to-GDP ratio was better than the Conservative record from 1979-97. Of course there is a case for saying a tightening around 2005 would have been more prudent. But the effect of this

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Opinion: Why austerity is the wrong answer to debt

Austerity policy continues to be embraced by the UK coalition government as well as by governments across the world. This is causing predictable political unrest with large demonstrations and riots in Spain and Greece. The pain to UK households is substantial and set to increase. This is clearly socially undesirable, but more importantly is based on a technically incorrect analysis of the current economic crisis.

It is fashionable and great sport to blame bankers for the crisis, to say that the developed world has ‘lived beyond its means’ and that we ‘cannot afford’ economic growth and therefore must cut our economic output …

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Opinion: Liberal Democrats must not apologise for cuts

Occasionally Nick Clegg, or his speechwriters create a phrase which deserves to live on in the political lexicon long after the rest of the speech has been confined to the political dustbin. The pre-2010 General Election debates were transformed by Nick referring to the “two old parties” and asking voters to “do something different this time”.

While the phrases were memorable, they were hardly that effective. Voters did what they did the last time they faced a Labour government mired in staggering incompetence and a Tory party leadership tacking to the centre while the grassroots howled. That was in the 1970’s when voters gave Labour a kicking and the Tories the mandate of largest party in parliament but no overall majority. In 2010 the outcome was the same with Labour weakened and the Tories becoming the largest party, except that on this occasion, the Liberal Democrats, from MPs to ordinary members, voted by a huge majority for a coalition. But while the phrases used in the debates were clever and eye catching, it was another of Nick’s phrases which should help set the tone for the party in the future. Nick said there would be “savage cuts”, while Vince Cable joined his Tory and Labour colleagues in saying that post-election there would, under a Liberal Democrat government, be “cuts faster and deeper than Thatcher”.

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Opinion: You can’t have ‘growth’ without ‘austerity’

Amid the current maelstrom of gossip, speculation and forecasting concerning the British economy, a number of myths have developed.

Principal among them is that the coalition’s economic plans for this parliament contained ‘only’ cuts, with no concern for achieving growth.

The issue of whether fiscal consolidation itself can be a driver of growth is one I aim to address further below, but first I want to debunk that myth.

The economic plans, outlined by the coalition in 2010, made clear that the first half of the parliament would contain the bulk of the …

Posted in Op-eds | Also tagged and | 38 Comments

Opinion: Austerity and defying the Laws of gravity

“It’s ideology, stupid.” – a subtext to the Queen’s Speech

On Five Live a bond trader says that austerity isn’t working and the government should be more expansionary. In Wake Up to Money a fund manger says that austerity has been overdone and it’s time for countries like Germany and Britain to borrow more.

Yet on Tuesday’s Today programme, David Laws continued to advocate austerity.

It is more and more apparent that ‘economics’ is being used to serve the ideology of a smaller State, damning the idea that the State should have different responsibilities at different times, especially when the private sector is …

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