Austerity Politics and UK Economic Policy

AUSTERITY POLITICS AND UK ECONOMIC POLICY assesses UK economic policy in the wake of the financial crisis through the lens of the austerity agenda, focusing on monetary policy, economic rebalancing, industrial and regional policy, the labour market, welfare reform and budgetary management. The author, Craig Berry, argues that austerity is geared towards a resurrection of financialisation and the UK’s pre-crisis economic model, through the transformation of individual behaviour and demonisation of the state. Cutting public spending and debt in the short term is, at most, a secondary concern for the UK policy elite. However, the underlying purpose of austerity is frequently misunderstood due to its conflation with a narrow deficit reduction agenda, not least by its Keynesian critics. Berry also demonstrates how austerity has effectively dismantled the prospect of a centre-left alternative to neoliberalism.

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Full contents

  1. Introduction: Austerity and Growth

‘Growth model’ is an analytical concept which designates the main sources of economic growth within a given economy, the orientation of institutions configured to enable the associated economic activities, and, crucially, patterns of wealth distribution which sustain certain economic and political practices. The ‘neoliberal’ or ‘Anglo-liberal’ growth model evident in the UK before the financial crisis built upon longstanding traditions within the UK economy and economic policy practice, such as the centrality of the finance sector, fiscal conservatism, international openness, low taxation and limited employment protection. UK policy elites have acted to rescue this model since the 2008 crisis, and the ‘austerity’ agenda pursued by the coalition and Conservative governments since 2010 has served to reinforce many of its intellectual, behavioural and distributional foundations.

  1. Financialisation and the Property-Owning Autocracy

UK policy-makers’ interventionist response to the financial crisis might suggest that the hold of neoliberal ideology over elites’ understanding of and prescriptions for the economy had loosened. However, we need to understand the defining role of the process of ‘financialisation’, and the integral function of the housing market, within the pre-crisis growth model. Interventions by policy elites have predominantly served to support financialisation and the housing market. The austerity agenda pursued most forcefully since 2010 is designed to protect and advance financialisation, by further undermining the legitimacy of fiscal policy interventions – even though the resurrection of the pre-crisis growth model has required significant and novel fiscal manoeuvres by central government. Austerity has also justified an intensification of the compulsion for individuals to engage with finance.

  1. Industrial Decline and the Myth of Rebalancing

The notion that the UK economy needs to be ‘rebalanced’ has become one of the most important motifs of elite-level public discourse. The most important imbalances to which policy is ostensibly being addressed are those between the finance and manufacturing sectors, and between Northern and Southern England. However, rebalancing does not endorse a critique of either finance-led growth or laissez-faire industrial policy. Instead, it serves to further delegitimise the notion of the state as a purposeful economic actor, complementing the master narrative around austerity. Coalition and Conservative industrial policy has failed to reverse the long-running path of decline in UK manufacturing, and the more recent agenda around ‘the Northern Powerhouse’ represents the transposition of austerity-related notions of self-sufficiency from the individual to the civic level.

  1. Welfare Retrenchment and the Perversion of Full Employment

Paradoxically, while the ‘retrenchment’ of welfare entitlements has been central to the pursuit of austerity under the Conservative and coalition governments, reducing actual expenditure on social security benefits has not. This is principally explained by the relationship between labour market outcomes and benefit expenditure. Welfare ‘retrenchment’, in combination with benefit sanctions and employment support programmes, helps to reinforce the notion that individuals must become self-sufficient through work – enabling a disingenuous championing of full employment by Conservative politicians – but does not necessarily lead to significantly lower spending in the short term. However, the valorisation of work occasioned by austerity has helped the government to resurrect the pre-crisis growth model by placing downward pressure on pay and conditions in key growth industries in the services sector.

  1. Deficit Reduction and Budget Irresponsibility

The coalition and Conservative governments have repeatedly espoused that eliminating the budget deficit is its principal policy objective. Yet they have also repeatedly failed to meet their fiscal targets in this regard. Keynesian economists have criticised the intention to radically cut spending, but also identified an apparent relaxation of George Osborne’s cuts agenda as decisive in the resumption of steady growth in 2013. However, a Keynesian analytical lens offers only a partial understanding of the relationship between austerity and fiscal policy. In practice, deficit reduction, even if never achieved, functions as a legitimising mechanism for the wider objectives of austerity – and this function has now been institutionalised in the form of the Office for Budget Responsibility.

  1. What’s Left?

The main political opponents of the Conservative Party have struggled to develop a coherent set of ideas by which austerity may be challenged. Under Ed Miliband, the Labour Party struggled to construct an alternative to the pre-crisis growth model while accommodating austerity and, specifically, the perceived need for deficit reduction. The election of Jeremy Corbyn as Labour leader offers the prospect of a more coherent anti-austerity politics on the centre-left, yet there are few signs of austerity being dislodged from the the common sense of political discourse. The groups that seem to have had most success in challenging the Conservatives’ ideological hegemony have been those that have strongly articulated localist or nationalist sentiment, yet these groups are pragmatic on economic policy and only opportunistically anti-austerity.

  1. Conclusion

The financial crisis undoubtedly represented a moment of upheaval in the UK economy. However, the elite-level ideational response it produced was not novel, but rather drew upon extant traditions of thought, most obviously those associated with the notion of austerity. As such, the crisis has been defined in accordance with the perspectives and interests of some groups rather than others, drawing upon certain values and assumptions about economic life that pertain irrespective of the proximity of crisis. In short, austerity promises ‘radical continuity’ in economic statecraft. Yet we should not assume that the hegemony of this position will persist indefinitely; austerity is an idea for exceptional times, and it remains unclear whether acquiescence to its prescriptions will continue in more ‘normal’ political and economic circumstances.