Austerity Again

As I pointed out a few months ago while ranting over "Austerity" in Britain, people driving the Austerity Thesis ("The Austerity Crowd", as I like to call them) is largely immune to facts. That there's a narrative about spending cuts is enough for them to cry 'Wolf' (or well, 'Austerity') and consign the Conservative Government to the dustbin of poor-hating evil politicians together with everyone else who ever opposed the brilliance of the enlightened left.

Reading Crawford & Johnson's 2015 IFS report as revision for my political economy course is therefore quite revealing. A few pages in they show spending as share of GDP falling quite drastically between 2010 and 2015 (46% of GDP to 40% of GDP, which I showed in my other piece), before they deliver what the Austerity Crowd would have considered solid proof, had they bothered to actually read something (anything?):

The big fall in spending as a proportion of national income shown in Figure 1 corresponds to a cut in real, price-adjusted, terms to total public spending of ‘only’ around 3 per cent between 2010−11 and 2014−15. Of course, what happened was much more complex than simply cutting all spending by similar amounts. Departmental spending – that is, spending on public services such as health, education, defence and so on – fell by 9 per cent, while non-departmental spending – such as debt interest payments, spending on social security and spending by local authorities financed by locally-raised revenues – actually rose by 4 per cent over the period.

See, 3% cuts to total spending! And even more for health and education, the pillars of the modern State. It's not a lie, they are cutting vital government spending and the poor must be suffering! <Release moral outrage>

Wait for it. Next paragraph reads:

Nor were the cuts to departmental spending shared equally across service areas. Notably, spending on health, schools and overseas aid were protected, increasing by 5 per cent, 3 per cent and 31 per cent respectively in real terms between 2010−11 and 2014–15. (my emphasis)

No, so spending on health and schools increased? Admittedly, there's an argument to be made that spending growth in these areas were less than real GDP growth, which explains why the fall in government spending as a share of GDP - because the economy is growing, rather than the government cutting spending. And it gets worse, if your sole purpose is to champion the poor:

Sibieta (2015, same issue) describes these reforms and explores the implications for the distribution of school funding, showing in particular how funding became more focused on schools with the poorest intakes.

The report also points to minor changes in the composition of taxation, with a gross tax increase of £64.3bn, with another £48bn in tax reductions elsewhere, mostly lowered tax on corporate profits (p. 278). Only the Personal Allowance hike represent a larger benefit in terms of total revenue, with the threshold before paying income tax was bumped from the £7,765 it would have been if the 2010–11 allowance had simply been uprated in line with RPI inflation, to £10,600 in 2015–16, that is benefitting the very lowest-paid workers. 

But there were cuts, and they must have fallen somewhere, right? True, in line with Conservative rhetoric of favoring work and disproving of unemployment benefits, Adam et al. (2015, same issue) showed that 

the overall effect of these changes was to take money from those with the highest incomes, and those dependent on benefits in the bottom half of the distribution, whilst largely protecting those in the middle and upper-middle parts of the income distribution.(p. 279). 

Glas half full-half empty for the left, I imagine. And not even that is entirely true, as Bob Murphy pointed out in his critique of Krugman's attempt at driving the Austerity Thesis:

that the British never actually cut spending. As so often happens in government, the British merely slowed the rate of increase, at least if we are considering all levels of government combined.

Slowing increase is only Austerity if you consider all spending in the economy rightfully belonging to the government. Ergo, no Austerity. 

So, what did Crawford & Johnson conclude?

It is this concentration of spending cuts in particular areas, rather than the overall level of cuts to total public spending, which is most important. The composition of the state is changing, with public spending ever more focused on providing health services and pensions. (p. 280)

Finally, they do warn that the proposed spending cuts by the 2015 Government are likely to fall on areas such as means-tested benefits. A lot has happened politically since – Brexit, Theresa May, General Election – so those suggestions may no longer be on the table. The way I see it, the only way the "Austerity" Thesis can remain alive, is for people to argue that the demands on the health care sector pensions increased substantially (due to demographics, more ills, more expensive treatments or similar reasons), and so despite increases in real spending, there's underfunding compared to what should have been, according to principles of publicly-funded health care. Or that those areas should grow at least as quickly as GDP, if not faster. 

But that's neither a cut nor "Austerity".