Austerity is a choice, and it looks like a bad one

14 Jun 2023 Ryan Miller    Last updated: 14 Jun 2023

The UK could do more to invest in its future (image is a still of Mark Lester as the titular character in 1968's Oliver!)
The UK could do more to invest in its future (image is a still of Mark Lester as the titular character in 1968's Oliver!)

Northern Ireland – and the rest of the UK - could have a bigger budget. It’s a matter of choice. Public spending now that saves money later is a good investment.


The sewage pumping into rivers and coastal waters isn’t the only toxic waste plaguing the UK right now. Effluent sourced from Northern Ireland’s latest budget continues to flow too.

The health system is “beyond crisis” with no money to change direction. The PSNI has a £140m hole in its budget. Funding for third sector organisations is at risk – such as with the Women’s Aid Federation NI, which is set to see core financial support vanish.

All this follows on from a scything cull of services in education, which looks set to continue.

The Head of the NI Civil Service, Jayne Brady, invited local political parties for talks to discuss the ongoing collapse of Stormont and the state of public finances, with Stormont officials believing they need to find £800m in cuts to balance the books following the April budget announcement from Secretary of State Chris Heaton-Harris. Local party leaders (wisely) asked for more than that.

These are miserable circumstances and they have not occurred in a vacuum. The UK’s (and therefore Stormont’s) public finances are in a parlous state.

Hence, according to the logic of the current government (and, to some degree, the Leader of the Opposition Sir Keir Starmer – although he might be vague by design), the return to austerity. But there’s just one problem with that.


The UK economy has suffered a ridiculous run of shocks in the past 15 years. The global financial crisis in 2008, the pandemic which emerged in 2020, the war in Ukraine and related energy crisis last year – with the energy crisis itself part of the cost-of-living spike putting huge pressure on finances both in business and at home. All of those are largely things that have happened to the UK, rather than things we sought out.

Some of the other shocks were self-inflicted. Brexit is a disaster, both in terms of its direct impacts and in terms of the political circus that followed.

People who campaigned for Brexit can’t admit it was a national act of self-harm, and those who were against it have centred around a position that the referendum can’t be reversed. That stance, it has to be said, is supported by some solid democratic reasons, even though public opinion can be summed up as “growing regret”.

The outcome is that we all just have to accept that everything is harder and everyone is more poor, because that’s what we collectively voted for – indirectly, at least.

Then there is austerity. This economic failure was set up as a pragmatic, book-balancing solution to the Credit Crunch. It did not work.

It may well have contributed to the slow-cooker cost-of-living rise from 2010-20 that left the UK extremely vulnerable to the inflationary shock of the past 18 months. And now, faced with another downturn, we are doing austerity again.

The thing is, national finances are not like household finances. Governments don’t have to tighten their belts the same way a family might have to. Austerity is a choice.


Andy Haldane worked at the Bank of England between 1989 and 2021. He was the bank’s Chief Economist from 2014 until he left the bank to become Chief Executive of the Royal Society of Arts.

That’s not exactly the CV of a radical, and Mr Haldane has offered economic advice to both the Conservative and Labour parties in recent years.

A few weeks ago, he came out strongly against the ongoing return to austerity.

“We need to be much more ambitious about how we think about fiscal policy generally. There’s not so much as a fag paper to put between Labour and the government when it comes to fiscal rules and fiscal rectitude right now,” he told the New Statesman.

“That, for me, really lacks ambition at a time when it’s still, by any historical standard, incredibly cheap for governments to borrow…

“At a time where the social return on that public investment is so considerable, because of the polycrises we face – economic, social, environmental – we need to be a bit bolder, and a bit more ambitious, in how we put the public balance sheet to work today, in nurturing and building those public goods of tomorrow that would help beat back those polycrises.

“This is not a clarion call for fiscal profligacy. I’m saying what you borrow for really, really matters. If you are borrowing today, in an investment way, to nurture public goods, assets of tomorrow – they might be clean air, clean water and a flourishing biosphere, I don’t just mean HS2 – that is an investment worth making that pays off over the medium term, well in excess of the current cost of borrowing.”

Or, to put it another way, think of public spending as an investment and, all of a sudden, arguments for and against borrowing reduce to simple sums.


If that makes it all sound very easy, don’t get too excited. The economy is, to put it mildly, not good.

And, as one former Treasury Permanent Secretary pointed out: “Debt interest payments are already growing faster than any other spending programme, crowding out spending priorities like the NHS.”

There’s plenty to worry about, but austerity has failed before and will again. As this March report from The Resolution Foundation notes in its key findings:

  • Britain is an international laggard when it comes to public investment – consistently featuring in the weakest third of OECD countries. Had the UK’s levels been at the OECD average over the past two decades, public investment would have been a truly transformational £500 billion higher (in 2022 prices).
  • The failure to provide consistent funding for our transport, housing, healthcare and local services has clear consequences in our day-to-day lives: it lies behind the fact that we have fewer hospital beds per person than all bar one OECD advanced country, and spend more time commuting than all bar two.
  • Public investment has been cut by an average of nearly 20 per cent in each of the post-recession fiscal consolidations that have taken place since the 1970s.

Public finances are bad and all spending seems like a lot, right now. However, failure to spend money where it is needed also comes with huge risks.

This goes back to Mr Haldane’s words that “what you borrow for really, really matters”. It’s not about splurging. It’s about something much more cold-blooded: simple arithmetic.


If the benefits from the services paid for from borrowing outweigh the cost of that borrowing, then they represent good value, evidence-led policy and mature politics.

That’s the equation.

When you look around at the conflagration of public services in progress right now, how much damage does that seem to be causing?

The UK’s willingness to borrow should be in proportion to the scale of that damage. The scale of that damage is massive.

This is not irresponsible spending, it’s the basics of good investment and sound financial management. Nations are not households, the dynamics of borrowing are different and if stuff is worth keeping we should keep it, even if that means adding to national debt.

The Women’s Aid Federation is losing out on £147,000 from the Department of Health. On a UK-national scale, that is buttons. Surely that organisation’s work is worth that much?

Transformation of local health services is, financially, on the other end of the scale. However, given the immense year-on-year growth in demand for services, seemingly endless waiting list pressures, and a service structure unable to cope with either, not pursuing health reform is to commit to higher and higher budget demands, systemic collapse or both. What is the financial value of avoiding that? It must be astonishingly high.

So, as Mr Haldane put things, the calculation about whether borrowing is a good idea is “dead easy: you compare the cost of borrowing with the social return on that investment.”

He went on: “That cost of borrowing, in real terms, is still really, really cheap by any historical metric. And the social return on that investment right now, I would say, is extremely high. Given the growth malaise we face, the climate crisis we are encountering, the social insecurities many within society face, what better time than now to make that investment? I would.”

Austerity, again

This straightforward, analytical way of thinking makes the state of our public finances much easier to understand.

Austerity is a choice, but it is not a blind one. Does the benefit of investment outweigh the interest payments over time on newly-accrued debt? If yes, then borrow; if no, then don’t.

Please note, I’m not even approaching the merits and demerits of quantitative easing in this article – although it’s worth noting that the Bank of England’s current governor Andrew Bailey recently had to defend the opposite policy, namely quantitative tightening.

So, as we all look round in alarm at both withering frontline services and an absolute absence of investment that would lead to future savings – in health, in education, in our oft-ignored sewage and wastewater system crisis (which, thankfully, the Audit Office is currently investigating), and more – everyone should know that this is the result of political decisions that did not and do not have to be taken.

Everyone should also feel empowered if they can better understand the actually-quite-simple process for deciding whether borrowing to spend is a bad idea, or a good one.

This is particularly true for anyone seeking to loosen government purse strings for something specific (such as many third sector organisations). Quantify, with as much accuracy as possible, the value of your work. Compare it to the cost of borrowing. If the benefits outweigh the costs, tell those in power that your organisation is a sound investment.

In general, just look around. See what is happening to public services, to the economy and to society. Ask yourself if this represents value for money.

If the answer is no, ask for more.

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