Gestor bibliográfico Crisis y Salud

The UK’s Conservative-led coalition came to power promising to shrink the deficit that rapidly increased due to bank-sector bailouts and falling tax revenues. It pursued this by a combination of tax rises (15% of the total austerity package) and spending cuts (85%),reducing expenditure by £85 billion from April 2010. Capital spending has been slashed and many public sector workers have lost their jobs; those still employed have experienced wage freezes. Despite these sweeping measures, the most recent budget estimates from the Office for Budget Responsibility2 show that the deficit rose from £121.0 billion in 2011/2012 to £123.2 billion in 2012/2013 (excluding the statistical artefact arising from the public sector absorption of Royal Mail’s pension assets in 2012). A major factor has been the failure to achieve economic growth (Web Appendix 1). There is little disagreement that the government has failed to achieve its stated goals of economic recovery and debt reduction. But why? Is it because austerity was a mistake and increased spending was necessary? This view is held by many leading economists, such as Paul Krugman, Joseph Stiglitz and David Blanchflower. They note how President Obama’s US$831 billion stimulus package has yielded a much faster recovery than the UK’s austerity measures. They have been joined by former advocates of austerity, such as the International Monetary Fund (IMF). The Fund now acknowledges that ‘we underestimated the negative effect of austerity on jobs and spending power’, instead calling for public stimulus.