"After more than a decade of austerity, the UK lives with private affluence – if only for the privileged few – amid public squalor,” a new report says. Economic policies generated a lose-lose-lose for the UK economy after 2010, leading to stagnant productivity, falling living standards, and worse public services.

The study published by the Progressive Economy Forum in brief:

  • Given that spending increases were matched by increased tax revenues, public spending could have been increased by 3% every year between 2011-2019, which amounts to £540bn for the entire period.

  • The analysis compares this with some numbers: “A large hospital costs around £1 billion to construct, while the total NHS budget in 2018-19 was around £114 billion. In 2023, every 1% pay increase for NHS workers on the Agenda for Change pay scale, which includes nurses and midwives, would cost around £700m […]. An extra £91bn in 2019 […] would be enough to fund the entire education budget.”

  • In the scenario described by the researchers, the UK’s debt-to-GDP ratio would have been 3 percentage points lower by the end of 2019 despite the increase in public spending.

  • Claims by former governments that a reduction in the size of the state would raise confidence in the ability of the government to service its debt, leading to lower interest rates, greater macroeconomic stability, and thereby higher growth, are outweighed by labour market mechanisms.

  • This is because “cuts to government spending, particularly on benefits and public sector employees, increase the cost of being unemployed and worsen the public sector employment alternatives available to private sector workers”, the researchers say. Consequently, the bargaining power of private sector workers weakens so they become willing to work for lower wages.

  • The results are higher employment and economic activity, but at lower wages and worse conditions. The indirect effects of this were severe and highly unequal in the UK since 2010 as the costs fell overwhelmingly on women and the lower paid - an effect the researchers call “exploitative austerity.”

  • There’s no need a return to austerity in 2023, the report goes on. Balanced budget increases in spending (meaning that public spending goes hand in hand with tax revenues) are necessary to “break the doom loop of austerity”.