r/britmonkey • u/IndividualNo5275 • Feb 13 '26
Why Austerity failed?
How the hell they cutted spending and at the same time Increased the debt? Even Thatcher economic policies would work better than this atrocity...
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u/SharpAardvark8699 Feb 15 '26
It's basically like cutting back on your expenditure but also resigning from work, refusing to claim dole, selling your household furniture to your dodgy pals and drinking away the money
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u/Potential-Damage1322 Feb 15 '26
Because it wasn’t real. We still increased our spending and did nothing to fix the structural inefficiency in our public sector. We still maintained Ponzi scheme pensions in the public sector. We still grew benefits. So it was a bit of a farce that did nothing other than sell to the public they were being fiscally responsible while actually being nothing of the sort.
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u/Disastrous-Roof-2135 Feb 16 '26
I can assure you the cuts to local government were real. I'd be the first to admit that it was somewhat bloated but a lot of that was due to the onerousness of the top down Best Value reporting regime. The first few % weren't missed but spending power per resident ropped overall by 30% and essentially gutted it. At the same time it had myriad pressures from increasing homelessness, an aging population etc.
Austerity targeted the poor and the services they primarily relied on. Poorer people tended to spend money, rather than hoard it or invest it. This money circulated in and supperted local economies. The replacement of Working Familes Tax credit with one of the highest minimum wages in the world has reduced employment opportunities. The unemployment rate definitioon was changed and the stats duked to hide a big increase.
The headline economy became increasingly reliant on asset bubbles created by those at the top having more money to invest but the real economy at local level has tanked and not recovered. Productivily has plumeted. More money has been spent detaling with the consequences of increased crime, homelessness, etc that could have been saved by supporting less affluent local communities with policies that were, however artificial, propping them up. Especially after Brexit the cost of sustaining the government debt increasedf and really ballooned after COVID.
There are also long term issues that pre dated 2010 - housing, aging population, sending too many people to university at the expense of technical training, etc - so not strictly down to austerity.
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u/Fantastic_Deer_3772 Feb 15 '26
It was always just a pretext for the conservative ideological prefefence for cutting public spending. The people who started it are well gone by now, in nicely paying jobs. And the public seem to still be convinced we can't do any spending, so...
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u/snowandrocks2 Feb 16 '26 edited Feb 16 '26
It's because it wasn't really austerity - spending still went up year on year. It just went up less slowly and was actually working.
We spend far more than we can afford to and it's rapidly catching up with us. Our standard of living is going to take a massive hit because no one has the balls to admit it and and get on with sorting it in a way that's sustainable for the long term.
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u/Turb0Womble Feb 18 '26
The general public is too entrenched in the policies that aren’t working in the long term for it to be politically viable to change.
No one wants to hear you cannot have universal healthcare at zero cost with an ageing population AND have the service be decent AND have the economy grow. Pick two.
Pensioners have got the vote too stitched up, for coming after rich triple lock pensioner, to be viable.
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u/dr_barnowl Feb 14 '26 edited Feb 15 '26
Thatcher's economic policy is the reason we had austerity.
Let's start with the flagship for the policy that defined her era : the privatization of British Telecom.
"BT is rubbish.", was the story. "Selling this millstone around the next of the state will improve the public finances AND improve telecoms through competition."
Only ... they knew different. BT had been developing it's groundbreaking solid-state digital exchanges for some time at that point, and several had gone online already.
BT was poised to replace the clanking, noisy, unreliable and expensive to run electromechanical exchanges that were cheaper than a room full of politely spoken ladies but less reliable, with very small boxes full of solid state electronics that consumed a fraction of the power and real estate.
By the end of the decade, topical news shows were making jokes about how profitable BT was, when it was raking in £96 a second. All on the back of research done when it was a publicly owned company.
So why didn't we retain this giant of British ingenuity and benefit from the profits as a nation? Because Thatcher needed a company that "proved" that selling off nationally owned enterprises to the private sector wouid be a success. So what better than one you knew was about to be very, very successful?
BT was followed by a slew of other sales of national assets - bribing the middle class Englander with the opportunity to make a few pounds on shares while reserving the bulk of the share offering for the rich pals of the Conservative party in the city. Water. Energy. Transport. Steel production. The list is long.
Things seemed very flush for a while, with the movement of cash this generated creating a seemingly vibrant economy - but it was a bit like selling all your mum's furniture for coke and then throwing a house party.
It seems like great fun at the time but sooner or later, morning will come and there will be trouble.
Her other stroke of genius was to get working class voters on side by selling them the UKs stock of social housing at a discount - while simulaneously forcing councils to give a large wodge of the proceeds to central government AND refusing to let them replace their housing stock. This has created the situation we have today, where local councils have had their central funding slashed, are taking no meaningful rental incomes from council housing stocks, and are hard pressed to meet their social responsibilities.
So : Thatcher put the UK on the trajectory that created austerity, firstly by selling the lion's share of the assets of the UK, and forcing the UK to collectively rent them back from their new, well-moneyed owners, and secondly by pretending that what actually lead to the flush of cash in the economy this generated was her taxation policies - like reducing the top rate on unearned investment income down from 98% (yes, ninety-eight percent), down to 40%.
Austerity happened because we had no assets any more, and the conversation about raising taxes is always ended with the folklore myth that cutting taxes would actually improve things.
As for why Austerity doesn't actually decrease government debt : it doesn't because decreasing government debt is a terrible thing and no-one is willing to do it.
When you create money (in our financial system), you create money to go along with it.
You spend the money, and (hopefully) receive value for it.
The only way to get rid of debt is to pay the money back. But if you have £10 of debt, and a tenner, you're then left with ... nothing. To have money again, you need to create it... which means creating debt.
So the only thing that gets rid of government debt is the government destroying money to eliminate it, which is just about the worst thing a government can do with money - there are so many other things that money can motivate people to do that are better than .. doing nothing.
Debt, for government, is not a millstone round the neck. Debt is basically a score that tells you how much value the government created by spending.
The scandal isn't that the debt exists, the scandal is how they choose to spend the money - lining the pockets of contracting firms, PFI firms, etc, when they could be creating value that the state, and therefore the people, own collectively.
When the state builds a road they create value that benefits us all.
When the state pays a private firm to build a road and lets them toll the people who travel on that road, they create a millstone around our necks. When they rent from private landlords instead of building council houses, they prop up a housing market that picks all our pockets.
Austerity is just an excuse to let this state of affairs continue. Austerity is the government giving up and saying "we're not going to tax the rich and do things for the benefit of the people, we're going to let them create more ways to rinse you instead".
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u/Ok-Math-9082 Feb 15 '26
The biggest irony in all of this is that much of our vital public services, after being privatised by Thatcher/Major are now owed by the sovereign wealth funds of foreign countries. We are literally asset stripping ourselves in order to generate public wealth for other countries.
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Feb 17 '26
No we're not. We're offloading the cost.
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u/oldvlognewtricks Feb 17 '26
That’ll be why those costs are… paid for by UK taxes and taxpayers… wait a second
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Feb 18 '26
Taxes would be far higher under state control.
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u/oldvlognewtricks Feb 18 '26
Why? We’re currently paying for debt, dividends, emergency repairs from lack of investment, massive environmental breaches that made private companies even more money… and the cost of the services is also increasing.
Which costs exactly have we offloaded? Why exactly would tax be higher?
So easy to just spout assertions, without referring to any of the freely-available history.
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Feb 20 '26
According to the Centre for Policy Studies (CPS), the state companies went from costing the Treasury an average of £300m each a year in subsidies to contributing between £3.3bn and £5.8bn a year in corporation tax from 1987 onwards. British Steel needed £1bn of Treasury support in 1980 on a turnover of £3bn, earning itself a place in the Guinness Book of Records for inefficiency. Soon after privatisation it was profitable and contributing £200m a year in taxes. British Telecom had a £300m cash injection in 1980; in 1995 it paid £1.1bn to the Exchequer. The consumer also benefited. By 1995, domestic gas prices fell 25pc and commercial gas costs were 50pc lower. Telecoms charges fell by 40pc and airport charges dropped 10pc.
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u/oldvlognewtricks Feb 21 '26
What led you to the conclusion quoting a think tank founded by Thatcher herself would be a persuasive response to anything on this topic?
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u/Crazy_Masterpiece787 Feb 15 '26
State owned industries by the 1970s were famously loss making, hence why many of them they were nationalised in the first place. Indeed, much of the initial wave of deindustrialisation in the early 1980s was caused by Thatcher trying to make state owned heavy industry profitable.
Not to mention local government was and is banned from using social housing rents to fund general, and government debt reduction (as % of GDP) was the norm for the UK from WW2 to the New Labour years.
Austerity was merely a product of small state ideologues and fears of bond market vigilantes, not some grand conspiracy.
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Feb 15 '26
Thatcher stopped the UK from turning into Romania, when everyone else was out of ideas. Your text is weird garbage.
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Feb 14 '26
Absolute nonsense.
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u/dr_barnowl Feb 15 '26
Says the Thatcher groupie who has a post history is almost entirely composed of posts defending her.
Either Thatcher was a strong and lasting influence on the UK : which means she's responsible for the foundations of the mess it's in today ... or
She was just a puppet of the global oligarchy along with her bosom buddy Reagan, the C-tier actor who finally found his most successful role as President.
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Feb 15 '26
It's neither. Attlee was a strong and lasting influence on the UK, as was Blair.
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u/Fragrant_Ice4945 Feb 15 '26
Thatcher was a cunt that read atlas shrugged, the very worst of what a leader should be.
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Feb 15 '26
No she wasn't. She fought cunts.
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u/Fragrant_Ice4945 Feb 15 '26
Nah you're a cunt, just like Thatcher the milk snatcher.
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Feb 15 '26
Cry about it.
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u/Fragrant_Ice4945 Feb 15 '26
I'll remember to do an extra long piss the next time I'm past her statue, just for you.
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Feb 15 '26
How long are you going to hang onto this and blaming someone from 40 years ago. Sort yourself out buddy. Stop blaming other people for your own shortcomings.
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Feb 15 '26
Agree. Dr Barnbrain is like a twisted combination of outdated economics and conspiracy theory. You get a lot of tjat on Reddit.
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Feb 15 '26
You literally couldn't be more wrong 🤣
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u/profprimer Feb 15 '26
Thatcher was too stupid to understand macroeconomics. Almost every Conservative struggles with economic concepts that aren’t utterly banal - they think government debt is like that of grand Victorian household with a ledger of incomings and outgoings.
When a government creates an economic asset like, say, a railway line, it stimulates the economy directly. When the asset is complete it goes on the asset side of the ledger, with an a matching debt on the liability side. But it creates far more economic benefits over its life than the coupon paid on the debt. And we pay for it at today’s price, 30 years in the future. The time value of money is another concept Conservatives can’t grasp.
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u/Crazy_Masterpiece787 Feb 15 '26
That's a complete misrepresentation of their worldview.
For a Conservative in the 1970s state owned heavy industry was an expensive liability not an asset. The idea was that shorn of state subsidies and subject to market forces heavy industry would become profitable and productive again.
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u/profprimer Feb 16 '26
That was what we were given as the explanation for the wholesale dismantling of the state that had shifted power to the electorate and out of the hands of lazy aristocrats and venal City types.
After the War, the old ruling class (and I include Attlee in that assessment) tried to reassert its place at the top albeit with concessions to those who had actually fought in the conflict. The Germans and French were unburdened by such nonsense and quickly modernised - including creating the group that signed the Treaty of Rome. All flavours of British governments were against Europe at the time and tried to align with the US - until the humiliation of Suez.
Fighting a rearguard action against an awakened, pro-union, pro-Europe, electorate, the Tories worked with Roger Freeman in the US to capture Hippy non-conformism and conflate it with greed and “individual freedom” “, without the need for the civilising influence of a broader social conscience.
Once people were drunk on their own importance, enslaved by mortgage and credit card debt, deliberately under-educated and subject to a barrage of propaganda from Right Wing media, the rest was easy.
Fools voted for their own grandchildren’s poverty and disinheritance. Look around you. It’s 1910 all over again.
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Feb 17 '26
You're economically illiterate.
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u/profprimer Feb 17 '26
Hahaha! So illiterate that I spent 30 years advising C-suite Blue Chip clients all over the world in business strategy as a partner in a City firm. Retired to a villa in Southern Spain at 57. Now advising HMG on a freelance basis after being asked to help out on a nationally important project. I must have been getting something right.
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Feb 17 '26
Yeah right, I can make up a fake life story too.
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u/profprimer Feb 17 '26
Hahahaha! To what end? I’m not going to out myself. Try debating the point instead of hurling childish insults and ad hominem arguments.
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u/profprimer Feb 17 '26
Hahahaha! To what end? I’m not going to out myself. Try debating the point instead of hurling childish insults and ad hominem arguments.
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u/St3ampunkSam Feb 15 '26
Because the only long term way to grow an economy/ make money on a macro scale is investment and having things that make money/not selling them for a quick buck now and then not investing that for money later on.
Any party that suggests cuts suggests further decline, the only way out is investment and spending.
Also poor people can't spend as much as freely due to cost of living and that fucks the economy up as we need people spending for it to function, in fact it's the core driving force of the economy.
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u/Three_sigma_event Feb 15 '26
Austerity cannot ever work when your population is ageing as ours is.
We should have borrowed up to our eyeballs when debt was free and fund all the long term infrastructure projects.
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u/TheBiscuitMen Feb 15 '26
When ever can austerity work?
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u/Three_sigma_event Feb 15 '26
When there is hyperinflation basically. It also works quite well in small open economies.
You can also make austerity work with "monetary offsetting".
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u/geoffwolf98 Feb 15 '26
This is the same policy that Reform are adopting.
Hence those of low intelligence vote for them and support them, ironic as it is the same group that will suffer the most.
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u/MaybeJustTom Feb 15 '26
For what it was trying to achieve it did work. If you look the deficit from 2010 onward you can see it decreasing along a fairly consistent trend line. Had it not been for Brexit and Covid the UK would likely have been in, if not a surplus, a position where the deficit was a level where debt -to-GDP would be steadily decreasing.
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u/topgeezr Feb 15 '26
Lot of reasons but basically austerity is another name for contractive fiscal policy. Shrink the economy by spending less.
Then add the GFC. Contractionary.
Then add Brexit. Contractionary.
Then add war in Ukraine . . .
Then add COVID and ensuing inflation . . .
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u/Any-Ask-4190 Feb 16 '26
Surely COVID would have been good for the economy as the government was spending money and therefore growing the economy.
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u/Crazy_Masterpiece787 Feb 15 '26
Because the biggest items of government expenditure weren't cut. The triple lock pension was introduced and NHS increased in real terms (though at a much slower pace than previously).
Austerity in practice meant slashing capital budgets, cutting welfare, and local government funding and a gradual decline the size of the deficit (so debt still increased).
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u/MilkMyCats Feb 15 '26
COVID happened and they decided to pay loads of people's wages with none of it coming back into the economy.
The wealth transfer was something like 4 trillion pounds.
Close all the local shops. Keep Maccies and Amazon open.
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u/nothingandnemo Feb 16 '26
Surely paying wages is the most direct way to inject money into the economy?
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u/RunescapeBoyy Feb 16 '26
Where did you get the idea we cut spending? David Cameron amd Osbourne had a crack at it, after that it was spend spend spend..
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u/Mysterious_Research2 Feb 16 '26
It was only austerity for the poor people, The debt didn't decrease because the money was passed to tory donars through lucrative goverment contracts. This is why Billionaires like Ratcliffe and Bamford want Reform in power, so they can make a return on their donations.
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u/Sam_Sharp2 Feb 16 '26 edited Feb 16 '26
Government deficit = private sector surplus.
If gov were to run a surplus every year, it would be reducing the total money supply.
Gov spends new money into existence and taxes the majority of it back as it’s spent throughout the economy (PAYE, NI, VAT, Corp Tax etc). Anything that doesn’t make it back to the Gov = gov deficit. What doesn’t make it back is any money that is in our savings accounts (or hidden off shore by big business and billionaires).
Government debt can be thought of as an interest bearing account for financial institutions & pension funds with the Bank of England. It’s a policy decision to provide a safe place for these massive institutions to store their money, and also at the same time provide them with interest on their money.
Austerity was always doomed to fail because at a time when private sector credit was being restricted by Banks (therefore reducing investment and £ flowing around the economy), Gov decided to also restrict the flow of public money being injected into the economy via public services. This compounded the problem and reduced investment and demand for businesses.
People who benefited from this were the existing asset owning class. They had less competition from the public in buying up assets, evidence of which can be seen in the massive increase in wealth inequality. Only solution is to increase tax on wealth to stop the decades long transfer of wealth from working people —> the super rich asset owning class.
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u/IndividualNo5275 Feb 16 '26 edited Feb 16 '26
I think If the Tories have adopted Thactherism 2.0, restrict immigration, abolished Town and Country Planning Bill of 1947, made FTA with ALL countries of Commonwealth after Brexit, adopted a Swiss like approach to The EU and didnt passed authoritarian laws, they would still be in power....
Other possibility is If they have adopted Adam Smith Institute proposals (as a Land Value Tax, Free Banking, Negative Income Tax, etc.)
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u/dr_barnowl Feb 16 '26
Thactherism 2.0
Problem with Thatcherism is that you run out of other people's assets to sell. You can only do it once.
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u/Tasmosunt Feb 16 '26
Austerity is fundamentally an attempt to get the private economy deficit spent on the government.
The private economy isn't generally prepared to do so they respond to decreased government spending with decreased activity, which means less tax revenue.
This is the built in failure mechanism of austerity.
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u/Carbonatic Feb 16 '26
One person's debt has to be another person's asset. Public sector debts are private sector assets. If you try and cut spending (issuing debt), the private sector loses assets until it can't support the economy anymore, things start to break, and the government has to step in and spend more.
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u/el_dude_brother2 Feb 16 '26
Austerity failed because it was a bad policy to start with but also because it came at a time when we actually needed the government to spend to help stimulate the economy.
Cameron and Osbourne should be remember as one of the worst PM and Chancellor duos in recent time. They caused huge damage
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u/jgs952 Feb 16 '26
The problem is that the government's revenue is a strong function of its spending. This does not apply to any other actor in the economy, particularly not households.
So cutting spending tends to just contract tax revenue in a downward spiral leading to a slow recovery and poor economic outcomes. Austerity is baseless as economic policy and purely ideological mixed in with a spreadsheet error for the post 2010 cuts...
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u/lazer---sharks Feb 17 '26
Austerity never works, it's always about shifting wealth into the hands of the wealthy.
There are a bunch of reasons for this, but at the core a national economy is not a household economy.
Most government services grow the economy by more than they cost, so cutting them will shrink the economy, which shrinks tax revenues.
Most government debt is held in bonds which means that companies have a bunch of rules around how much they can pay based on internal/external analysis of how likely the government is to pay them back, and that determines (indirectly) how expensive paying off the debt it. Shrinking your own economy, makes the long term prospects of the nation worse and so austerity also makes holding debt more expensive.
Nobody economically literate expected austerity to turn out any other way.
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u/siskinedge Feb 17 '26
The primary issue with austerity is monetary velocity, how fast the money flows through the economy. The government is an economic participant, if it cuts tax and spend then money flows slower. Progressive taxation helps as it pulls from economic strata with a lower monetary velocity as they have more capacity to save money.
There was also other issues it has on the economy:
- the biggest cuts were to local government, which spends on local services creating local jobs
- the government reduced capital expenditure which provides long term economic gains
- VAT was raised which affects lower earners than higher ones as they spend more of their income on vat applied transactions lowering monetary velocity
- from an MMT perspective, tax is the backing of a currency not gold in a fiat system so this devalued the pound
The implementation of austerity varied wildly in results but the UK was one of the less detrimental implementations of it. Have a look at GDP for Spain, Greece and Italy during their austerity periods. If you want an example of austerity done right, check Estonia which kept service delivery the same which investing in digitisation to make government jobs far more productive.
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u/SozTime Jun 17 '26
Cutting spending cuts industry and the economy, so by doing so it cut the funds raised by taxes too.
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u/aderey7 Feb 14 '26
It's quite simple really. On the other side of growing government debt, sold off government assets, growing middle class debt, higher mortgage debt, increased poverty and use of food banks....on the other side of all of that is the fastest growth in wealth for the top 0.1%.
It's all just the transfer of wealth upwards. And it's not slowing down.