If we take her at her word, what might delivering on her pledge involve?<\/p>\n
To assess whether austerity ends, we need a generally accepted definition of austerity.\u00a0 Spending cuts are not austerity itself, but rather the form it takes.\u00a0 The driving ideological force of austerity policy is the goal of making public expenditure equal public revenue; to eliminate all public borrowing and thereby achieve the here-to-fore elusive target of \u201cbalancing the books\u201d.\u00a0 Austerity will end when the government treats the fiscal balance, surplus or deficit, as a policy instrument not as a problem.<\/p>\n
Once we recognise that austerity is the policy to achieve zero public borrowing, the end of austerity is clearly revealed.\u00a0 Ending austerity means restoring the expenditure sacrificed in the pursuit of zero borrowing.\u00a0 A Financial Times<\/em> article estimates a 14% fall in inflation-adjusted overall public expenditure<\/a> since 2010.<\/p>\n The end of austerity does not require higher tax rates to prevent greater borrowing.\u00a0 The assertion that restoring expenditure to its pre-austerity level requires more public revenue is no more than a restatement of the austerity ideology that budgets must balance, the \u201chow to pay for it\u201d clich\u00e9.<\/p>\n While many if not all public services have suffered from spending reductions since 1980, restoring local government funding would be the appropriate place to start, for at least three reasons.\u00a0 First, of major spending categories, local government suffered the most severe cuts.\u00a0 Second, the services delivered by local governments directly affect households – e.g. education, elderly care and supporting council house tenants.\u00a0 And third, restoring this funding could be quickly done because salaries account for the overwhelming majority of local budgets.<\/p>\n Restoration of central government grants to local authorities would send a clear signal that the Prime Minister intends to end austerity.\u00a0 How much expenditure would restoring grants to local government require?\u00a0 Using the chart below, I start with the simplest calculation, returning grants to their annual level achieved in the first quarter of 2010, the last full quarter with a Labour government.\u00a0 The quarterly numbers in the chart, all in current prices, are annual totals, each quarter\u2019s grants plus the three previous quarters (\u201cannualized\u201d).\u00a0 The numbers are not adjusted for inflation because neither the Office of National Statistics nor the Office of Budget Responsibility provides inflation indices at this level of detail.<\/p>\n Through the second quarter of this year Parliament local authorities received an annualized grant total of \u00a3112 billion, \u00a315 billion less than for 2010Q1.\u00a0 If inflation in cost of LG services followed the consumer price index, returning LG grants to where they were eight years ago would require an increase of \u00a318 billion.<\/p>\n Returning to the funding level at the beginning of 2010 would be a very modest gesture.\u00a0 In early 2010, LG grants represented 28% of other central government current expenditure, falling to 20% in mid-2018.\u00a0 A serious move to end austerity in LG funding should bring spending back to its 28% share, requiring an increase (unadjusted for inflation) of \u00a346 billion (blue line in chart).<\/p>\n Restoration of LG grants at 28% of other current expenditures does not account for spending losses due to the overall decline in current spending as a share of GDP due to austerity.\u00a0 At the beginning of 2010 other current expenditures were 30% of GDP, falling to 27% in 2018Q2.\u00a0 This decline in the share of national output going to public services constitutes the essence of the austerity ideology.\u00a0 For Theresa May to deliver on \u201cending austerity\u201d, a return to the early 2010 spending share is essential.\u00a0 Doing so implies an increase by \u00a360 billion.<\/p>\n Annualized Grants to Local government Compared to Last Quarter\u00a0<\/strong>With a Labour Government, 2010Q1-2018Q2 (current prices)<\/strong><\/p>\n Notes:<\/em><\/p>\n For each quarter expenditure is annualized, taking the sum of expenditure in that quarter and the previous three.<\/em><\/p>\n Actual compared to 2010Q1<\/strong> \u2013 2010Q1 value subtracted from each quarter.<\/em>![\"\"](\"http:\/\/box5782.temp.domains\/~progrgc9\/staging\/wp-content\/uploads\/2018\/10\/jw211.jpg\")
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Actual compared to 2010Q1 share of current spending<\/strong> \u2013 In 2010Q1 local government transfers were 28% of current spending. That percentage is applied to all subsequent quarters.<\/em>
Actual compared to 2010Q1 share of current expenditure in GDP<\/strong> – Previous adjusted for fall in current spending as a share of GDP.<\/em>
Adjusting for population growth<\/strong> \u2013 Previous adjusted for quarterly population growth at 0.2%.<\/em><\/p>\n