Austerity has severely damaged Britain\u2019s physical and social infrastructure. Coupled with a fall in real wages, austerity has shrunk Britain\u2019s social wage. No wonder British voters are angry and disillusioned. Theresa May, aware of the imminence of a general election, is worried by public anger, and has called for an end to austerity. The Treasury will defy her \u2013 successfully, just as they have defied earlier governments, and just as they will attempt to defy any future Labour government. For the \u2018Treasury View\u2019<\/span><\/a> is unchanged from that which worsened the Great Depression of the 1930s.\u00a0 <\/span>It can be summed up as follows: \u201cAny increase in government spending necessarily crowds out an equal amount of private spending or investment, and thus has no net impact on economic activity.\u201d\u00a0<\/span><\/p>\n Let\u2019s examine the case for a \u00a350 billion spend.<\/span><\/p>\n Britain\u2019s total income (nominal GDP) in 2018\/19 is set to be about \u00a32.1 trillion. If we think of Britain\u2019s GDP as the size of the economic \u2018cake\u2019, then the \u2018cake\u2019 has shrunk – largely as a result of the double whammy of the Global Financial Crisis worsened by austerity. As the IFS explains<\/span><\/a> \u201cthe economy is 16%, or \u00a3300 billion, smaller than it would have been had it followed the pre-crisis trend.\u201d. <\/span><\/p>\n Given the shrivelled state of Britain\u2019s economic \u2018cake\u2019, an increase in spending by government of \u00a321 billion would represent just 1% of the nation\u2019s income. An increase of 2.4% of GDP would imply a spend of \u00a350 billion overall. Before discussing both the spending and its financing it is important to understand that government spending, at a time when the economic \u2018cake\u2019 has shrunk, will increase the nation\u2019s income<\/i>. In other words, the \u2018cake\u2019 will expand, and the \u2018slice\u2019 that is the government\u2019s share of the cake, will shrink. <\/span><\/p>\n According to the OBR total public spending (TME), including capital spending, in the current year is about 38.4% of GDP, and due to fall to 38.3% in 2019\/20 (before the Budget of course). A spend of at least \u00a350 billion would increase public spending to 40.7% of GDP next year. Even so, spending would be lower than it was for five years from 2008 at the height of the crisis. More significantly, it would be lower than for much of Mrs Thatcher\u2019s period as Prime Minister. <\/span><\/p>\n During Thatcher\u2019s premiership total spending in 1979-80 was 41% of GDP. In 1980-81 it rose to 42.9% of GDP. By 1982-3 total public spending hit 43.3% of GDP.\u00a0<\/span>In fact, public spending was over 40% of GDP throughout the first seven years of her premiership. And an increase of spending of this would simply put the UK as same level (as percentage of GDP) as the Netherlands.<\/span><\/p>\n \u00a350 billion added to the 2019\/20 Budget would add \u00a313 billion to the NHS; \u00a312 billion to the social security budget and \u00a312 billion to local government services. \u00a313 billion would be added to other government departmental services. <\/span><\/p>\n Part of these increases would just compensate for presently planned further cuts<\/i>. Local government urgently needs further support, while the Justice Department budget, which includes legal aid, has been cut from \u00a38.6 billion outturn 2013\/14 to \u00a36.4 billion in 2019\/20 in real terms<\/i> \u2013 roughly 25%!<\/span><\/p>\nWhat will be the impact of \u00a350 billion spending? <\/b><\/span><\/h5>\n
The multiplier effect <\/b><\/span><\/h5>\n