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The fundamental realignment of British society via fiscal austerity

In my analysis of the UK fiscal statement that George Osborne released on March 23, 2011 – I don’t wanna know one thing about evil (April 29, 2011) – I noted that the imposition of fiscal austerity in Britain meant that any hope of growth was really dependent on a combination of export growth and household consumption growth. With the former source unlikely and household income growth sluggish (and falling in real terms), households would have to run deficits, which necessitated running down savings and/or increasing borrowing. British households were already overloaded with debt at the time. The New Keynesian economic orthodoxy claimed that my concerns about a growth strategy that was ultimately reliant on increasing household indebtedness were misplaced because the debt would be accompanied by increased wealth via rising house prices. Well the most recent data available from the British Office of National Statistics and other sources (house prices) shows that my concerns were real. Real housing prices have been falling for the last few years in Britain and are now growing at their slowest pace since 2013. Further, ONS data shows that “UK households have seen their outgoings surpass their income for the first time in nearly 30 years” and they “are borrowing more and saving less”. At the same time, households are accumulating more debt than assets and borrowing more by way of non-mortgage loans to cover the squeeze on disposable incomes. Also, it is not just mortgage debt that has been rising. The real burden of short-term household debt (credit cards etc) in Britain has risen dramatically over the last 20 years. The rising debt and household deficits are also concentrated at the lower end of the income distribution and wealth inequality is rising significantly. Then we learn that in excess of 30 per cent of British children are living in poverty. So in the face of withering fiscal austerity that is impacting severely on the prosperity of the current generation of adults, the policy failure is also ensuring that the disadvantage will be taken into the next generation of adults and their children. Deprivation breeds deprivation. This is a fundamental realignment of British society that will take it back to C19th-type relativities.

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