The Macroeconomics of Austerity

This study uses official figures to show that the total economic damage inflicted by austerity is significantly higher than previously thought, needlessly cutting more than half a trillion pounds from public expenditure. Using figures from the Office for Budget Responsibility, the paper demonstrates that governments from 2010 onwards could have maintained historic rates of growth in public spending and still have reduced Britain’s government debt burden by 2019. Despite claims by Coalition and Conservative governments that austerity was necessary to restructure the economy and promote growth, the research shows that the primary economic impact of austerity was through weakening the bargaining position of labour rather than boosting business investment, undermining real wages and job security over the 2010s. “Expansionary fiscal contraction”, as promoted by government supporters at the time, did not take place.