Austerity Flashcards
What does austerity refer to?
Austerity refers to government policies focused on reducing budget deficits during adverse economic conditions and may include spending cuts, tax increases, or a mixture of the two.
What is the intention of austerity?
The intention is to improve the economy in the long-term, and to demonstrate financial responsibility to government creditors and credit rating agencies by bringing income closer to expenditure.
Austerity as the correct response
• Avoiding recession
Austerity was more successful than initially thought, with the UK avoiding a double dip recession and the economy now improving
Austerity as the correct response
• The alternative response
The alternative policy of stimulus in response to the credit crunch of 2008 was largely to blame for the current debt crisis.
Austerity as the correct response
• Long term benefit
The short term pain from cuts will prove to be of benefit in the long run, as the reduction of the structural deficit now will facilitate a much stronger recovery
Austerity was not the correct response
• Cuts in public spending
Cuts in public spending and increase in VAT caused the economy to stagnate with sluggish growth. This could be contrasted unfavorably with Germany
Austerity was not the correct response
• Credit ratings
Coalition austerity has failed on its own terms of firstly halving the structural deficit by 2015, and secondly retaining the Triple A credit rating
Austerity was not the correct response
• Impact on services
Even if austerity is accepted in principle, it was arguably ‘too far too fast’ with the cuts having a massive impact on services, particularly hurting the most vulnerable - JAMs
Austerity was not the correct response
• Cost of living crisis
The rise in living costs and pressures on wages for ‘ordinary families’ with the higher rate tax cuts and bankers’ bonuses
Example for the cost of living crisis
• Energy bill
Electricity and gas bills have climbed in real terms by 170%.
Example for the cost of living crisis
• Food prices
Soaring food prices and childcare costs have hit families, with the cost of food rising by 19% when compared with other goods between 2007 and 2011.
Example for the cost of living crisis
• Increase VAT
Britain’s richest families will face a hit of almost £1,600 off their annual income due to a combination of tax rises and spending cuts, including an increase in VAT
Austerity was not the correct response
• Ideologically tool
Austerity is simply an ‘excuse’ for an ideologically driven attempt, by the Conservatives in particular, to reduce the size of public sector
Disagreement over how to achieve economic growth
• Austerity
The relative importance of cutting the deficit to support economic strength and growth in the long run, with the government wishing to cut ‘faster, further’.
Disagreement over how to achieve economic growth
• Impact of tax
The impact of tax on growth, with the Conservative Party wishing to cut the top rate of tax, arguing that a high top rate discourages innovation and growth
