Has Austerity Worsened Inequality in the UK?

Anti-austerity protests in London, July 2017 (Credit: Dun.can/Creative Commons CC BY 2.0)

With the 2018 UK budget set to be announced Monday, there’s a major question to be answered: Is austerity over?

Around a decade ago the United Kingdom began reigning in public spending and raising taxes. The measures, known as the fiscal austerity, were meant to help the country reduce its deficit and rise out of the recession caused by the global financial crisis.

Now, nearly a decade after the first austerity measures were passed, research shows the program is been particularly effective at one thing: worsening inequality.

Here’s a rundown on the debate over inequality and austerity.

What is the UK’s austerity policy?

Chancellor George Osborne (Source: Foreign & Commonwealth Office/Creative Commons)
Chancellor George Osborne (Source: Foreign & Commonwealth Office/Creative Commons)

The bulk of the fiscal austerity program was introduced by Chancellor George Osborne in 2010. He laid out a plan to cut £83 billion in public spending over four years, and increased VAT from 17.5 per cent to 20 percent in order to raise nearly £13 billion in extra tax revenue per year. Osborne said this plan would balance the budget in five years.

The impacts were felt across the economy. Under-resourced populations, however, bore the burden of the change. The welfare budget faced a £7 billion spending cut. Nearly 500,000 public-sector jobs were set to be cut by 2015. Local government funding was cut by almost a third. Money for police, fire departments, prisons, libraries and even road maintenance decreased.

Today, Osborne’s grand vision of balancing the budget is still far off. Further tightening in the budget for local councils and welfare support are ahead. In the meantime, reports looking at the impact of austerity paint a bleak picture for those who relied on public services.

Income inequality

Income inequality in the UK over time (Source: Department for Works and Pension)
Income inequality in the UK over time (Source: Department for Works & Pensions)

According to public figures, income inequality is roughly the same as it was when austerity measures were put in place. Income inequality fell between 2009-10 and 2010-11 and remained broadly flat ever since, numbers released this past March by the Department for Works and Pension (DWP) found

The DWP measures income inequality through a statistical measure called the Gini coefficient, where 100 percent is maximum inequality and 0 percent is equal. It’s meant to understand equality across an entire society, rather than just by looking at different income groups.

The department relies on a survey of over 19,000 households, combined with tax information, to create a full picture of income inequality.

This isn’t the only measure available. The Office of National Statistics looks at measures of disposable income and found that in the fiscal year ending in 2017 income inequality decreased slightly. However, the survey is smaller than the DWPs (relying on 5,000 voluntary responses) and faces response bias (those at the very top and bottom incomes usually under-report).

Gender inequality

Single mothers are hit hardest by austerity (Source: Women's Budget Group)
Single mothers are hit hardest by austerity (Source: Women’s Budget Group)

Women have been disproportionately hit by austerity measures, various researchers and reports have found.

Cuts to welfare programs disproportionately impact women in the country. Single mothers are set to lose the most disposable income after the cumulative austerity measures from 2010 to 2020, according to a 2016 briefing by the Women’s Budget Group (WBG).

Public sector job cuts also hurt women more, as two-thirds of public sector workers in the UK are women and 73 percent of pay freezes were in jobs held by women, the WBG found. Furthermore, women are more likely to make up for lost services through unpaid work, such as caring for elderly, disabled or young family members, the organization pointed out.

Overall, 86% of tax hikes and spending cuts from 2010 to 2020 will fall on women, according to an audit released by shadow equalities minister Sarah Champion in 2016.

Women of color are likely to be hit even harder. Black, Asian and mixed-race households in the poorest income brackets are set to lose the most in living standards by 2020, according to research released this summer by the Runnymede Trust and WBG. Both groups are set to lose about 20 percent in combined tax and benefit changes and public service spending cuts.

Will austerity continue?

There have been mixed signals from the Conservative party ahead of the 2018 UK budget address. Prime Minister Theresa May announced at the Conservative Party Conference this fall that austerity is “over”. But that promise is contingent on a favorable Brexit deal. Chancellor Philip Hammond, who is set to deliver the budget plan on Monday, said a no-deal Brexit would complicate plans to ease out of austerity.

What does that mean for inequality in the country? The future depends on Brexit negotiations and the final budget plan. But for the vulnerable in the UK, a decade of damage can’t be undone.

Photo Credit: Dun.can/Creative Commons CC BY 2.0