The shame of Labour's austerity doctrine
Photo byThe first thing the Chancellor Rachel Reeves wants you to know is that her spending review is not 'austerity'. That was how she opened her statement, it's how her team has been briefing the plans, and it's also how almost every chancellor I remember in recent years have framed their budgets.
During the first pandemic summer in 2020, Boris Johnson promised: 'We are absolutely not going back to the austerity of ten years ago.' In fact, austerity – the spending cuts inflicted since the coalition government was elected in 2010 – ended in 2018, when the then prime minister Theresa May and her chancellor Philip Hammond declared that it was over ahead of the autumn Budget that year. Can't you tell?
The truth is, Britain is trapped in Forever Austerity. You can pledge £39bn to build more affordable homes – but council planning departments are in shreds so they won't be held to decent standards. You can raise NHS spending by 3 per cent a year – but the elderly will still be stuck in hospital beds and hospitals full because social care is so stretched. You can cap bus fares at £3 – but potholed roads, hollowed-out high streets and low-wage jobs that rely on ever-diminishing welfare top-ups rather dampen the experience.
Just look at the 100-hectare Thamesmead Waterfront site, ready and waiting for thousands of new homes, shops and local amenities – a prime stretch of brownfield to show off the government's housebuilding promises. It needs an extension of the Dockland Light Railway to unlock that building: an infrastructure project overlooked by the spending review.
And so it continues. At the time of writing, we don't yet have the figures for how squeezed departmental budgets will be, but that increase in NHS spending means 'virtually nothing on average for current spending elsewhere', warned Paul Johnson of the Institute for Fiscal Studies. From 2026-27 onwards, day-to-day spending is not rising for anything but the NHS. That means policing, councils, things people notice in their everyday lives. And people have noticed. A quarter of Britons think we are returning to austerity, and a further 27 per cent think that Britain never left austerity, according to polling by More in Common.
When Labour took power, the Chancellor was left a bombsite of an economy, littered with clever little landmines like just £8.9bn in fiscal headroom (much lower than the £26.1bn average since 2010), and 3.3 per cent yearly cuts to unprotected spending with no plan for where they would fall. Whether or not blaming the last government for leaving a £22bn black hole is rhetoric or reality, the public finances Labour inherited seemed to guarantee further cuts.
Reeves's predecessor, Jeremy Hunt, admitted this to me when I spoke to him ahead of the spring statement last week: 'She's made a big thing of saying 'we shouldn't have austerity', and what are we going to see next week? We're going to see cuts in unprotected departments. She's doing exactly the same thing that she criticised me about in opposition.' When I asked why he had left so little headroom, and baked in such drastic cuts, he didn't 'want to particularly go over all those arguments'.
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But it's not just the Tories, and it goes beyond cuts. Labour has been warned for years that the same old tinkering with the budget – essentially, making sure the numbers on the NHS and schools go up, shuffling bits and bobs around for everything else, and tired regions-first rhetoric without investment to match – won't bring about the 'renewal' it craves.
Even the party's own former adviser on levelling up, the former Bank of England chief economist Andy Haldane, has been dismayed by the lack of creativity, writing in the New Statesman's Spotlight supplement that the Chancellor's 'major announcements have been reheated leftovers from the Treasury's freezer'.
The UK is set to be poorer per person than Poland by 2030, and than both Hungary and Romania by 2040. The north of England (including the Midlands) is already poorer than east Germany. It's a comparison that captures the scale of ambition successive British governments have failed even to imagine. The German government spent €2trn 'levelling up' east Germany following reunification. For all the talk of rebalancing the north-south divide, nothing comparable has ever been attempted by the modern-day UK Treasury.
'In 1992, east Germany had a productivity which was 20 per cent of west Germany. Now, 30 years on, it's 85 per cent of west Germany,' wrote the development economist Paul Collier. 'East Germans see that, and they're angry. If you think that's a failure, come and look at Britain.'
[See also: Revealed: Labour's welfare cuts will take people out of work]
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