Britainia Handia eta austeritate fiskala, ez Brexit-en ondorioak

Bill Mitchell-en The fundamental realignment of British society via fiscal austerity


(i) Orain dela 7 urte1

The following graph shows the annual growth in British House Prices (nominal and adjusted for inflation – that is, real) since the March-quarter 2015 to the June-quarter 2018.

While there was some recovery in house prices in 2013 and up until the June-quarter 2014, it has been all down hill since then as household debt has continued to grow and is now at record levels (see below).

(ii) 2018ko ekaineko egoera2

(iii) David Cameron-en ‘Big Society‘, ez Brexit3

(iv) Grezia, Troika eta austeritatea4. Gauza bera Britainia Handian5

(v) Sozial demokrazia, eta datu berriak6

The following chart shows the Household Net lending (positive) or borrowing (negative) position from 1988 to 2017.

The household spending over income deficit in 2017 was estimated to be £24.7 billion. When it was last in deficit (1988) it was £0.3 billion.

(vi) ONS-ek erakusten duena7

(vii) ONS-ren datuak eta agenda neoliberala8

(viii) DTM-koek abisatu dute 1990eko hamarkadatik9

The following graph shows the annual sectoral balances for the UK from 1948 to 201710.

And the sustainability of the growth strategy will be exposed as household consumption expenditure slows as its debt burden rises.

The following graph shows the annualised growth in household consumption expenditure from the March-quarter 2011 to the June-quarter 2018.


(1) It is almost inconceivable that an advanced nation could tolerate the sort of changes that have been occurring in Britain over the last 8 years or so.

(2) The fiscal strategy is deeply flawed and has hollowed out the capacity of the state (centre down to local government level) to protect the most disadvantaged citizens from the ravages of sickness and poverty.

(3) I judge the success of a fiscal strategy by how ‘rich it makes the poorest members of society’. Using that criteria, the current British government is a total failure.

(4) It is clear that the strategy that George Osborne laid out in 2011 is having the predictable consequences.

(5) Household debt is rising while real incomes at the lower to middle range are in retreat.

(6) Household consumption is only growing as a result of increased borrowings and running down of savings.

(7) Meanwhile, the dominant New Keynesians are witless in the face of these trends.

(8) What is going on in Britain is a fund shift in British society with rising poverty and income and wealth inequality and precarious household balance sheets becoming the norm.

(9) There is a major assault on the middle class going on as the lowest income cohorts fall even further behind.

(10) In 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.

(11) Deprivation breeds deprivation.

(12) This is a fundamental realignment of British society that will take it back to C19th-type relativities.



The OBR said at the time that “net worth is forecast to decline as a percentage of income as the household debt ratio is expected to rise and the household assets ratio is expected to fall”.

It was this small-print analysis that the major UK newspapers missed altogether in their presentation of the British fiscal strategy.

But it told us that while the British government was making a fuss about the debt levels – both public and private – its own growth strategy was contingent on the private domestic sector taking on a rising debt burden over the forecast period and becoming relatively poorer?

The political class didn’t make a song and dance about that, preferring to extol the supposed virtues of austerity.

What the British Conservative government’s strategy amounted to was reducing public debt at the expense of more private debt – at a time that private domestic debt was at unsustainably high levels.

I noted at the time that prudent fiscal management requires exactly the opposite strategy when the economy is floundering.

That was 7 years ago.

The strategy was also setting up fundamental changes in the nature of life in Britain, which the mainstream press also failed to understand.

I don’t think I would be exaggerating to say that it was really only the Modern Monetary Theory (MMT) commentators who were emphasising these trends at the times.

For example, the New Keynesian commentators (for example), who like to think of themselves as being on the ball, were claiming that the concerns about the growth of private debt and the reliance on private credit were overstated because of the growth in debt was being mirrored by growth in house prices – rising debt, rising wealth – ergo, no problem.

This sort of myopia was redolent of the period before the GFC and failed to anticipate that house prices can crash while nominal debt commitments stay as they are.

As a relevant aside to my discussion today, the data is now showing that the growth in both nominal and real house prices have fallen consistently since 2014 and real house prices have fallen in absolute terms since June 2016.”


The British building society, Nationwide, publishes a monthly – House Price Index – and its – June Press Release – stated that:

Annual house price growth fell to its slowest pace for five years in June … Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent.

Last week (July 26, 2018), the British Office of National Statistics (ONS) published an article – Making ends meet: are households living beyond their means? – which draws on analysis of the most recent national accounts data, and, which bears on my assessment in 2011.

The article sets out to “Explore how UK household finances have changed in the last 30 years”.

The conclusion is that that Britain is undergoing major changes that are moving it more in the direction of the US, with increased household poverty and precariousness and away from the Welfare State of the past.

There was an interesting article on June 2, 2018 in the UK Independent – The big squeeze: In slow-bleed Britain, austerity is changing everything – which presented a consistent view of these changes.

That article noted that:

After eight years of budget cutting, too many communities are looking less like the rest of Europe and more like the United States, with a shrinking welfare state and spreading poverty.

It reports on what is happening in British towns and communities and presents a harrowing picture.

We read that:

For a nation with a storied history of public largesse, the protracted campaign of budget cutting, started in 2010 by the coalition government led by the Conservatives, has delivered a monumental shift in British life. A wave of austerity has yielded a country that has grown accustomed to living with less, even as many measures of social wellbeing – crime rates, opioid addiction, infant mortality, childhood poverty and homelessness – point to a deteriorating quality of life.

A far cry from the New Keynesian vision of increased wealth supported by increased indebtedness.

A far cry from the Tory claims that its austerity strategy would liberate households and firms from onerous tax burdens and create a new prosperity based on private spending and export growth.”


Remember David Cameron’s ‘Big Society’?

I wrote about that con job in this blog post – The Big Society aka BS (January 3, 2011).

What the Tories were really on about was trying to fundamentally change British society – by creating an increasing buffer of desperates and allow the top-end-of-town to maintain dominance while accumulating ever-increasing wealth.

The strategy is to wipe out the middle class – and so far it is showing success.

As the Independent notes, a conservative MP said in 2011 that:

We are making cuts that I think Margaret Thatcher, back in the 1980s, could only have dreamt of …

And the “slow bleed” cuts are now showing up in degraded public services and deteriorating household finances.

This has nothing to do with Brexit. The Remainers that point out these ills and claim they are the results of the Referendum outcome are being as disengenous as the Tories who savoured the austerity.

This is about an ideological shift designed to retrench any social democratic elements that might remain in Britain.

The Independent article reported, among other things, that:

1. “Local governments have suffered a roughly 20 per cent plunge in revenue since 2010”.

2. “Nationally, spending on police forces has dropped 17 per cent since 2010, while the number of police officers has dropped 14 per cent”.

3. “Spending on road maintenance has shrunk by over a quarter, while support for libraries has fallen nearly a third”.

4. “The national court system has eliminated nearly a third of its staff.”

5. “Spending on prisons has plunged more than 20 per cent, with violent assaults on prison guards more than doubling.”

6. “The number of elderly people receiving government-furnished care that enables them to remain in their homes has fallen by roughly a quarter.”

7. “more than a quarter of Liverpool’s roughly 460,000 residents are officially poor”.

8. “Over the past eight years, the Merseyside Fire and Rescue Service, which serves greater Liverpool, has closed five fire stations while cutting the force to 620 firefighters from about 1,000”.”


While the human tragedy as a result of the Greek fires last week is not a time to score political points – the Troika forced the Greek government to cut something like 38 million euros from the firefighting service, which warned at the time it would significantly deplete its capacity to deal with a fire crisis.”


And, in Britain, the austerity is destroying the capacity of local governments to meet their obligations while the policy settings favour the wealthiest:

Wealthy Britons remain among the world’s most comfortable people, enjoying lavish homes, private medical care, top-notch schools and restaurants run by chefs from Paris and Tokyo. The poor, the elderly, the disabled and the jobless are increasingly prone to Kafkaesque tangles with the bureaucracy to keep public support.

That is what the austerity agenda was all about.

There was an iNews article last week (July 24, 2018) – The UK experiencing the biggest rise in poverty since Margaret Thatcher was in power – that reported that “More than a third of UK children are now living in poverty”.

Austerity not only impacts severely on the prosperity of the current generation of adults but also ensures through its effects on their children that the disadvantage is taken into the next generation of adults and their children.

Deprivation breeds deprivation.


The social democratic approach was to break that vicious cycle and allow children from disadvantages backgrounds to enjoy upward mobility via welfare support, improved access to public health and education.

That approach is being systematically dismantled.

Born poor, stay poor is now the agenda.

This is no short-term fix the neoliberals are working towards.

This is a fundamental realignment of societies that will take us back to C19th-type relativities.

Which makes the latest economic data from ONS on household indebtedness (cited above), though not about poverty directly, very disturbing.

The data shows that:

1. “UK households have seen their outgoings surpass their income for the first time in nearly 30 years”.

2. “On average, each UK household spent or invested around £900 more than they received in income in 2017”.

3. “Even in the run-up to the financial crisis of 2008 and 2009 – when 100% (and more) mortgages were offered to home buyers without a deposit – the country did not reach a point where the average household was a net borrower”.


ONS note that the deficit can be funded in two ways:

1. By running down savings.

2. Increasing borrowing.

They conclude that the data shows that British households:

are borrowing more and saving less.

Households took out nearly £80 billion in loans last year, the most in a decade; but they deposited just £37 billion with UK banks, the least since 2011.

Which is exactly what the 2011 Fiscal strategy laid out by George Osborne and implemented ever since desired and depended upon.

And what about the claims by the New Keynesians that there was no problem – that wealth would rise with the indebtedness because most of the borrowing was for home mortages.

Well the ONS data now shows that:

In total, households accumulated more debt (due mainly to loans) than assets (such as deposits, bonds, shares and pensions) in 2017 for the first time since records began in 1987. If this were to continue, households could risk lacking enough collateral to cover their debts.

And, it is clear, as it was back in 2011, that British households were increasingly borrowing more by way of non-mortgage loans to cover the squeeze on disposable incomes.

8 Ingelesez:

The ONS data shows that:

The stock of consumer credit – including credit cards, car finance plans and payday loans – has risen by nearly one-third in the last five years. Car finance is comfortably the fastest growing type of credit, with nearly 90% of new car purchases now funded this way.

Since 1993, the stock of consumer debt has risen from £52.8 billion to £207.1 billion, an increase of 292 per cent. The price level has risen by around 56 per cent.

In other words, the real burden of short-term household debt in Britain has risen dramatically.

The household saving ratio has also fallen to 4.1 per cent in 2017, which is the lowest level since the data was collected (1987).

And it won’t surprise you to learn that the ONS data shows that the distributional consequences of the rising debt and household deficits are being borne at the lower end of the income distribution.

ONS report that:

the poorest 10% of households spent two-and-a-half times their disposable income, on average, in the financial year ending 2017. In contrast, the richest 10% spent less than half of their available income during the same period.

The recipe for disaster.

And in terms of wealth:

The wealthiest 10% of households were five times wealthier – and therefore much less likely to live beyond their means – than the bottom 50% of households in July 2014 to June 2016.

The neoliberal agenda is thus on track.

And, relating back to the statement published in the Independent (quoted and cited above), the ONS find that the trend towards “Households living beyond their means” in Britain, while historically “unusual” is now replicating trends in other Anglo countries.

We read:

For a long time, the average UK household was in a similar position to those in France and Germany. However, we’re now much closer to Canada and the US than our European neighbours.

And, the UK is looking more like Australia in this regard.”


Should we be surprised by any of this?

Not at all.

MMT commentators have been predicting these sorts of trends since the 1990s.

In the UK, it was always obvious that household finances would deteriorate under the double whammy of a relatively weak labour market (suppressing disposable income growth) and fiscal austerity.

10 Ingelesez:

The UK is currently running a Current Account deficit of around 4 per cent of GDP and the fiscal balance is close to zero (now in surplus).

That means that the private domestic sector has to run a deficit around the same size as the external deficit – that is, as a sector, spend more than it is earning.

The swing back into private domestic deficit after the recovery from the GFC began is noticeable.

Running down savings is a finite strategy to fund a spending deficit by private households.

Earlier this year, a study found that (Source):

More than one in four households have no emergency savings pot …

To sustain a private domestic spending deficit, the sector has to accumulate more debt. And in Britain, this is from an already, relatively high base.

That situation is not sustainable as a growth strategy in the long run.

With GDP growth slowing quite substantially as the fiscal drag starts to bite and with inflation falling to a yearly low in the latest data released from the Office of National Statistics, one can conclude that the fiscal deficit is now too low.

There is substantial scope for a widening fiscal deficit.

All the indicators are pointing in that direction except the ideological bias of the neoliberal Tories.”

Iruzkinak (1)

  • joseba

    Britainia Handiko lan-indarreko merkatua
    Bill Mitchell-en British labour market – rise in self-employment driving growth
    The British Office of National Statistics (ONS) published its latest labour market data last week (January 22, 2019) – UK labour market: January 2019. Employment continues to increase, unemployment is steady and inactivity is falling (participation is rising). Real wages are also finally starting to rise (average weekly earnings rose by 3.3 per cent over the last 12 months) after a decade of flat wages growth. The ONS say that the 4 per cent unemployment rate “has not been lower since December 1974 to February 1975”. But the labour market of 2019 is very different to that of late 1974. While the growth in real wages is a positive development, the large negative is that employment for employees fall in the three months to November 2018 and all the employment growth was taken by self-employed. The other disturbing statistic is that if we considered the involuntary part-time workers to be equivalent to the unemployed, then the adjusted unemployment rate would be around 6.6 per cent, a far cry from full employment.
    Employment – at record levels
    The data covers the three months to November 2018 (so it is not the 4th quarter). I will refer to it as the November-quarter.
    The heading reflects the sort of statements that politicians make. In this case it is true. Total employment in the November-quarter was 32,535 thousand and it has never been higher.
    But then the total working age population (above 16 years) was 53,169 thousand and that has never been higher.
    So the statement “employment at record levels” is somewhat vacuous no matter how good it sounds.
    We are better off considering rates and the Employment to Population ratio shown in the next graph is at levels not witnessed since the November-quarter 1973, just before the OPEC oil crises hit.
    The ratio is now at 61.2 per cent and was at 61.1 per cent in June 1973.
    So relative to the working age population, employment is now at record levels.

    Part-time, self-employed and temporary workers
    The data also shows that the proportion of workers who are now in part-time positions has risen from 23.5 per cent in the June-quarter 1992 to 26.2 per cent in the November-quarter 2018 – not a significant shift.
    There has also not been much change in the proportion of workers working second jobs over that period (3.72 per cent down to 3.42 per cent) and there has been a decline in the proportion of temporary employees as a percent of all employees (5.9 per cent down to 5.7 per cent).
    Further, contrary to popular perception, the proportion of total workers who are self-employed has only marginally increased over this 26 year period – 13.6 per cent in the June-quarter 1992 to 14.9 per cent in the November-quarter 2018. This ratio has actually fallen since mid-2016.
    But of those, the proportion of self-employed who are working part-time has risen from 17.6 per cent in the June-quarter 1992 to 30.1 per cent in the November-quarter 2018 – a large shift and likely to be hiding a significant shortfall in labour demand as people eke out a working life as best they can.
    Moreover, the recent employment gains in Britain are overwhelmingly accounted for by a rise in self-employment.
    The following graph shows the proportions of total employment change accounted for by the four categories for which ONS provide data (employees, self-employed, unpaid family workers, and those on government supported training programs).
    Over the last 12 months, total employment has risen by 327.7 thousand and 89.2 per cent of that has been accounted for by jobs for employees (24.6 per cent to the self-employed).
    However, over the last 6 months, total employment has risen by 136 thousand and 66 per cent of that has been accounted for by jobs for employees (46.7 per cent to the self-employed).
    The stark shift that is going on is highlighted in shifts in the last month.
    Total employment rose by 58.9 thousand and employees lost 12.1 thousand jobs while the self-employed added 80.5 thousand jobs.

    Of those changes, the following Table provides more insights.
    It shows that overall, part-time employment has fallen over the last 12 months. The falls have been confined to employees who have overwhelmingly been able to gain full-time work.
    For self-employed workers, there also has been a bias towards full-time work accession.

    Zero hour contracts
    The ONS data – EMP17: People in employment on zero hours contracts (Last updated: August 14, 2018) shows that the proportion of workers in this state has risen from 0.8 per cent of all workers in the December-quarter 2000 to a peak of 2.8 per cent in the December-quarter 2017.
    In the first six months of 2018, the proportion has dropped to 2.4 per cent.
    The following graph shows the history.

    Unemployment rate down to early 1970 levels
    The next graph shows the official unemployment rate from the first-quarter 1971 to the November-quarter 2018. It was 4 per cent in the most recent quarter (down from 4.1 per cent in the September-quarter).
    It was last at that level in the March-quarter 1975, just before the then Labour government declared Keynesian economics was dead!
    So on this aggregate Britain is performing well and there are no hints that the Brexit referendum has altered the steady fall in official unemployment since the most recent peak in the December-quarter 2011.

    Hours worked – steady
    The next graph shows the total weekly hours worked in Britain (in millions of hours) from the March-quarter 2005 to the November-quarter 2018.
    Since the pre-GFC peak, hours worked have only grown by a total of 9 per cent overall and only 1 per cent since the end of 2016.
    In the November-quarter 2018, there was a 0.2 point decline in hours worked recorded.

    Real earnings now growing
    Up until recent months, the earnings statistics were telling us that the labour market was not as strong as the narrow aggregates (such as the official unemployment rate and total employment) might suggest.
    However, since July 2018, average weekly earnings have grown at an annual rate faster than the CPI inflation, resulting in real earnings growth.
    In November, total average weekly earnings (excluding bonuses) grew at an annual rate of 3.2 per cent whereas the annual CPI inflation rate was 2.2 per cent.
    Adding in bonuses shows that the real pay of workers rose by 1.1 per cent in November.
    The next graph shows the annual growth in average weekly earnings and the CPI inflation rate from March 2001 to November 2018.
    There are some positive signs emerging that workers are now gaining some of the productivity growth in Britain for the first time in a while.

    The latest ONS estimates of – EMP16: Underemployment and overemployment – were published on November 13, 2018.
    Underemployment refers to part-time workers who desire more hours of work.
    Remember, that to be classified as officially employment, a person only has to work 1 or more hours a week.
    The following graph shows the evolution of the underemployment rate from the March-quarter 2002 to the November-quarter2018.
    While its trajectory is downwards, the current rate of 7.7 per cent remains well above the pre-GFC level of 7 per cent (November-quarter 2008).
    In the three months to September 2018, underemployment rose by 0.3 points.

    But we have to see this in a longer-term perspective.
    The following graph shows that the rate of involuntary part-time work has risen significantly since before the GFC.
    In the June-quarter 2004, this proportion (involuntary part-time to total part-time workers) was 7.4 per cent (533 thousand).
    By the November-quarter 2018, the proportion remains at 10.5 per cent (881 thousand), which indicates that the labour market still is some distance from full employment.

    This means that there are still 881 thousand British workers who desire full-time work but cannot find it.
    If we consider that in hours-terms, the amount of labour wastage is quite stark.
    The data shows that part-time workers are working on average 16.3 hours per week.
    Full-time workers are on average working 37.1 hours per week.
    So if those 881 thousand workers were to gain full-time employment at average hours, there would be an additional 494 thousand full-time equivalent jobs in Britain.
    At the current labour force level, that would generate an unemployment rate of 2.6 per cent.
    The alternative way of thinking about that is to consider the wasted hours as being commensurate with unemployment.
    If we then adjusted the unemployment rate to include that component of part-time work that is involuntary we would get an unemployment rate of 6.6 per cent rather than 4 per cent.
    That should present a more sober picture of the British labour market.
    The evidence is fairly consistent across a range of measures that, in aggregate terms, the British labour has improved markedly over the last 5 years.
    Employment growth is strong and has accelerated since mid-2016.
    But underlying that growth are some disturbing trends – like the rise in zero hours contracts and the increasing proportion of self-employed who are working part-time and likely to be underemployed.
    More recently, the growth in employment has been marked by an absolute decline in employee jobs and a total dominance of self-employment growth.
    The one bright sign is that real wages have started to grow after a period of cuts.
    Whether that positive trend is maintained into the Northern winter remains to be seen.

Utzi erantzuna

Zure e-posta helbidea ez da argitaratuko. Beharrezko eremuak * markatuta daude