The Austerity Debates

In July 2012 Reform held a series of austerity debates which brought together three independent and respected commentators to discuss their perspectives on the UK economy.

The themes and speakers were:

  • Why is UK growth so slow? Richard Jeffrey, Chief Investment Officer, Cazenove Capital Management, 2 July, 2012.
  • The costs of debt financing. Jonathan Portes, Director, National Institute of Economic and Social Research, 3 July, 2012.
  • Shaping up to slow growth. Vicky Pryce, Senior Managing Director, FTI Consulting, 13 July, 2012.

Each speaker spoke in a personal capacity and the events were held under the Chatham House Rule. The three debates were attended by a total of sixty delegates, including leading economists, policymakers, industry leaders and academics.

Key themes

• The three seminars highlighted the limits of much of the current debate on growth, which largely emphasises “shopping lists” of initiatives. Slow growth is inevitable given the levels of debt in the economy before the recession. Deleveraging means that growth will stay below trend in this Parliament but will, if the right decisions are made now, increase in the medium term.

• Austerity is the new normal.

• There was concern over the Coalition’s implementation of fiscal consolidation. Particular concern was expressed over the number of U-turns and inconsistency in approach, as shown by the ring-fencing of budgets like the NHS and pensioner benefits. Inconsistency increases uncertainty and greater uncertainty reduces confidence and firms’ incentives to invest and expand. Rather than being clever inconsistency damages confidence and growth.

• The discussions emphasised a need for a new spending review now, not in 2014 or after the next election. This spending review needs to learn from the mistakes of the last and start by laying out a clear view on what the future state should look like.