The failure of successive Conservative governments to recognise the negative impact of public spending cuts on the wider economy has meant Britain missed out on £400bn of growth since 2010, according to a report by the Trades Union Congress.
An extension of austerity measures and wage restraint until 2027 under the government’s latest budget proposals would almost double the amount of lost income to £900bn, the TUC said.
If the UK had remained on its average pre-1979 growth rate, the level of national income, or gross national product (GDP), would be £2tn higher, it added.
Meanwhile, the rocketing value of property, private pensions and shares have helped the UK’s wealth to grow by 70% since 2010, with most of the gains going to the top 10% richest households. Since 1979, household wealth adjusted for inflation has almost trebled, gaining £7tn.
Speaking after Wednesday’s widespread strike action over pay by public sector workers, the TUC general secretary, Paul Nowak, said that by cutting services and “holding down wages in favour of a wealth boom for the rich, the Tories have created an economic ‘doom loop’”.
Nowak said research by economists at the trade union umbrella organisation revealed how ministers were wrong to believe cuts to public spending after the financial crisis supported the economic recovery.
He said government spending cuts weakened the economy, without improving public finances. “Weaker growth has resulted in lower revenues. But rather than recognising cuts as a cause of weak growth, Conservative governments have doubled down on cuts to departmental budgets and cuts to the real pay of public sector workers.”
In the aftermath of the 2008 banking crash, international organisations including the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development calculated that government spending gave only a modest spur to economic growth, allowing governments to make austerity cuts with little impact on GDP.
Both organisations later revised their analyses to show that public investment and spending on other areas such as health and education provided a strong support to GDP growth.
The TUC report echoes analysis by the Institute for Fiscal Studies (IFS) and the Resolution Foundation that shows income from work falling behind the gains from owning assets.
Successive governments have taxed work more heavily than the gains on property, pensions, stocks and bonds, allowing mainly older and richer households to make large gains over recent decades while earnings remained flat.
Jeremy Hunt said at the autumn statement last November that he wanted to improve the UK’s growth rate and avoid “a doom loop of ever higher taxes and ever lower dynamism”.
However, a speech last week that focused on “enterprise, education, employment and everywhere” was widely criticised by business leaders as being devoid of policies.
Adding to the pressure on the chancellor, the Treasury’s independent forecaster, the Office for Budget Responsibility, is expected to say Britain’s recovery from the pandemic and the cost of living crisis will be slower than most industrialised countries when its predictions for GDP growth are published alongside the spring budget in March.
A look ahead by the IMF earlier this week predicted the UK would be the only major economy to contract this year after being weakened by high interest rates, still-high energy prices and trade restrictions following Brexit.
The Washington-based IMF said it expected the UK economy to contract by 0.6% this year – 0.9 percentage points worse than it had pencilled in just three months ago and slower even than sanctions-hit Russia.
After the autumn statement the IFS reported that in 2027 real incomes per head of the population were on course to be a third smaller than if they had followed the postwar trajectory.
The TUC report said if the economy had followed the path of GDP over the 30 years from 1948 to 1978, taking into account inflation, GDP for 2027 would be £4.4tn rather than the present forecast for £2.4tn.
