Stiff Upper Lip?

UK

By Gautam Hathi.

The United Kingdom is making good use of its stiff upper lip these days. Over the past few years, Great Britain has suffered from a bitter cocktail of economic hardship, unprecedented austerity, and stubborn deficits. That kind of economic glumness doesn’t exactly make it smooth sailing for Her Majesty’s Government. Prime Minister David Cameron has encountered setbacks and has seen his government’s popularity plummet. But his government stubbornly presses on, even though progress is hard to find and tunnel vision is setting in.

The current government came to power in 2010, after an election in which the Conservative party won the most seats but no party won an outright majority. The Conservative (or “Tory”) and Liberal Democratic (or “Lib Dem”) parties teamed up to form a coalition government headed by Tory Prime Minister David Cameron, which is supposed to govern until 2015 unless it loses its majority before then. The Labour Party, which ruled Britain from 1997 to 2010, is now in opposition, doing its best to cause trouble while having no real policy influence.

After insisting that the only road to economic growth is through painful deficit reduction, the coalition government is being forced to defend the centerpiece of its agenda: a 5-year plan for massive budget cuts and moderate tax hikes masterminded by Tory Chancellor of the Exchequer George Osborne. Although the cuts have been distributed unevenly, some departments will see their budgets slashed by more than half by the time 2015 rolls around.  The public sector has seen its pay frozen or reduced, police budgets have gone down, and payments to welfare recipients have been capped.

The problem is that the plan has struggled to either cut the deficit or stimulate economic growth. The UK economy has essentially stagnated over the past few years, with quarterly GDP growth figures occasionally slipping below the 0% mark. Things have gotten so dire that the UK barely avoided a triple-dip recession this spring (the UK went into recession in 2008 and then “double-dipped” in 2012). To top things off, inflation has also been rather high, raising prices for basic goods at a time when government support is being cut down.

While the economic pain caused by budget cuts was expected, what’s surprising iis that the budget deficit has barely gone down at all. The point of the austerity plan was to bring British yearly deficits below 3% of GDP (generally considered a sustainable borrowing level) by 2015. Three years into the plan, deficits are still at 8% of GDP, more than twice the target. A combination of depressed tax revenues combined with increased mandatory spending (interest payments, pensions, etc) has all but negated the herculean deficit reduction efforts of the government.

All of this has meant that the government’s position is being attacked from all corners. George Osborne, the Chancellor of the Exchequer, is generally regarded as one of the most unpopular politicians in Britain right now. Many hold up the UK as “proof” that the “great austerity experiment” has failed, in contrast with the US, which has run deficits but has had some semblance of growth. Parallels are being drawn between Britain and Southern Europe, which has undergone a more severe bout of the same symptoms. Even the rating agencies are expressing their displeasure, with Moody’s and Fitch downgrading the UK’s credit rating from AAA earlier this year.

Which brings us to the question of what happens next. Osborne has pledged to continue with his austerity program (or programme as the British would say) and even cut further if necessary. He has the support of Prime Minister David Cameron, and in a parliamentary system of government, that is all he needs to continue until the next general election. The government gets as much rope as it wants, even if it hangs itself.

Unless of course, there is a rebellion in the backbenches. The Liberal Democrats, junior partners in the coalition government, have been getting hammered in the polls due to their support (however unenthusiastic) for Tory programs. The Lib Dems campaigned on policies directed at creating a “fairer Britain”, something which austerity generally does not promote. After promising not to raise college tuition fees, the Liberal Democrats were forced to do just that as part of the coalition. Their popularity subsequently plummeted, with their supporters seeing them as selling out to Tories and everyone else losing their trust in a party that broke its promises.

But of course, as much as the Lib Dems may want to turn their backs on the coalition, their colors are nailed to the mast at this point. Because of their rock-bottom popularity ratings, the Lib Dems are in no position to force elections right now. Their only hope is to push through until 2015 and hope that their prospects improve by then.

Thus it seems like the UK will stay on its current course, however punishing it may be, until the next elections in 2015.  Given the deep unpopularity of the current government, it seems likely that there will be a change at that point however. Even though the opposition Labour party is not exactly well-liked either, it will win by comparison. Given the lack of success which the current austerity program has found, however, Labour will inherit very similar problems if it wins in 2015 to those inherited by the current government in 2010. There will be substantial deficits, negligible growth, and pain all around. The United Kingdom may well end up back at square one.




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