- Every developed nation that cut public spending since the financial crisis has experienced slower GDP growth
- Wage growth has halved across OECD nations since the financial crisis
Every developed nation that cut government spending since the financial crisis has experienced slower GDP growth, according to a new TUC report.
The report looks at the impact of austerity across the OECD. It finds that the rate of GDP growth reduced in all 32 countries where government spending was cut
The only OECD countries with higher GDP growth are Germany and Japan, which both increased government spending after the crash.
Living standards
The report also reveals the devastating impact of austerity on living standards.
Wage growth has halved across OECD nations since the crash, with annual real pay growth averaging less than 1% for two-thirds of countries.
UK workers have been among the worst affected. Only Lithuania, Estonia, Greece and Latvia have experienced a greater reduction in real wage growth than Britain since the financial crisis.
Over this period the number of people in working households living in poverty in Britain has increased from 5 million to 8 million.
Commenting on the report, TUC General Secretary Frances O’Grady said: “Austerity was always a political choice. It’s now clear how much harm it caused, holding down economic growth and living standards.
“We can’t afford to make the same mistake again. If there’s another crisis, the government’s response must be to focus on public investment to make our economy stronger.
“But we shouldn’t wait for the worst to happen. The best way to deal with a recession is to prevent it. There are already warning signs, so the government should act now by boosting public sector pay and spending on public services.”
Recommendations from the report:
- An independent review of how the Office for Budget Responsibility and Bank of England judge the impact of government spending on the economy.
- Urgent fiscal support for aggregate demand through public sector pay increases and spending on services.
- Fast-track increases to UK public infrastructure spending to least the OECD average of 3.5% GDP.
- Increased expenditure should initially be financed by borrowing rather than increased taxation. This will strengthen the economy, leading to higher revenues that can support spending increases longer term.
- Fiscal policy should be part of a wider plan to deliver sustainable growth across the UK, including investment in the public services families rely on, the skills workers need for the future, a just transition to net zero carbon emissions, and giving workers a real voice at work.
