I haven't been reading too much lately about so-called "austerity" in the New York Times. Something must be up. Let's go look for some data.
I last commented on "austerity" in the U.K. about a year ago. The Conservative/Lib Dem coalition had come to power in 2010 promising to attack "debt" and "deficit," and three years later in early 2013 the economy was still sluggish. The anti-"austerity" forces were declaring victory. But a careful analysis by Nicole Gelinas in early 2013 showed that the actual program to that point had been all tax increases and no spending cuts. The VAT had gone from 17.5% to 20% in December 2010, and the top income tax rate (on income above 150,000 pounds per year) had gone from 40% to 50%, while spending had continued to grow, if more slowly than under the previous regime.
Then in early 2013 the government proposed actual real cuts in spending. That brought out the anti-"austerity" armies in full force. As the Guardian reported on April 18, 2013, the execrable Olivier Blanchard, chief economist of the IMF, warned Chancellor of the Exchequer George Osborne that he was "playing with fire" if he proceeded on the "austerity" course. His boss and head of the IMF, Christine Lagarde, promptly followed with a warning that "poor performance of the British economy had left her with no alternative" but to call on Osborne to rethink his austerity strategy. There was also the usual pile-on from the ignorant commentariat, such as an article in The New Yorker titled "It's Official: Austerity Economics Doesn't Work":
Any decent economics textbook will tell you that, other things being equal, cutting government spending causes the economy’s overall output to fall, tax revenues to decrease, and spending on benefits to increase. Almost invariably, the end result is slower growth (or a recession) and high budget deficits.
And then, horror of horrors, Osborne didn't listen to these know-it-alls and went ahead and cut spending. According to data at ukpublicspending.co.uk, total government spending in the U.K., having leveled off in 2012, actually went down in 2013. Spending was 694 billion pounds, 46% of GDP, in 2011; 694 billion pounds, 45% of GDP, in 2012, and 675 billion pounds, 43% of GDP, in 2013. And suddenly, according to the BBC, the U.K. turned in its best year of economic growth since 2007. OK, it's only a growth of 1.7%. But compare that, for example, to high-"stimulus" France, where the government spends 55% or more of GDP. They claim to have had "growth" of 0.1 - 0.2% in 2013. Pitiful.
Look around for forecasts of economic growth in the U.K. for this year, and you will find that even the IMF is predicting around 3%. On April 8, the BBC reported that Blanchard had conceded "it was clear that [the IMF's] forecasts had been 'too pessimistic.'" However, no word that he has changed his views on the horrors of "austerity." Now, if only the U.K. could get rid of those tax increases, it could see some real growth!