The government has borrowed huge amounts during the pandemic, but this is no reason for renewed austerity
The November spending review arrived with a loud reminder of how austerity has distorted the public’s understanding of fiscal policy. Journalists used fatuous analogies to explain the situation facing chancellor Rishi Sunak, claiming the government had “maxed out” its credit card and had “no money left”. These soundbites weren’t just economically illiterate: they were indicative of a deeply conservative worldview.
Attitudes to fiscal policy can be divided broadly into three camps: the fundamentalists, the centrists and the heretics. Fiscal fundamentalists pray to the God of small government. They are outraged that a Conservative chancellor who has borrowed £400bn to fight the Covid-19 pandemic, taking public debt from 85% to 100% of GDP, wasted the opportunity to make the necessary cuts to prevent Britain facing ruin. As true believers, they refuse to confront the facts that the UK government is borrowing at record low interest rates, and that next year it will pay back £20bn less in interest than it had planned for.
Daniela Gabor is professor of economics and macrofinance at UWE Bristol