U.K. Government Wavers on Austerity

By Paul Hannon and Wiktor Szary Features Dow Jones Newswires

Britain's Conservative government, licking its wounds after an election setback last month, is having to consider easing curbs on public spending that have been a central policy of the party since it came to power in 2010.

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Chancellor of the Exchequer Philip Hammond said in a speech this week that Conservatives "recognize that the British people are weary after seven years' hard slog repairing the damage of the Great Recession," even as he added that Britain had to acknowledge that "borrowing to fund consumption is merely passing the bill to the next generation."

According to British media reports, Foreign Secretary Boris Johnson is one of several cabinet ministers who have recently pressed for a relaxation of strict spending rules.

"People's tolerance for austerity is drying up, even if that means higher taxes," said Roger Harding, head of public attitudes at the National Center for Social Research, which published a survey in late June showing that 48% of Britons -- a higher share than at any time in the last decade -- thought the government should increase taxes and spend more.

The potential shift away from a focus on bringing down the national debt, which ballooned after the financial crisis, comes in the wake of Prime Minister Theresa May's reversal at the polls and a series of national traumas.

After a deadly fire in a public-housing block, opposition politicians suggested public spending limits had encouraged corners to be cut in reducing fire risks, while a series of terrorist attacks raised questions about budgets for policing.

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Matthew Goodwin, professor of politics at University of Kent, said it wasn't clear those recent fatal events could be linked to public-spending cuts, but a connection between the two has "entered the public mind."

Several leading Conservative Party politicians, he added, have interpreted the election result as "a reflection of public anger over a continuing period of fiscal austerity and a desire for greater spending and wage growth."

That reduction of 1.8 percentage points of gross domestic product was below the average for OECD members. Britain's belt tightening was nowhere near the 18.6 points cut by Greece or Ireland's 7.5-point reduction over the same period. Indeed, it was below the 2.9-point drop in borrowing by the U.S.

But if the cuts haven't been deep, they have lingered. Explicit spending curbs have been in place for longer in the U.K. than for any other European country, bar Greece.

"Generally, people are tired of austerity and the same old thing," said Max Neal, a 19-year-old student at the University of Kent, who was among the many whose votes transferred the Canterbury electoral district to the opposition Labour Party after a century in Conservative hands. "This was a chance to put an end to the cuts."

Another factor encouraging austerity fatigue may be the pound's slump since the June 2016 referendum vote to leave the European Union, pushing up prices of imported goods and spurring inflation.

With wages lagging behind, real incomes have shrunk in Britain, especially for the 5.4 million public-sector workers subject to an austerity measure limiting annual pay rise to 1%.

Many Britons have already suffered large drops in income, government figures show. While the median British worker saw his or her real hourly pay fall by 5.8% between 2005 and 2015, teachers suffered a 10.1% drop and doctors a decline of 22.5%. Police officers' real pay declined by 7.5% over the same period.

Police forces have been shrinking too. The numbers of officers in England and Wales have fallen by nearly 19,000, or 13%. Even though crime fell in the wake of the cuts, hitting a 30-year low in 2013, police cite their lower staffing numbers as a reason why Britain's crime rate increased by 9% from 2015 to 2016, with knife and gun crime rising sharply by 14% and 13% respectively.

"I don't mean to say 'I told you so,' but we've been banging on about austerity and policing for years," said Steve White, the chairman of the Police Federation, which represents rank-and-file officers. "For years we've been saying that you don't know what you've got until it's gone."

Martin Hewitt, the assistant commissioner of the Metropolitan Police, was more careful about such a link when speaking earlier this year about the rise in knife and gun crime.

"It would be a naive answer to say that if you cut a significant amount out of an organization, you don't have any consequences," he said. But he stopped short of drawing a "causal link" between austerity cuts and the crime rise.

Prime Minister Theresa May, in a heated exchange with the leader of the opposition Labour Party over public-sector pay Wednesday, reaffirmed the need to limit increases to bring down borrowing, but didn't rule out rises in excess of the 1% cap.

"Our policy on public sector pay has always recognized that we need to balance the need to be fair to public sector workers, to protect jobs in the public sector and to be fair to those who pay for it," she said. "That is the balance we need to strike and we continue to assess that balance."

--Amanda Coletta contributed to this article.

Write to Paul Hannon at paul.hannon@wsj.com and Wiktor Szary at Wiktor.Szary@wsj.com

(END) Dow Jones Newswires

July 08, 2017 08:14 ET (12:14 GMT)